UNIVERSITY INSTITUTE

OF
LEGAL STUDIES

PANJAB UNIVERSITY, CHANDIGARH

PRINCIPLE OF TAXATION LAWS

TOPIC: INCOME DEEMED TO ACCRUE OR RISE

IN INDIA

Submitted to: Miss Kirti Bhatia Submitted by: Shubhangini

University Institute of Legal studies Roll no. 18/19, Sec A
Panjab University 10th semester, B. A. LLB

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 ACKNOWLEDGEMENT

I have put in all my efforts in this project. However, it would have not been possible without
the kind support and help of our Professor Kirti Bhatia, UILS, Panjab University, Chandigarh.
I am ineffably indebted to her for her conscientious guidance and encouragement that has
helped me to accomplish this project on the topic of “Income deemed to accrue or rise in India”.

I am overwhelmed in all humbleness and gratitude to exhibit my sincere and heartfelt

obligation towards all the personages who have helped me in this endeavour. Without their
active guidance, help, cooperation and encouragement, I would not have made headway in this
project.

I would also like to extend my heartfelt gratitude to University Institute of legal studies for
giving me this opportunity. I also acknowledge with deep sense of reverence my gratitude
towards my parents who have incessantly supported me to undertake this project. At last,
heartfelt gratitude goes to all my friends who have directly or indirectly helped me to complete
this project within the limited time frame.

Thank You.

Shubhangini

Roll no. 18/19

10th semester

B.A. LLB

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 TABLE OF CONTENT

Topic Page no.

Introduction 6
All income accruing or arising, whether 6
directly or indirectly (S. 9(1)(i):
• Income from business connection 8
(i) Exception 8
• Income through or from any 9
property, asset or sources of income
in India
• Income through transfer of capital 10
assets situated in India
Income under the head salaries 11
Income chargeable under the head salary 12
payable outside India by the Indian
government
Dividend paid by Indian company outside 14
India
Income by way of interest 16
Income by way of royalty 17
Fees for technical service
Conclusion

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INTRODUCTION:
The rising number of foreign companies and non-resident individuals has made it crucial to
know who qualifies as a taxpayer in India. Section 9 of the Income Tax Act 1 specifies the
categories of income deemed to accrue or arise in India. Section 9 is applicable when income
is actually accruing or arising outside India but for tax purposes it is presumed that it is accruing
or arising in India. Though Section 9 applicable to every person but Non-resident is the most
affected by this Section because under this Section income is accruing or arising outside India
but law presumes that income is accruing or arising in India.

According to Section 5 where income is accruing or arising outside India and also received
outside India then:

• R/ROR would not be affected by this presumption because in his case such income is
already taxable in India whether we make this presumption or not;
• RNOR would not be affected in following exceptional cases as income would be
taxable in India according to proviso to Section 5(1):
(a) When it is Business income and business was wholly or partly controlled in India; or
(b) When it is Profession Income and profession was set up in India;
However, RNOR would be affected in remaining cases (following cases) and such income will
become taxable in India when we make this presumption i.e.

(i) Business income where business was wholly controlled from outside India;
(ii) Profession Income where profession was set up outside India;
(iii) Any other income (Salary, rent and dividend).

• NR would be the most affected person because in his case such income will become
taxable in India when we make this presumption.
However, for the income to be deemed to accrue or arise in India to be taxable in India
there must be sufficient territorial nexus between such income and territory of India.
[Ishikawajma Harima heavy Industries ltd. V. DIT 20072

1 The Income Tax Act, 1961 (Act 43 of 1961), S. 9

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288 TR 408 (SC))

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The following incomes shall be deemed to accrue or arise in India:

(i) All income accruing or arising, whether directly or indirectly (S. 9(1)(i):
• Through or from any business connection in India, or
• Through or from any property in India, or
• Through or from any asset in India, or
• Through or from any source of income in India, or
• Through the transfer of a capital asset situated in India.

INCOME FROM BUSINESS CONNECTIONS: It means a business is carried on by a

person outside India and some income is earned through business connection 3 in India. It
includes a person acting on behalf of a non resident and who performs one or more of the
following:

►One-He exercises in India an authority to conclude contracts on behalf of the non Resident
(it does not cover only purchase of goods or merchandise for the non-resident).

►Two-He 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.

►Three-He habitually secures order in India (mainly or wholly) for the non-resident or for
non-residents under the same management. Where a business is carried on in India through a
person referred to in Activity one, two or three (supra) only so much of income as is attributable
to the operations carried out in India shall be deemed to accrue or arise in India.

Lubrizol Corporation USA v. ADIT(2013) 4Where Indian subsidiary only assisted in sale of
products in India and did not have any authority to negotiate terms of sales. Or conclude
contract on behalf of foreign assessee company, it could not be considered as agency Permanent
Establishment in India and therefore no profit could be taxed in India.

3 It includes even profession connection.

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(2013)60 SOT 118(URO) (Mum)(Trib)

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Star Cruise Management Ltd. v. DCIT5

Assessee company was receiving the remittance of ticket sold by the Indian company outside
India it was held assessee was not having any business connection in India within the meaning
of section 9(1)(i) of the Act. Hence no income has been accrued to the assessee in India in
respect of booking on sale of tickets for tour packages of the cruise in India which was done
through Star Cruises (India) Travel services Pvt. Ltd.

INDEPENDENT BROKERS/AGENTS ARE EXCLUDED – The “business connection”

shall not include cases where the non-resident carries on business through a broker, general
commission agent or any other agent of an independent status, provided that such a person is
acting in the ordinary course of his business.

In the case of a non-resident, the following shall not, however, be deemed to accrue or arise in
India [Explanation 1 to section 9(1)(i)]:

(i) In the case of a business, in respect of which all the operations are not carried
out in India [Explanation 1(a) to section 9(1)(i)]: In the case of a business of
which all the operations are not carried out in India, the income of the business
deemed to accrue or arise in India shall be only such part of Income as is reasonably
attributable to the operations carried out in India. Therefore, it follows that such part
of income which cannot be reasonably attributed to the operations in India, is not
deemed to accrue or arise in India.

(ii) Purchase of goods in India for export [Explanation 1(b) to section 9(1)(i)]: 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.

(iii) Collection of news and views in India for transmission out of India
[Explanation 1© to section 9(1)(i)]: In the case of a non-resident, being a person
engaged in the business of running a news agency or of publishing newspapers,

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(2013) 58 SOT 3 (URO)Mum.(Trib)

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 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.

(iv) Shooting of cinematograph films in India [Explanation 1(d) to section 9(1)(i)]:

In the case of a non-resident, no income shall be deemed to accrue or arise in India
through or from operations which are confined to the shooting of any
cinematograph film in India, if such non-resident is :

INCOME THROUGH OR FROM ANY PROPERTY, ASSET OR SOURCE OF

INCOME IN INDIA:

Income from any property, asset or source of income in India is deemed to accrue or arise in
India. The term "source" means a real source of income. The term "property' does not refer to
merely a house property but includes any tangible or immovable property. The term "asset"
includes all intangible rights and, consequently, interests, patent and copyright, royalties, rents,
etc., will find room in four corners of the term "asset".

Provisions illustrated - X Ltd., a foreign company, owns a property in Mumbai. It is given on

rent (rent being 2,000 US dollar per month) to B Ltd., another foreig foreign company. The two
companies are non-resident in India. The agreement is made outside India. Rent is payable in
foreign currency outside India. As per the agreement, rent is accrued outside India. As the
property is situated in India, rent of the property will be deemed to be earned in India.

INCOME THROUGH THE TRANSFER OF CAPITAL ASSET SITUATED IN INDIA:

Any capital gain, within the meaning of section 45, earned by a person by transfer of any
capital asset situated in India, is deemed to accrue or arise in India.

Provision illustrated - A house property is situated in Chennai. It is transferred on April 10,

2010. Capital gain (computed under section 45) in the hands of the transferor is Rs. 20 lakh. It
is deemed to accrue or arise in India. Consequently, it is Indian income and taxable in the hands
of the transferor. This rule is applicable even if transferor or transferee is non-resident or even
if agreement is made outside India or even if sole consideration is payable outside India in
foreign currency.

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INCOME UNDER THE HEAD “SALARIES”(Sec. 9(1)(ii):

Income of an individual which falls under the head "Salaries" is deemed to accrue or arise in
India if service is rendered in India.

Any salary payable for rest period or leave period which is both preceded and succeeded by
service in India, will also be regarded as salary earned in India.

Example: A served in India for 5 years and received pension outside India. Income is deemed
to accrue or aise in India.

INCOME CHARGEABLE UNDER THE HEAD “SALARIES” PAYABLE

OUTSIDE INDIA BY THE INDIAN GOVERNMENT [Section 9(1)(iii)]:
Income chargeable under the head “Salaries” payable by the Government to a citizen of India
for service rendered outside India i.e. An Indian Diplomat in foreign country. However,
perquisites and allowances received by such person from Government are exempted under
section 10(7) of this Act.

A DIVIDEND PAID BY AN INDIAN COMPANY OUTSIDE INDIA [Section

9(1)(iv)]: Any dividend paid by an Indian company outside India is deemed to accrue or arise
in India. However, dividend paid by foreign company shall be deemed to accrue or arise at a
place where register of members is kept.

Example: Mr. X, a Non-resident purchase shares of an Indian company outside India and
receives dividend of ₹50,000 from the company. It shall be deemed to accrue or arise in India
as it is through or from any Source of income in India.

INCOME BY WAY OF INTEREST [Section 9(1)(v)]:

Income by way of interest payable to a non resident by following shall be deemed to accrue
or arise in India in the hands of recipient (non-resident):

A) The Government; or

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 B) A person who is a resident; except where the interest is payable in respect of
any money 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
money borrowed and used, for the purposes of a business or profession carried
on by such person in India

INCOME BY WAY OF ROYALTY[SEC. 9(1)(vi)]:

Meaning of Royalty: The term ‘royalty’ means consideration for the transfer of all or any
rights (including the granting of licence) in respect of a patent, invention, model, design, secret
formula or process or trade mark or similar property, the imparting of any information
concerning technical, industrial, commercial or scientific knowledge, experience or skill, or the
use or right to use any industrial, commercial or scientific equipment

Royalty will be deemed to accrue or arise in India when it is payable by –

(i) the Government;

(ii) a person who is a resident in India
Exception: where it is payable in respect for the transfer of any right or the use of any property
or information used or for the utilization of services 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

(iii) a person who is a non-resident, only when the royalty is payable in respect of any
right, property or information used or services utilised for purposes of a business or
profession carried on in India or for the purposes of making or earning any income
from any source in India.

FEES FOR TECHNICAL SERVICES [Section 9(1)(vii)]

Technical fee means (any consideration including lump sum consideration) for the rendering
of managerial or technical or consultancy, services including the provision of services of
technical or any other personnel.

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However, it does not include fee of following types

• Any consideration received for any construction, assembly, mining or like project taken
by the recipient.
• Any consideration which is chargeable to tax in the hands of recipient under head
“Salary

Any fees for technical services6 will be deemed to accrue or arise in India if they are payable
by –

(i) the Government,

(ii) a person who is resident in India
Exception: Where the fees are payable in respect of technical services utilised in a business or
profession carried on by such person outside India or for the purpose of making or earning any
income from any source outside India.

(iii) A person who is a non-resident, only where the fees are payable in respect of
services utilised in a business or profession carried on by the non-Resident in India
or where such services are utilised for the purpose of making or earning any income
from any source in India

CONCLUSION

Section 9 of the Income Tax Act, 1961, deals with the provisions related to income deemed to
accrue or arise in India. This provision ensures that all income earned, received or accruing in
India is taxable under the ITA 1961 and helps to bring in transparency in the taxation of income
and prevents tax evasion.

6 The expression ‘technical services’ means only technical services rendered by a natural person.

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 BIBLIOGRAPHY

• Singhania, Dr. Vinod, Student’s guide to Income Tax, (Taxmann publications, New
Delhi, 45th edition, 2011)
• Rattan, Dr. Jyoti, Taxation laws, (Aggarwal Law House, Delhi, 9th edition,
2018)

WEBLIOGRAPHY
• https://www.google.com/url?q=https://taxguru.in/income-tax/section-9-income-
deemed-arise-accrue-
india.html%23:~:text%3DSection%25209%2520of%2520the%2520Income%2520Ta
x%2520Act%252C%25201961%252C%2520deals%2520with,income%2520and%25
20prevents%2520tax%2520evasion.&usg=AOvVaw3S8nnZXB5xo9vNGTw9ofRi&c
s=1&hl=en-US (last visited on March 14th at 10:41pm)
• https://www.scribd.com/presentation/478070250/5 (last visited on March 14th at
10:42pm)

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