Any Income which is received by a non-resident in India, but does not accrue or arise in India, or any income which is received outside India but deemed to accrue or arise in India, then such income is chargeable to tax in India.
S. 5, r/w S. 9, of the Income Tax Act, 1961—Income accrual of A.Y. 1998-99—Whether provisions of S. 5(2)make it clear that under Act so far as foreign companies are concerned,taxable unit is a foreign company and not its branch or permanent establishment in India, even though taxability of such foreign companies are confined to
- an income which accrues or arises in India or deemed to accrue or arise in India, and
- an income which is received or is deemed to be received by or on behalf of such foreign company
Related Cases:
S. 5(2)(b), 9(1)(ii) & 15 of IT Act, 1961—Income—The crieria of applying the definition of S. 5(2)(b) would be such income which is earned in India for the services rendered in India and not otherwise; u/s 15 even on accrual basis salary income is taxable i.e., it becomes irrespective of the fact whether it is actually received or not, only when services are rendered in India, it becomes taxable by implication. However, if services are rendered outside India, such income would not be taxable in India. If the number of days worked by the assessee outside India as extracted in assessment order taken into consideration it would emerge that assessee has worked outside India for a period of 225 days and such income earned by assessee outside India is not taxable—DIT (International Taxation) Vs. Prahlad Vijendra Rao (2011) 239 CTR 107 (Kar)
S. 5(2), 9(1)(vi), Expln. 2, 40(a)(i), 195 of IT Act, 1961, art. 26(3) of DTAA with USA, art. 264 of DTAA with UK—Double taxation relief—The assessee was engaged in the business of television broadcasting and software development. The art. 26(3) of the DTAA between India and USA and art. 26(4) of the DTAA between India and the UK are not similarly worded, both articles are intended to avoid discrimination. The provisions of S. 40(a)(i) as it existed prior to its amendment by the Finance (No. 2) Act, 2004 w.e.f. April 1, 2005, provided for disallowance of payment made to non-residents alone, where tax is not deducted at source at the time of remittance, and similar payment to residents does not result in disallowance in the event of non-deduction of tax at source. The payment made to non-resident for hire of transponders is royalty and therefore tax has to be deducted at source for such payments made by non-residents—Asianet Communications Ltd. Vs. DCIT [2010] 1 ITR (Trib) 683 (ITAT-Chennai)
S. 5(2) & 9(1)(i), Expln. 1(b) of IT Act, 1961—Income deemed to accrue or arise in India—The applicant is a company incorporated under the laws of Netherlands and also tax-resident. The applicant is a subsidiary of Saudi Arabian Oil Company and it operates its offices in various country to render services in relation to supply chain management, technical support, finance support and administrative support to Saudi Aram Co. and its group companies. It proposes to establish an officer in India for undertaking procurement support activities for its head office and Saudi Aram Co. Indian office undertake procurement support services for the purpose of export outside India of various goods/products required by Saudi Aram Co. Income received by the applicant for procurement support services rendered in India to its holding company and affiliate entities through the branch office in India is not covered under cl. (b) of Expln. 1 to S. 9(1)(i) and having accrued or arisen in India is taxable in India in view of s. 5(2) of the Act—Aram Co Overseas Company BV. In re. [2010] 322 ITR 612 (AAR)
S. 5(2)(b) & 9(1)(i) of IT Act, 1961—Income deemed to accrue or arise in India—S. 5(2)(b) brings to tax any income from whatever source derived which accrues or arises or is deemed to accrue or arises to a non-resident person in India during the year. This provision has two components (a) income which accrues or arises in India; and (b) is deemed to accrue or arise in India. Since in the present case the Indian Offices of the non-resident assessee-company practically carry out all operations of the business of the commission agent except the formation of contract between the vendors and the buyers, it cannot be held that no income accrues or arises in India from commission; however CIT(A) overstated the role of the Indian offices in the overall conduct of business, instead of allocation of commission at 30 per cent, commission income is allocated to the Indian operations at 50 per cent—Linmork International (Hong Kong) Ltd. Vs. DCIT (2011) 139 TTJ 697 (ITAT-Delhi)
S. 5(2)(b) & 69 of IT Act, 1961—Income—Once an amount is received as income, any remittance or transaction of that amount to another place does not result in receipt once again at the other place, within the meaning of S. 5 of the Act. Therefore, if certain income, profits or gains are received by the assessee outside India, it does not become chargeable to income-tax in India by reason of that money having been brought into India—Smt. Susila Ramasamy Vs. ACIT (2010) 130 TTJ 363 (ITAT-Chennai)
S. 5(2), 9(1)(i), Expln 1 of the IT Act, 1961—Non-resident—Where the income is actually received or has accrued in India resort to the deeming provision is not warranted, the provision contained in S. 5(2) is sufficient to create a charge in respect of the non resident’s income—Mustaq Ahmed.
S. 40(a)(i), r/w S. 195 of IT Act 1961—Business disallowance—As per the Board Circular No. 786, since no income is accrued or arisen in India either u/s 5(2) or u/s 9 and no tax is therefore, deductible u/s 195, thus, expenditure on commission and related charges payable to non-resident agents cannot be disallowed u/s 40(a)(i) on the account that tax is not deducted—JCIT vs. George williamson (Assam) Ltd.
S. 5(2) & 9(1)(i) of the IT Act, 1961—Deemed Income—While arriving at the deemed income accuring or arising directly or indirectly through a business connection in India, no part of the income shall be attributed to the operations limited to the purchase of goods for the purpose of export—Ikea Trading (Hong Kong) Ltd.
S. 5(2), 9(1)(vii), 90 & 195 of the IT Act, 1961 r/w art. 13 of DTAA between India and UK—Double taxation relief—The training fee paid by the assessee is the income of M/s corus consulting Ltd., UK, by way of fee for technical services which is deemed to accure and arise in India u/s 9(1)(vii) of the Act, is chargable to tax in terms of provisions of S. 5(2) of the Act—Steel Authority of India Ltd. Vs. ITO.
S. 9, r/w S. 5 of IT Act 1961—Income—As per conjoint reading of S. 5(2) and S. 9(1)(i), only if the income is arising directly or indirectly through or from any business connection in India, it can be taxed in India—Galileo International Inc. Vs. DCIT, Non-resident Circle, New Delhi [2009] 116 ITD 1 (ITAT-Delhi)
Assessment—Sec. 2(31)(v),5(2), 9(1)(i)—IT ACT, 1961—ABC. In re. [2012] 249 CTR 329 (AAR)
Reference:
As Per Section 5(2), Of the Income Tax Act, 1961-
5(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.