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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:

Incomes Which Accrue Or Arise In India OR Are Deemed To Accrue Or Arise In India [Section 9]

(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) Income from any Property, Asset or Source of Income situated in India:

Any income which arises from any property movable or immovable, tangible or intangible which is situated in India, is deemed to accrue or arise in India. Example: R who lives in London, has a house property situated in India which has been given by him on rent. Rent derived by R shall be taxable in India whether such rent is received by him in India or outside India as the house property is situated in India.

(c) Income from the Transfer of any Capital Asset situated in India:

Where the capital asset is situate in India, regardless of the residential status of the transferor or the transferee, capital gain, arising on its transfer, would be deemed to be income accruing or arising in India and hence would be taxable.

Apportionment of profits [Explanation (d) to Section 9(1)(i)]

In the case of a business of which all the operations are not carried in India, only that part of income shall be deemed to accrue or arise in India which is reasonably attributable to the operations carried on in India.

Where the goods are manufactured in India and were sold out side India, the profit will be apportioned in two parts—one for manufacturing operations and another for selling operations. The profits which could be reasonably attributed to selling operations will not be deemed to accrue in India. 

In cases where the income attributable to operations carried out in India cannot be ascertained, Rule 10 of Income-tax Rules 1962 provides

  1. such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable having regard to the facts and circumstances of the case; or

  2. any amount which bears the same proportion to the total profits and gains of the business of the assessee computed in accordance with the provisions of the Act as the receipts so- accruing or arising bear to the total receipts of the business; or

  3. in such other manner as the Assessing Officer may deem suitable.

(d) Any income which falls under the head 'Salaries' if it is earned in India:

This explanation provides an artificial place of accrual for income taxable under th head ‘Salaries’. According to it the incomes chargeable to tax as salaries shall be deemed to accrue or arise in India if they are earned in India. The place of receipt and actual accrual of the salary is immaterial. Any income payable for

  1. service rendered in India, and

  2. 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,

Any income payable for services rendered in India shall be regarded as income earned in India though it may be paid in India or outside.

(e) Income by way of Salary Payable by the Government to an Indian citizen/national for services rendered outside India:

The following conditions have to be satisfied before such income is treated as deemed to accrue or arise in India:

  1. Income should be chargeable under the head 'Salaries';

  2. The payer should be Government of India;

  3. The recipient should be an Indian citizen — whether Resident or Non-Resident;

  4. The services should be rendered outside India.

While salary of Indian citizen in the above case shall be deemed to accrue or arise in India but all allowances or perquisites paid outside India by the Government to the above Indian citizens for their rendering services outside India are exempt under section 10(7).

(f) Income by way of Interest payable by:

  1. Government; or

  2. A person who is a resident in India, except where interest is payable in respect of money borrowed and used for the purpose of business or profession carried on outside India or earning any income from any source outside India; or

  3. A person who is a non-resident in India provided interest is payable in respect of money borrowed and used for a business or profession carried on in India, shall be income which is deemed to accrue or arise in India in the hands of the recipient.

(g) Income by way of Royalty payable by:

  1. Government; or

  2. A person who is a resident in India except where it is payable in respect of any right/information/property used for the purpose of a business or profession carried on outside India or earning any income from any source outside India; or

  3. A person who is a non-resident provided royalty is payable in respect of any right/information/property used for the purpose of the business or profession carried on in India or earning any income from any source in India, shall be income which is deemed to accrue or arise in India in the hands of the recipient.

(h) Income by way of Fees for Technical Services payable by:

  1. Government; or

  2. A person who is a resident in India, except where services are utilised for a business or profession carried on outside India or earning any income from any source outside India; or

  3. A person who is a non-resident provided fee is payable in respect of services for a business or profession carried on in India or earning any income from any source in India, shall be income which is deemed to accrue or arise in India in the hands of the recipient.

 

Related Topics....

INCOME under Income Tax Act. 1956
Person [Section 2(31)] : Defination under I.Tax
Definition of INCOME inder Income Tax [ Section 2(24)]
Income Deemed To Be Received In India - under Income Tax Act. 1956. (Section 7)
Incomes Which Accrue Or Arise In India OR Are Deemed To Accrue Or Arise In India [Section 9]
Income Arising From Business Connection In India [Section 9(1)(i)] -
Assessment Year [Section 2(9)] : Definition under Income Tax Act.
Gross Total Income(GTI) [Section-80B(5)] : Defination under I.Tax
Income is Taxed in the same Year in which it is Earned
 
 
 
 
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