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This document summarizes key aspects of Section 9 of the Indian Income Tax Act of 1961 regarding income deemed to accrue or arise in India. It discusses: 1) how income is included for both residents and non-residents; 2) types of income covered under various clauses of Section 9(1) such as business connection, salaries, dividends, interest, royalties and fees for technical services; 3) important case laws around business connection and what constitutes it; and 4) the impact of the Ishikawajma judgment and subsequent amendment to Section 9 regarding technical fees.
This document summarizes key aspects of Section 9 of the Indian Income Tax Act of 1961 regarding income deemed to accrue or arise in India. It discusses: 1) how income is included for both residents and non-residents; 2) types of income covered under various clauses of Section 9(1) such as business connection, salaries, dividends, interest, royalties and fees for technical services; 3) important case laws around business connection and what constitutes it; and 4) the impact of the Ishikawajma judgment and subsequent amendment to Section 9 regarding technical fees.
This document summarizes key aspects of Section 9 of the Indian Income Tax Act of 1961 regarding income deemed to accrue or arise in India. It discusses: 1) how income is included for both residents and non-residents; 2) types of income covered under various clauses of Section 9(1) such as business connection, salaries, dividends, interest, royalties and fees for technical services; 3) important case laws around business connection and what constitutes it; and 4) the impact of the Ishikawajma judgment and subsequent amendment to Section 9 regarding technical fees.
Tax Act, 1961 Income deemed to accrue or arise in India Bhavesh Savla Importance Section 5 outlines the scope of Taxation of residents and non-residents. For all types of assessees the total income shall inter alia include Income accruing or arising in India or deemed to be accruing or arising in India. Bhavesh Savla 9(1)(i) Arising directly or indirectly from any business connection or property situated in India From any asset or source of income in India or from the transfer of any Capital Asset situated in India.
Bhavesh Savla Explanation 1 to 9(1)(i) Income of a Non-Resident limited to only the operations carried out in India. Exclusions 1. Operations confined to purchase of goods in India for the purchase of exports 2. Collection of news and views by a Non- Resident for transmission outside India. 3. Operations confined to shooting of films in India by Non-residents and non-citizens Bhavesh Savla Explanation 2 to Section 9(1)(i) Business connection shall include following business activities carried out through a person (excluding an agent of independent status) who on behalf of the Non-resident concludes contracts delivers goods from a stock maintained by him in India secures orders mainly or wholly for him. (N-R)
Bhavesh Savla Business Connection CIT vs R.D. Aggarwal 56 ITR 20 (SC) 1. The expression "business connection" undoubtedly means something more than "business". 2. It predictes an element of continuity 3. A stray or isolated transaction is normally not to be a business connection. 4. A real and intimate relation between trading activity carried on outside the taxable territories and trading activity within the territories. 5. Wider than the term Business
Bhavesh Savla CIT vs Gulf Oil 108 ITR 874 Where the transactions are at arms length and are on a principal to principal basis then it shall not be within the purview of the Explanation 2. Circular no.23 dated 23 July 1969 also emphasis in many places the arms length requirement for it to be a principal to principal transaction.
Business Connection Bhavesh Savla 9(1)(ii) Salaries For services rendered in India Rest period or Leave period before and after the services rendered in India which forms part of the service contract of employment Bhavesh Savla 9(1)(iii) Salaries paid by the Government to a citizen of India for service outside India
Bhavesh Savla 9(1)(iv) Dividend payable by an Indian Company outside India. Bhavesh Savla Source based taxation Interest 9(1)(v) Royalties 9(1)(vi) Fees for technical Fees 9(1)(vii)
Bhavesh Savla Interest Payable by the Government Payable by the resident except where payable for any debt incurred and moneys used for the purposes of business carried outside India or for earning Income from any source outside India Payable by a Non-resident where the interest is payable for any business carried on in India Bhavesh Savla Royalties Payable by the Government Payable by a resident except where the right, property or information is used for business carried on outside India or for earning income outside India Payable by a Non-resident where the right, property or information is used for business carried on in India or for earning income outside India.
Bhavesh Savla Fees for Technical fees Payable by the Government Payable by a Resident except where the services are utilised in a business carried on outside India or for earning any Income outside India Payable by a Non-resident for a business carried on in India or for earning any income outside India. Bhavesh Savla Impact of Ishikawajma Ishikawajma-Harima Heavy Industries Ltd. vs DIT 288 ITR 408 (SC) For Technical Services to be taxable in India the services must not only be used in India but also be rendered in India. Amendment to Section 9
Bhavesh Savla Amendment to Section 9 "Explanation.For the removal of doubts, it is hereby declared that for the purposes of this section, where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of subsection(1), such income shall be included in the total income of the non-resident, whether or not the non- resident has a residence or place of business or business connection in India.. Bhavesh Savla The decision of the SC stands and the amendment in no way actually goes on to interfere with that judgment.