Income tax is payable by a taxpayer whether a resident taxpayer or a non-resident taxpayer or a non-resident Indian on the total income computed by the Assessing Officer under the provisions of the Income Tax Act 1961. Under Section 5(2) of the Income Tax Act a nonresident is liable to pay income tax on the total income of a particular year derived from whatever source, which:
(a) is received or is deemed to be received in India in such year by or on behalf of such persons, or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
The Authority for Advance Rulings in the case of Steffen, Robertson & Kirsten Consulting Engineers & Scientists v. CIT (1998) 230, ITR 206 has held that where the amounts are paid for preparatory study in a foreign country to a non-resident for services which are to be utilised in India, such amounts would be deemed to accrue or arise in India. In this case, it was also held that there is no difference between fees for Engineering Services and amounts paid as living allowances and travel allowances.
Thus, only Indian income is liable to income tax in India in the case of a non-resident person. This means that a non-resident person is not liable to pay any income tax in India on his foreign income. Though an income may not actually accrue or arise in India, yet it may be deemed to accrue or arise in India. Thus, under Section 9 (reproduced below) the following are the important types of income which are deemed to accrue or arise in India:
(i) Income through 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 or through the transfer of a capital asset situated in India.
(ii) (a) Salary income for service rendered in India; and
(b) Salary for 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 from the A.Y. 2000-2001.
(iii) Salary payable by the government to a citizen of India for service outside India.
(iv) A dividend paid by an Indian company outside India.
(v) Interest by the government, etc.
(vi) Royalty payable by the government or others in some cases.
(vii) Fees for technical services payable by the government or others ii some cases.
In Asian Development Service v. CIT [1999) 239 ITR 713, it was held where in respect of placement of an amount to a non-resident, tax liability was to be borne by the resident, the tax liability of non-resident was to be determined with reference to the gross figure.