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Types of Income in case of Companies (Section 7)

1. Income Received in India

The source of income may be situated anywhere in the world but if its first re’eipt is in India, it is taxable for all. Income may be received by the assessee himself or by his agent on his behalf or is actually received by him or it might be credited to his account.

2. Income Deemed to be Received in India [Section 7]:

The following incomes shall be deemed to be received in India in the previous year even in the absence of actual receipt:

  1. Contribution made by the employer to the recognized provident fund in excess of 12% of the salary of the employee;

  2. Interest credited to the RPF of the employee which is in excess of 9.5% p.a.

  3. Transfer balance from the unrecognized fund to a Recognised Provident Fund (It has been discussed in the Chapter on 'Income from Salaries');

  4. The contribution made, by the Central Government or any other employer in the previous year, to the account of an employee under a notified contributory pension scheme referred to in section 80CCD.

3. Incomes which Accrue or Arise in India or are Deemed to Accrue or Arise in India [Section 9]

(1) Accrue or Arise in India:

'Accrue' means 'to arise or spring as a natural growth or result', to come by way of increase. 'Arising' means 'coming into existence or notice or presenting itself'. 'Accrue' connotes growth or accumulation with a tangible shape so as to be receivable. In a secondary sense, the two words together mean 'to become a present and enforceable right' and 'to become a present right of demand'.

Frequently, in the context of 'accrual' or 'arisal', the word 'earned' is used. The two are different concepts. A person may be said to have 'earned' his income in the sense that he has contributed to its production by rendering services or otherwise and the parenthood of the income can be traced to him. But in order that the income may be said to have 'accrued' to him, an additional element is necessary, that he must have created a debt in his favour.

Types of Income in case of Companies (Section 7)

(2) Incomes which are Deemed to Accrue or Arise in India [Section 9]:

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

(a) Income from a Business Connection in India: Any income which arises, directly or indirectly, from any activity or a business connection in India is deemed to be earned in India.

Business connections may be in several forms e.g. a branch office in India or an agent or an organization of a non-resident in India. Formation of a subsidiary company in India to carry on the business of the non-resident parent company would also be a business connection in India. Any profit of the non-resident which can be reasonably attributable to such part of operations carried out in India through business connections in India are deemed to be earned in India.

(b) These incomes actually Accrue Outside India but Under Secton 9 these are Deemed to Accrue in India.

These incomes are :

  1. Salary paid by govt. to its employees posted abroad,

  2. Pension paid outside India but for services rendered in India,

  3. Income from a capital asset located in India although transaction has taken place outside India,

  4. Dividend paid by Indian company outside India,

  5. Apportionment of profits : In case a part of transaction takes place in India and the other part outside India, proportionate profits from such transaction relating to Indian part shall be deemed to accrue in India, [Taxable for R and NR]

  6. Income from shooting of a film in India by a non-resident shall not be deemed to accrue in India, hence taxable only for residents.

4. Any income Accruing and Received Outside India

 It shall be taxable for Resident only.

5. Past Un-Taxed Income

 Any income, which was exempted earlier but is brought to India in current PlY shall be exempted for all.

 
 

Topics on ... Assessment & Taxation of Companies

Company Taxation-Meaning and Definition
Types of Companies under Income Tax Act.
Residential Status Of A Company [Section 6(3)]
Incidence Of Tax—Scope Of Total Income (Section 5)
Types of Incomes (Section 7)
Carry Forward and Set Off of Business Losses ( Section 72)
Special Provisions Regarding Losses Relating To Companies Only (Section 72A, 72AA, 72AB)
Deductions Out Of Gross Total Income in case of Companies ( Section 80G to 80LA)
Provision of MAT ( Minimum Alternate Tax) for payment of Tax by certain Companies [Section 115JB]
Calculation of 'Book Profits' for the Purpose of MAT (Section 115JB)
Tax Credit in respect of Tax paid on Deemed Income under MAT Provisions (Section 115JAA)
Amounts Expressively Allowed as Deduction [Section 30 to 37]
Section 40A of Income Tax Act. ( Expenses or Payments not Deductible)
Expenditure on Scientific Research (Section 35)
Minimum Alternate Tax (MAT) [Section 115JB]
(Section 35D and Rule 6AB) : Amortization of Certain Preliminary Expenses
 
 
 
 
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