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.
(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 :
Salary paid by govt. to its employees posted abroad,
Pension paid outside India but for services rendered in India,
Income from a capital asset located in India although transaction has taken place outside India,
Dividend paid by Indian company outside India,
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]
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.