CHAPTER II
BASIS OF CHARGE
(1) Where any Central Act enacts that
income-tax shall be charged for any assessment year at any rate or rates,
income-tax at that rate or those rates shall be charged for that year in
accordance with, and[2] [subject
to the provisions (including provisions for the levy of additional income-tax)
of, this Act] in respect of the total income of the previous year [3] [*
* *] of every person:
Provided
that where by virtue of any provision of this Act income-tax is to be charged
in respect of the income of a period other than the previous year, income-tax
shall be charged accordingly.
(2) In respect of income chargeable
under sub-section (1), income-tax shall be deducted at the source or paid in
advance, where it is so deductible or payable under any provision of this Act.
DEPARTMENTAL VIEW/SUPREME COURT RULING
[See also under section 2(24)]
1. The difference between the issue price and the redemption
price of Deep Discount Bonds will be treated as interest income assessable
under the Income-tax Act. On transfer of Bonds before maturity, the difference
between the sale consideration and issue price will be treated as Capital
Gains/Loss if the assessee purchased them by way of
investment. However, in the case of an assessee who
deals in purchase and sale of Bonds, Securities, etc., the profit or loss shall
be treated as trading profit or loss. [Letter F. No. 225/45/96-ITA.II, dated
12-3-1996 to IDBI. See Circular No. 2/2002, dated 15-2-2002, reproduced
under Appendix 1, post.]
2. Any lump sum payment made gratuitously or by way of
compensation or otherwise to the widow or other legal heirs of an employee who
dies still in active service will not be taxable as income. [Circular No. 573,
dated 21st August, 1990] Likewise, where a person or his heir
receives ex-gratia payment from the Central
Government/State Government/Local Authority/Public Sector Under-taking,
consequent upon injury to the person/death of a family member, while on duty,
such ex-gratia payment will not be liable to
income-tax under the Act. [Circular No. 776, dated 8th June, 1999]
3. In the case of a sportsman, who is a professional, the
award received will be in the nature of benefit in exercise of his profession
and therefore will be liable to tax. However in the case of non-professional,
the award received will be in the nature of gift and/or personal testimonial
and such award to a sportsman who is not a professional will not be liable to
tax as income in his hands. [Circular No. 447, dated 22nd January, 1986]
4. Subsidy granted under the 10% Central Outright Grant of
Subsidy Scheme is intended to be a contribution towards capital outlay of the
industrial unit and such subsidy can be regarded as being in the nature of
capital receipt in the hands of the recipient. (The Subsidy Scheme has since
been withdrawn). [Circular No. 142, dated 5th August, 1974]
5. In view of the decision of the Supreme Court in Murli Dhar Jhawar's
case (1966) 60 ITR 95, the Income-tax Officers assessing the partners of a firm
should not normally complete the regular assessments of the partners by
including their share from the firm unless the assessments of the firm had
already been made. The Income-tax Officers assessing the firms must give
priority to the disposal of the firm's assessments. [Letter No. 75/19/191,
dated 24th August, 1966]
6. As laid down in section 25 of the Indian Partnership Act
every partner is liable jointly and severally for all acts binding on the firms
thus including liability arising from contracts as well as torts. It would be
incorrect to assume that the share of an assessee in
a form consists only of income yielding assets. It equally comprises of risk
and liability of paying debts on behalf of the firm. An assessee
cannot, under the Hindu law make a declaration whereby the joint family would
have to bear the risk and liability of the business and such a declaration
should be ignored altogether. [Letter No. 747, dated 30th August, 1974]
7. Sales tax collected by the assessee,
a commission agent, from purchasers and paid to the sales tax department as
well as the amount of refund of sales tax by the department when it was not
payable are not income taxable in the hands of the assessee.
[CIT v Shankaraiah (D) (2001) 247 ITR 798 (SC)]
8. Case-law on no diversion of income by overriding title.
[CIT v Sunil J Kinariwala (2003) 259 ITR 10 (SC); Siddheshwar Sahakari Sakhar Karkhana Ltd v CIT (2004)
270 ITR 1 (SC)]
9. Section 4 creates the charge and provides, inter alia, for payment of tax in advance and deduction of tax at
source. The liability to pay income-tax chargeable under section 4 does not
depend on the assessment being made. As soon as the Finance Act prescribes the
rate or rates for any assessment year, the liability to pay the tax arises. The
assessee is himself required to compute his total
income and the income-tax thereon which involves a process of self-assessment.
[CIT v Shelly Products (2003) 261 ITR 367 (SC)]
10. The amount set apart as required by Molasses Control Order
towards Molasses Storage Reserve Fund is not includible in total income. [CIT v
New Horizon Sugar Mills (P) Ltd (2004) 269 ITR 397 (SC)]
[4] 5. Scope
of total income[5] :-
(1) Subject to the provisions of this Act, the total income of any
previous year of a person who is a resident includes all income from whatever
source derived which—
(a) Is received or is deemed to be received in India in such year
by or on behalf of such person; or
(b) Accrues or arises or is deemed to accrue or arise to him in
India during such year; or
(c) Accrues or arises to him outside India during such year:
Provided
that, in the case of a person not ordinarily resident in India within the
meaning of sub-section (6)[6] of section 6, the income
which accrues or arises to him outside India shall not be so included unless it
is derived from a business controlled in or a profession set up in India.
(2) Subject to the provisions of this Act, the total income of any
previous year of a person who is a non-resident includes all income from
whatever source derived which —
(a) Is received or is deemed to be received in India in such year
by or on behalf of such person; or
(b) Accrues or arises or is deemed to accrue or arise to him in
India during such year.
Explanation 1.—Income
accruing or arising outside India shall not be deemed to be received in India
within the meaning of this section by reason only of the fact that it is taken
into account in a balance sheet prepared in India.
Explanation 2.—For the
removal of doubts, it is hereby declared that income which has been included in
the total income of a person on the basis that it has accrued or arisen or is
deemed to have accrued or arisen to him shall not again be so included on the
basis that it is received or deemed to be received by him in India.
DEPARTMENTAL
VIEW
1. In respect of dividends paid by U.K. companies, it is the
gross dividend and not the net dividend that has to be brought to tax in India.
The decision of the Supreme Court in CIT v Clive Insurance Co Ltd (1978) 113
ITR 636 applicable in relation to years prior to 1965, will apply with greater
force in relation to post-1965 period. [Circular No. 369, dated 17th September,
1983]
2. The notion of 'earned income' applies only to those
assesses who both earn and own the profits. Income earned by an artificial
juridical person cannot be considered as earned income. [Letter No. 35/15/65,
dated 25th April, 1966]
[7] [5A.
Apportionment of income between spouses governed by Portuguese Civil code
(1) Where the husband and wife are governed by the system of
community of property (known under the Portuguese Civil Code of 1860 as
"COMMUNIAO DOS BENS") in force in the State of Goa
and in the Union territories of Dadra and Nagar Haveli and Daman and Diu, the income of the husband and of the wife under any
head of income shall not be assessed as that of such community of property
(whether treated as an association of persons or a body of individuals), but
such income of the husband and of the wife under each head of income (other
than under the head "Salaries") shall be apportioned equally between
the husband and the wife and the income so apportioned shall be included
separately in the total income of the husband and of the wife. respectively, and the remaining provisions of this Act shall
apply accordingly.
(2) Where the husband or, as the case may be, the wife governed
by the aforesaid system of community of property has any income under the head
"Salaries", such income shall be included in the total income of the
spouse who has actually earned it.]
For the purposes of this Act,—
(1) An individual is said to be resident in India in any previous
year, if he—
(a) Is in India in that year for a period or periods amounting in
all to one hundred and eighty-two days or more; or
[9] [(b) * * *]
(c) having within the four years preceding that year been in India
for a period or periods amounting in all to three hundred and sixty-five days
or more, is in India for a period or periods amounting in all to sixty days or
more in that year.
[10] [Explanation.—In
the case of an individual,—
(a) being a citizen of India, who leaves India in any previous
year [11] [as a member of
the crew of an Indian ship as defined in clause (18) of section 3 of the
Merchant Shipping Act, 1958[12] (44 of 1958), or] for the purposes of employment outside
India, the provisions of sub-clause (c) shall apply in relation to that year as
if for the words "sixty days", occurring therein, the words "one
hundred and eighty-two days" had been substituted;
(b) being a citizen of India, or a person of Indian origin within
the meaning of Explanation to clause (e) of section 115C, who, being outside
India, comes on a visit to India in any previous year, the provisions of
sub-clause (c) shall apply in relation to that year as if for the words
"sixty days", occurring therein, the words [13] ["one
hundred and eighty-two days"] had been substituted.]
(2) A Hindu undivided family, firm or other association of persons
is said to be resident in India in any previous year in every case except where
during that year the control and management of its affairs is situated wholly
outside India.
(3) A company is said to be resident in India in any previous
year, if—
(i)
It is an Indian company; or
(ii) During that year, the control and
management of its affairs is situated wholly in India.
(4) Every other person is said to be resident in India in any
previous year in every case, except where during that year the control and
management of his affairs is situated wholly outside India.
(5) If a person is resident in India in a previous year relevant
to an assessment year in respect of any source of income, he shall be deemed
resident in India in the previous year relevant to the assessment year in
respect of each of his other sources of income.
[14] [(6) A person is said to be "not
ordinarily resident" in India in any previous year if such person is—
(a) an individual who has been a non-resident in India in nine out
of the ten previous years preceding that year, or has during the seven previous
years preceding that year been in India for a period of, or periods amounting
in all to, seven hundred and twenty-nine days or less; or
(b) a Hindu undivided family whose manager has been a non-resident
in India in nine out of the ten previous years preceding that year, or has
during the seven previous years preceding that year been in India for a period
of, or periods amounting in all to, seven hundred and twenty-nine days or
less.]
DEPARTMENTAL VIEW
1. Indian
members of the crew of a foreign going Indian ship would be non-resident in
India, if they are on board such ship outside the territorial waters of India
for 182 days or more during any year. Accordingly such seamen will be charged
to tax in India only in respect of earnings received in India or the earnings
for the period when they are working within Indian waters on coastal ships,
etc. [Circular No. 586, dated 28th November, 1990]
7.
Income deemed to be received:-
The following incomes shall be
deemed to be received in the previous year:—
(i)
The annual accretion in the
previous year to the balance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6
of Part A of the Fourth Schedule;
(ii) The transferred balance in a recognised provident fund, to the extent provided in
sub-rule (4) of rule 11 of Part A of the Fourth Schedule;
1[15] [(iii) The contribution made, by the Central
Government 2[16] [or any other
employer] in the previous year, to the account of an employee under a pension
scheme referred to in section 80CCD.]
1[17] [For the purposes
of inclusion in the total income of an assessee,—
(a) any dividend] declared by a company or distributed or paid by
it within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or
sub-clause (d) or sub-clause (e) of clause (22) of section 2 shall be deemed to
be the income of the previous year in which it is so declared, distributed or
paid, as the case may be;
2[18] [(b) any interim dividend shall be deemed to be the
income of the previous year in which the amount of such dividend is
unconditionally made available by the company to the member who is entitled to
it.]
9.
Income deemed to accrue or arise in India1[19] :-
(1) The following incomes shall
be deemed to accrue or arise in India—
2[20] (i) all
income accruing or arising, whether directly or indirectly, through or from any
business connection in India, or through or from any property in India, or
through or from any asset or source of income in India,3[21] [* * *] or
through the transfer of a capital asset situate in India.
Explanation 4[22] [1].—For the purposes of this clause—
(a) In the case of a business of which all the operations are not
carried out in India, the income of the business deemed under this clause to
accrue or arise in India shall be only such part of the income as is reasonably
attributable to the operations carried out in India;
(b) In the case of a non-resident, no income shall be deemed to
accrue or arise in India to him through or from operations which are confined
to the purchase of goods in India for the purpose of export;
6[24] [(c) In the case of a non-resident, being a
person engaged in the business of running a news agency or of publishing
newspapers, magazines or journals, no income shall be deemed to accrue or arise
in India to him through or from activities which are confined to the collection
of news and views in India for transmission out of India;]
7[25] [(d) In the case of a non-resident, being—
(1) An individual who is not a citizen of India; or
(2) A firm which does not have any partner who is a citizen of
India or who is resident in India; or
(3) A company which does not have any shareholder who is a citizen
of India or who is resident in India,
No income shall be deemed
to accrue or arise in India to such individual, firm or company through or from
operations, which are confined to the shooting of any cinematograph film in
India.]
8[26] [Explanation 2.—for
the removal of doubts, it is hereby declared that "business
connection" shall include any business activity carried out through a
person who, acting on behalf of the non-resident,—
(a) Has and habitually exercises in India, an authority to
conclude contracts on behalf of the non-resident, unless his activities are
limited to the purchase of goods or merchandise for the non-resident; or
(b) Has no such authority, but habitually maintains in India a
stock of goods or merchandise from which he regularly delivers goods or
merchandise on behalf of the non-resident; or
(c) Habitually secures orders in India, mainly or wholly for the
non-resident or for that non-resident and other non-residents controlling,
controlled by, or subject to the same common control, as that non-resident:
Provided that such business connection shall
not include any business activity carried out through a broker, general
commission agent or any other agent having an independent status, if such
broker, general commission agent or any other agent having an independent
status is acting in the ordinary course of his business:
Provided further that where such broker,
general commission agent or any other agent works mainly or wholly on behalf of
a non-resident (hereafter in this proviso referred to as the principal
non-resident) or on behalf of such non-resident and other non-residents which
are controlled by the principal non-resident or have a controlling interest in
the principal non-resident or are subject to the same common control as the
principal non-resident, he shall not be deemed to be a broker, general
commission agent or an agent of an independent status.
Explanation 3.—Where a business
is carried on in India through a person referred to in clause (a) or clause (b)
or clause (c) of Explanation 2, only so much of income as is attributable to
the operations carried out in India shall be deemed to accrue or arise in
India;]
(ii) Income, which falls under
the head "Salaries" if it is earned in India.
9[27] [Explanation.—For the removal of doubts, it is hereby declared that the
income of the nature referred to in this clause payable for—
(a) Service rendered in India; and
(b) The rest period or leave period which is preceded and
succeeded by services rendered in India and forms part of the service contract
of employment,
Shall be regarded as income
earned in India;]
(iii) Income chargeable under
the head "Salaries" payable by the Government to a citizen of India
for service outside India;
(iv) A dividend paid by an Indian company outside India;
10[28] [(v) income by
way of interest payable by—
(a) The Government; or
(b) A person who is a resident, except where the interest is
payable in respect of any debt incurred, or moneys borrowed and used, for the
purposes of a business or profession carried on by such person outside India or
for the purposes of making or earning any income from any source outside India;
or
(c) A person who is a non-resident, where the interest is payable
in respect of any debt incurred, or moneys borrowed and used, for the purposes
of a business or profession carried on by such person in India;
(vi) Income by way of royalty payable by—
(a) The Government; or
(b) A person who is a resident, except where the royalty is
payable in respect of any right, property or information used or services
utilized for the purposes of a business or profession carried on by such person
outside India or for the purposes of making or earning any income from any
source outside India; or
(c) A person who is a non-resident, where the royalty is payable
in respect of any right, property or information used or services utilized for
the purposes of a business or profession carried on by such person in India or
for the purposes of making or earning any income from any source in India:
Provided
that nothing contained in this clause shall apply in relation to so much of the
income by way of royalty as consists of lump sum consideration for the transfer
outside India of, or the imparting of information outside India in respect of,
any data, documentation, drawing or specification relating to any patent,
invention, model, design, secret formula or process or trade mark or similar
property, if such income is payable in pursuance of an agreement made before
the 1st day of April, 1976, and the agreement is approved by the Central
Government:
11[29] [Provided further
that nothing contained in this clause shall apply in relation to so much of the
income by way of royalty as consists of lump sum payment made by a person, who
is a resident, for the transfer of all or any rights (including the granting of
a licence) in respect of computer software supplied
by a non-resident manufacturer along with a computer or computer-based
equipment under any scheme approved under the Policy on Computer Software
Export, Software Development and Training, 1986 of the Government of India.]
Explanation 1.—For the purposes
of the 12[30] [first] proviso,
an agreement made on or after the 1st day of April, 1976, shall be deemed to
have been made before that date if the agreement is made in accordance with
proposals approved by the Central Government before that date; so, however,
that, where the recipient of the income by way of royalty is a foreign company,
the agreement shall not be deemed to have been made before that date unless,
before the expiry of the time allowed under sub-section (1) or sub-section (2)
of section 139 (whether fixed originally or on extension) for furnishing the
return of income for the assessment year commencing on the 1st day of April,
1977, or the assessment year in respect of which such income first becomes
chargeable to tax under this Act, whichever assessment year is later, the
company exercises an option by furnishing a declaration in writing to the 13[31] [Assessing]
Officer (such option being final for that assessment year and for every
subsequent assessment year) that the agreement may be regarded as an agreement
made before the 1st day of April, 1976.
Explanation 2.—For the purposes
of this clause, "royalty" means consideration (including any lump sum
consideration but excluding any consideration which would be the income of the
recipient chargeable under the head "Capital gains”) for—
(i)
The transfer of all or any rights
(including the granting of a licence) in respect of a
patent, invention, model, design, secret formula or process or trade mark or
similar property;
(ii) The imparting of any information
concerning the working of, or the use of, a patent, invention, model, design,
secret formula or process or trade mark or similar property;
(iii) The use of any patent, invention, model,
design, secret formula or process or trade mark or similar property;
(iv) The
imparting of any information concerning technical, industrial, commercial or
scientific knowledge, experience or skill;
14[32] [(iva) the use or right to use, any
industrial, commercial or scientific equipment but not including the amounts
referred to in section 44BB;]
(v) The transfer of all or any rights (including the granting of a
licence) in respect of any copyright, literary,
artistic or scientific work including films or video tapes for use in
connection with television or tapes for use in connection with radio
broadcasting, but not including consideration for the sale, distribution or
exhibition of cinematographic films; or
(vi) The rendering of any services in
connection with the activities referred to in 15[33] [sub-clauses (i) to (iv), (via) and (v)].
16[34] [Explanation
3.—For the purposes of this clause, "computer software" means any
computer programme recorded on any disc, tape,
perforated media or other information storage device and includes any such programme or any customized electronic data;]
(vii) Income by way of fees for technical
services payable by—
(a) The Government; or
(b) A person who is a resident, except where the fees are payable
in respect of services utilized in a business or profession carried on by such
person outside India or for the purposes of making or earning any income from
any source outside India; or
(c) A person who is a non-resident, where the fees are payable in
respect of services utilized in a business or profession carried on by such
person in India or for the purposes of making or earning any income from any
source in India:
17[35] [Provided that
nothing contained in this clause shall apply in relation to any income by way
of fees for technical services payable in pursuance of an agreement made before
the 1st day of April, 1976, and approved by the Central Government.]
18[36] [Explanation
1.—For the purposes of the foregoing proviso, an agreement made on or after the
1st day of April, 1976, shall be deemed to have been made before that date if
the agreement is made in accordance with proposals approved by the Central
Government before that date.]
Explanation 19[37] [2].—For the
purposes of this clause, "fees for technical services" means any
consideration (including any lump sum consideration) for the rendering of any
managerial, technical or consultancy services (including the provision of
services of technical or other personnel) but does not include consideration
for any construction, assembly, mining or like project undertaken by the
recipient or consideration which would be income of the recipient chargeable
under the head "Salaries".]
(2) Notwithstanding anything contained in sub-section (1), any
pension payable outside India to a person residing permanently outside India
shall not be deemed to accrue or arise in India, if the pension is payable to a
person referred to in Article 314 of the Constitution or to a person who,
having been appointed before the 15th day of August, 1947, to be a Judge of the
Federal Court or of a High Court within the meaning of the Government of India
Act, 1935, continues to serve on or after the commencement of the Constitution
as a Judge in India.
20[38] [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 sub-section (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.]
DEPARTMENTAL
VIEW/SUPREME COURT RULING
1. Pension
earned and received abroad will not be chargeable to tax in India, if the
residential status of the pensioner is either 'non-resident' or 'resident but
not ordinarily resident'. It will be chargeable, if the residential status is
'resident and ordinarily resident'. The status of 'ordinarily resident' cannot
be acquired by a person unless he has been resident in India in atleast nine out of the preceding ten years. [Circular No.
4, dated 20th February, 1969]
2. The
question whether a non-resident has a business connection in India from or
through which income profits or gains can be said to accrue or arise to him
within the meaning of section 9 has to be determined on the facts of each case.
Some illustrative instances of a non-resident having business connection in
India are (i) maintaining a branch office in India
for the purchase or sale of goods or transacting other business; (ii)
appointing an agent in India for the systematic and regular purchase of raw
materials or other commodities or for the sale of non-resident's goods; (iii)
erecting a factory in India where the raw produce purchased locally is worked
into a form suitable for export; (iv) forming a local subsidiary company to
sell the products of the non-resident parent company; (v) having financial
association between a resident and a non-resident company. [Circular No. 23,
dated 23rd July, 1969]
3. Where
a non-resident exporter sells goods from abroad to Indian importer, no
liability would arise on accrual basis to the non-resident on the profits made
by him where the transactions of sale between the two parties are on a
principal to principal basis. Where the non-resident company sells goods from
abroad to its Indian subsidiary, if the transactions are actually on a
principal to principal basis and are at arms length and the subsidiary company
functions and carries on the business on its own instead of functioning as an
agent of the parent company, the mere fact that the Indian company is a
subsidiary of the non-resident company will not be considered a valid ground
for invoking section 9. [Circular No. 23, dated 23rd July, 1969]
4. Where
the transaction of sale of plant and machinery to an Indian importer on
installment basis, is on a principal to principal basis and the exporter and
the importer have no other business connection, the fact that the exporter
allows the importer to pay for the plant and machinery in installments will not
by itself render the exporter liable to tax on the ground that the income is
deemed to arise to him in India. The Indian importer will not be treated as an
agent of the exporter for the purposes of assessment.
Where a foreign agent of Indian exporter
operates in his own country and no part of his income arises in India and his
commission is usually remitted directly to him and is not received by him or on
his behalf in India, the agent is not liable to income-tax in India on the
commission.
A non-resident will not be liable to tax in
India, on any income attributable to operations confined to purchase of goods
in India for export even though the non-resident has an office or agency in
India for this purpose. Where a non-resident allows Indian customer facilities
of extended credit for payment there would be no assessment merely for this
reason provided that the contracts to sell were made outside India and the
sales were made on a principal to principal basis.
Section 9 does not seek to bring into the tax
net the profits of a non-resident which cannot Reasonably
be attributed to operations carried out in India. Even if there be a business
connection in India the whole of the profit accruing or arising from the
business connection is not deemed to accrue or arise in India. It is only that
portion of the profit which can reasonably be attributed to the operations of
the business carried out in India which is liable to income-tax. [Circular No.
23, dated 23rd July, 1969]
5. The
mere existence of an agency, established by a non-resident in India, will not
be sufficient to make the non-resident liable to tax, if the sole function of
the agency is to purchase goods for export. [Circular No. 163, dated 29th May,
1975]
6. Where
shares in Indian companies are allotted in consideration for the machinery and
plant, the income embedded in the payments would be received in India as the
shares in the Indian companies are located in India and would accordingly
attract liability to income-tax as income received in India. [Circular No. 382,
dated 4th May, 1984]
7. The
total income of Foreign Telecasting Companies (FTCs)
from advertisements, as also other incomes like subscription charges receivable
from cable operators in respect of pay channels and income from the sale or
lease of decoders, etc., shall be determined by the Assessing Officers in
accordance with the provisions of the Income-tax Act. Taxation of FTCs who are residents of countries with whom India does
not have a DTAA shall be governed by the provisions of section 5 read with
section 9 of the Income-tax Act. [Circular No. 6/2001, dated 5-3-2001
withdrawing Circular Nos. 742, dated 2-5-1996 and 765, dated 15-4-1998]
8. In
a case where a non-resident carrying on manufacture and sale of goods or
merchandise or provision of services outside India, outsourcers some of its
incidental activities viz. conclusion of contracts and procurement of orders
(which enable the core activities to be carried on abroad) to an IT-enabled
entity in India, which constitutes a permanent establishment of the
non-resident principal, then the insignificant profit which is difficult to
determine and attributable to the conclusion of such contracts or procurement
of such orders can be considered to be embedded in the income of the permanent
establishment taxable in India, if the price charged in respect of the above
services by the permanent establishment is an arm's length/fair market price.
In such a situation, therefore, no income shall separately accrue or arise or
be deemed to accrue or arise to the non-resident principal in India. [Circular
No. 1/2004, dated 2-1-2004]
9. Where
a non-resident or a foreign company outsourcers the whole or part of its core
revenue generating business activities to an IT-enabled entity in India, such
as the services of a travel agent, software developer, software maintenance,
investment consultant, debt collection service, etc. and the IT-enabled entity
in India renders the services either directly to the customers abroad or
through the non-resident principal, a considerable portion of the profits
derived by the non-resident or the foreign company from its customers abroad
would certainly be attributable to the activities performed by the IT-enabled
entity in India. If such entity constitutes a permanent establishment of the
non-resident or foreign company in India, such attributed profits would be
taxable under the Income-tax Act, 1961 in accordance with the provisions of the
relevant tax treaty. [Circular No. 1/2004, dated 2-1-2004]
10. The
new Explanation to section 9(1)(ii), substituted by
the Finance Act, 1999 was deliberately introduced with effect from 1 April,
2000 and was, therefore, intended to apply only prospectively. In respect of
assessment years 1992-93 and 1993-94, the salary of the employees
(non-residents) payable for filed breaks outside India was held not taxable as
income deemed to accrue or arise in India. [Sedco Forex International Drill Inc. v CIT (2005) 279 ITR 310
(SC)]
[1]See Circular Nos. 142, dated 1-8-1974; 447, dated 22-1-1986 and 573, dated 21-8-1990; Letter F. No. 75/19/191/62-ITJ, dated 24-8-1966 and Instruction No. 747, dated 30-8-1974.
[2]Substituted for "subject to the provisions of this Act" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989. This amendment was consequent to the insertion of Chapter XIV-B (comprising of section 158B), but after the withdrawal of the chapter, without even coming into effect, this amendment too needs to be undone.
[3]The words "or previous years, as the case may be," omitted by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1989.
[4]See rules 7, 7A, 7B and 8 for taxation of specified incomes.
[5]See Circular No. 369, dated 17-9-1983; 6/2001, dated 5-3-2001 and Letter F. No. 36/15/65 IT(AI)(II), dated 25-4-1966.
[6]Should be clause (6).
[7]Inserted by the Finance Act, 1994, w.r.e.f. 1-4-1963.
[8]See Circular No. 586, dated 28-11-1990.
[9]Omitted by the Finance Act, 1982, w.e.f. 1-4-1983.
[10]Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. Earlier, the Explanation was substituted by the Finance Act, 1982, w.e.f. 1-4-1983. It was originally inserted by the Finance Act, 1978, w.e.f. 1-4-1979.
[11]Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.
[13]Substituted for '"one hundred and fifty days"' by the Finance Act, 1994, w.e.f. 1-4-1995.
[14]Substituted by the Finance Act, 2003, w.e.f. 1-4-2004. Prior to the substitution, clause (6), as
originally enacted, read as under:
"(6) A person
is said to be "not ordinarily resident" in India in any previous year
if such person is—
(a) An individual
who has not been resident in India in nine out of the ten previous years
preceding that year, or has not during the seven previous years preceding that
year been in India for a period of, or periods amounting in all to, seven
hundred and thirty days or more; or
(b) A Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more."
[15]Inserted by the Finance (No. 2) Act, 2004, w.e.f. 1-4-2004.
[16]Inserted by the Finance Act, 2007, w.r.e.f. 1-4-2004.
[17]Substituted for "For the purposes of inclusion in the total income of an assesses, any dividend" by the Finance Act, 1965, w.e.f. 1-4-1965.
[18]Inserted by the Finance Act, 1965, w.e.f. 1-4-1965.
[19]See Circular Nos. 7, dated 10-2-1942; 17, dated 17-7-1953; 38, dated 3-10-1956; 4, dated 24-2-1958; 4, dated 20-2-1969; 23, dated 23-7-1969; 163, dated 29-5-1975; 382, dated 4-5-1984; 787, dated 10-2-2000; 6/2001, dated 5-3-2001; 2/2004, dated 10-2-2004 and Instructions issued by the Board, per Income-tax Manual, 10th edition, pp. 537-39.
[20]See rules 10.
[21]The words "or through or from any money lent at interest and brought into India in cash or in kind" omitted by the Finance Act, 1976, w.e.f. 1-6-1976.
[22]Renumbered as Explanation 1 by the Finance Act, 2003, w.e.f. 1-4-2004.
[23]Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964.
[24]Inserted by the Finance Act, 1983, w.r.e.f. 1-4-1962.
[25]Inserted by the Taxation Laws (Amendment) Act, 1984, w.r.e.f. 1-4-1982.
[26]Inserted by the Finance Act, 2003, w.e.f. 1-4-2004.
[27]Substituted by the Finance Act, 1999, w.e.f. 1-4-2000. It was inserted by the Finance Act, 1983, w.r.e.f. 1-4-1979.
[28]Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w.e.f. 1-6-1976.
[29]Inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
[30]Substituted for "foregoing" by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
[31]Substituted for "Income-tax" by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.
[32]Inserted by the Finance Act, 2001, w.e.f. 1-4-2002.
[33]Substituted for "sub-clauses (i) to (v)" by the Finance Act, 2001, w.e.f. 1-4-2002.
[34]Substituted by the Finance Act, 2000, w.e.f. 1-4-2001. It was inserted by the Finance (No. 2) Act, 1991, w.e.f. 1-4-1991.
[36]Ibid.
[37]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.
[38]Inserted by the Finance Act, 2007, w.r.e.f. 1-6-1976.