Section 1 - Transfer Pricing
- EVOLUTION OF TRANSFER PRICING IN INDIA – TRANSFER PRICING CA FINAL
- WHAT IS TRANSFER PRICING – CA Final Direct and International Tax
- EVOLUTION OF TRANSFER PRICING IN INDIA [PRE-2001 ERA] – SECTION 92 – TRANSFER PRICING CA FINAL
- MEANING OF TRANSFER PRICE
- TRANSFER PRICING METHODS
- Comparable Uncontrolled Price Method
- EVOLUTION OF TRANSFER PRICING IN INDIA [PRE-2001 ERA] – REPLACEMENT OF EXISTING LAW
- COMPUTATION OF INCOME HAVING REGARD TO THE ALP – SECTION 92 – APPLICABILITY OF ARM’S LENGTH PRINCIPLE
- COMPUTATION OF INCOME HAVING REGARD TO THE ALP – SECTION 92 – BASE EROSION CONCEPT
- ASSOCIATED ENTERPRISES – SECTION 92A (1)
- INTERNATIONAL TRANSACTION [SECTION 92B]
- ARMS’ LENGTH PRINCIPLE
- COMPUTATION OF ARM’S LENGTH PRICE [SECTION 92C]
- SELECTION OF TESTED PARTY
- SELECTION OF PROFIT LEVEL INDICATOR
- SELECTION OF MOST APPROPRIATE METHOD – RULE 10C
- DATA TO BE USED FOR ANALYZING COMPARABILITY OF AN UNCONTROLLED TRANSACTION WITH AN INTERNATIONAL TRANSACTION
- ARITHMETIC MEAN – WHEN MORE THAN ONE PRICE IS DETERMINED
- APPLICABILITY OF RANGE CONCEPT – WHEN MORE THAN ONE PRICE IS DETERMINED
- FUNCTIONS, ASSETS AND RISK (FAR) ANALYSIS
- DOCUMENTATIONS AND COMPLIANCES – DOCUMENTATION REQUIREMENT UNDER THE INCOME-TAX ACT, 1961
- FUNCTIONAL ANALYSIS
- ECONOMIC ANALYSIS
- PENALTY FOR UNDER-REPORTING OF INCOME – SECTION 270A
- PENALTY FOR MISREPORTING OF INCOME – SECTION 270A
- PENALTY FOR FAILURE TO KEEP AND MAINTAIN INFORMATION AND DOCUMENTATION – SECTION 271AA
- PENALTY FOR FAILURE TO FURNISH INFORMATION OR DOCUMENT U/S 92D – SECTION 271G
- COUNTRY BY COUNTRY REPORTING
- Domestic Transfer Pricing
- SAFE HARBOUR RULES FOR INTERNATIONAL TRANSACTION
- TRANSFER PRICING ASSESSMENT procedure in India
- APPEAL PROCEDURE
- POWER OF ASSESSING OFFICER TO DETERMINE THE ARM’S LENGTH PRICE
- REFERENCE TO TRANSFER PRICING OFFICER [SECTION 92CA]
- RECTIFICATION OF TPO ORDER
- POWERS OF TPO
- SECONDARY ADJUSTMENT – SECTION 92CE
- DISPUTE RESOLUTION MECHANISM UNDER TRANSFER PRICING
- ADVANCE PRICING AGREEMENT
- MUTUAL AGREEMENT PROCEDURE
- MISCELLANEOUS TRANSFER PRICING PROVISIONS
Section 2 - Non-Resident Taxation
- CHARGE OF INCOME TAX AND RESIDENTIAL STATUS
- RESIDENTIAL STATUS OF A COMPANY
- SCOPE OF TOTAL INCOME AND INCOME DEEMED TO BE RECEIVED IN INDIA AND ACCRUE OR ARISE IN INDIA
- TAXABILITY OF OFFSHORE FUNDS AND INCOME THROUGH OR FROM ANY PROPERTY, ASSET OR SOURCE OF INCOME IN INDIA
- SALARY PAYABLE BY GOVERNMENT FOR SERVICES RENDERED OVERSEAS AND DIVIDEND PAID BY AN INDIAN COMPANY OUTSIDE INDIA
- EXEMPT INCOME OF NON-RESIDENTS
- INTEREST AND ROYALTY AND FEES FOR TECHNICAL SERVICES
- PRESUMPTIVE TAXATION FOR NON-RESIDENTS – introduction
- Capital Gains tax provisions – CA Final Direct and International Tax Notes
- WITHHOLDING TAX FROM PAYMENTS TO NON – RESIDENTS
Section 4 - Double Taxation Relief
- CONCEPT OF DOUBLE TAXATION AND WHY IT ARISES AND TYPES OF DOUBLE TAXATION RELIEF
- COUNTRIES WITH WHICH NO AGREEMENT EXISTS UNILATERAL AGREEMENTS – SECTION 91
- TREATY PROVISION TO OVERRIDE INCOME TAX ACT AND MODE OF COMPUTATION OF INCOME OF NON-RESIDENTS
- Foreign Tax Credit in India – Rule 128 of the Income Tax Rules 1962 – CA Final International Tax Notes
Section 5 - Black Money
- KEY FEATURES OF THE BLACK MONEY ACT
- APPLICABILITY AND COVERAGE OF THE BLACK MONEY ACT – SECTION 1
- BASIS OF CHARGE – SECTION 3
- DEFINITION OF ASSESSEE – SECTION 2(2)
- APPLICABILITY OF BLACK MONEY ACT TO PERSONS RESIDENT IN INDIA
- DEFINITION OF UNDISCLOSED ASSET LOCATED OUTSIDE INDIA – SECTION 2(11)
- RELEVANT PREVIOUS YEAR FOR CHARGEABILITY TO TAX – UNDISCLOSED ASSET LOCATED OUTSIDE INDIA – SECTION 3
- VALUATION OF AN UNDISCLOSED ASSET LOCATED OUTSIDE INDIA – SECTION 3(2)
- TRANSFER OF ASSETS BEFORE VALUATION DATE
- VALUATION IN CASE OF ACQUISITION OF ASSET OUT OF CONSIDERATION OF OLD ASSET OR BANK ACCOUNT – RULE 3(3)
- MEANING OF ESTABLISHED SECURITIES MARKET – EXPLANATION 1 TO RULE 3
- MEANINGFUL ANNUAL VALUE OF SHARES TRADED ON THE EXCHANGE – EXPLANATION 1 TO RULE 3
- MEANING OF QUOTED SHARE OR SECURITY – EXPLANATION 1 TO RULE 3
- MEANING OF UNQUOTED SHARE AND SECURITY – EXPLANATION 1 TO RULE 3
- SCOPE OF TOTAL UNDISCLOSED FOREIGN INCOME AND ASSET – SECTION 4(1)
- VARIATION MADE IN FOREIGN INCOME DURING ASSESSMENT OR REASSESSMENT- SECTION 4(2)
- NON-INCLUSION OF UNDISCLOSED FOREIGN INCOME AND ASSET IN INCOME COMPUTED UNDER INCOME-TAX ACT- SECTION 4(3)
- NO DISALLOWANCE AND SET-OFF FOR COMPUTATION OF TOTAL UNDISCLOSED FOREIGN INCOME AND ASSET – SECTION 5
- DEDUCTION FROM VALUE OF UNDISCLOSED ASSET OUTSIDE INDIA
- DEDUCTION FROM VALUE OF IMMOVABLE PROPERTY OUTSIDE INDIA
- TAX AUTHORITIES UNDER THE BLACK MONEY ACT – SECTION 6
- CHANGE OF TAX AUTHORITY – SECTION 7
- POWERS OF TAX AUTHORITY
- PROCEEDINGS BEFORE TAX AUTHORITIES TO BE JUDICIAL PROCEEDINGS – SECTION 9(1)
- ASSESSMENT OF FOREIGN INCOME AND ASSETS – SECTION 10
- TIME LIMIT FOR COMPLETION OF ASSESSMENT AND REASSESSMENT – SECTION 11(1)/(2)
- NON-APPLICABILITY OF THE 2-YEAR TIME LIMIT FOR COMPLETION OF ASSESSMENT- SECTION 11(3)
- EXCLUSIONS IN COMPUTING LIMITATION PERIOD OF ASSESSMENT/REASSESSMENT – EXPLANATION 1 TO SECTION 11
- RECTIFICATION OF MISTAKE – SECTION 12
- NOTICE OF DEMAND – SECTION 13
- DIRECT ASSESSMENT OR RECOVERY NOT BARRED – [SECTION 14]
- APPEALS TO COMMISSIONER (APPEALS) – SECTION 15
- APPEAL TO APPELLATE TRIBUNAL – SECTION 18
- APPEAL TO APPELLATE TRIBUNAL – SECTION 18
- APPEAL TO HIGH COURT – SECTION 19
- APPEAL TO SUPREME COURT – SECTION 21
- REVISION OF ORDERS PREJUDICIAL TO REVENUE – SECTION 23
- REVISION OF OTHER ORDERS – SECTION 24
- PAYMENT OF TAX DURING PENDING APPEAL
- RECOVERY OF TAX DUES BY ASSESSING OFFICER -SECTION 30
- RECOVERY OF TAX DUES BY TAX RECOVERY OFFICER – SECTION 31
- MODES OF RECOVERY OF TAX DUES – SECTION 32
- TAX RECOVERY OFFICER BY WHOM RECOVERY OF TAX DUES IS TO BE EFFECTED – SECTION 33
- RECOVERY OF TAX DUES IN CASE OF A COMPANY IN LIQUIDATION – SECTION 34
- LIABILITY OF MANAGER OF A COMPANY – SECTION 35
- JOINT AND SEVERAL LIABILITY OF PARTICIPANTS -SECTION 36
- RECOVERY THROUGH STATE GOVERNMENT- SECTION 37
- RECOVERY OF TAX DUES IN PURSUANCE OF DTAA OR TAX INFORMATION EXCHANGE AGREEMENT- SECTION 38
- RECOVERY BY SUIT OR UNDER OTHER LAW NOT AFFECTED – SECTION 39
- INTEREST FOR DEFAULT IN FURNISHING RETURN AND PAYMENT OR DEFERMENT OF ADVANCE TAX – SECTION 40
- PENALTY IN RELATION TO UNDISCLOSED FOREIGN INCOME AND ASSET – SECTION 41
- PENALTY FOR FAILURE TO FURNISH RETURN FOR FOREIGN INCOME AND ASSET – SECTION 42
- PENALTY FOR FAILURE TO FURNISH INFORMATION OF FOREIGN ASSET OR FOREIGN INCOME IN RETURN OF INCOME – SECTION 43
- DETERMINATION OF VALUE OF FOREIGN BANK ACCOUNT IN INR – EXPLANATION TO SECTION 42
- PENALTY FOR DEFAULT IN PAYMENT OF TAX ARREAR -SECTIONS 44
- PENALTY FOR OTHER DEFAULTS – SECTION 45
- PROCEDURE FOR IMPOSING PENALTY – SECTION 46
- PRIOR APPROVAL OF JOINT COMMISSIONER FOR IMPOSING PENALTY – SECTION 46
- BAR OF LIMITATION FOR IMPOSING PENALTY – SECTION 47
- OFFENCES AND PROSECUTION – CHAPTER V
- AGREEMENT WITH FOREIGN COUNTRIES OR SPECIFIED TERRITORIES – SECTION 73
- MODES OF SERVING NOTICE – SECTION 74
- ADDRESS FOR COMMUNICATION OF NOTICE BY POST OR APPROVED COURIER SERVICE – SECTION 74 READ WITH RULE 14
- E-MAIL ADDRESS FOR COMMUNICATION OF NOTICE – SECTION 74 READ WITH RULE 14
- AUTHENTICATION OF NOTICES AND OTHER DOCUMENTS – SECTION 75
- NOTICE DEEMED TO BE VALID IN CERTAIN CIRCUMSTANCES – SECTION 76
- APPEARANCE BY APPROVED VALUER IN CERTAIN MATTERS OR AUTHORIZED REPRESENTATIVE – SECTIONS 77 & 78
- MEANING OF AUTHORISED REPRESENTATIVE – SECTION 78
- ROUNDING OFF OF INCOME, VALUE OF ASSET AND TAX – SECTION 79
- CONGNIZANCE OF OFFENCE – SECTION 80
- ASSESSMENT NOT TO BE INVALID ON CERTAIN GROUNDS – SECTION 81
- BAR OF SUITS IN CIVIL COURTS – SECTION 82
- INCOME-TAX PAPERS TO BE AVAILABLE FOR THE PURPOSES OF THE BLACK MONEY ACT – SECTION 83
- APPLICATION OF PROVISIONS OF THE INCOME-TAX ACT – SECTION 84
- AMENDMENT OF PREVENTION OF MONEY-LAUNDERING ACT, 2002 – SECTION 88
Section 6 - Overview of Double Tax Convention
Section 7 - Application and interpretation of tax treaties
- ORIGINATION OF INTERNATIONAL TAX LAW AND DOUBLE TAXATION AND CONNECTING FACTORS
- DEFINITION OF TREATY , DOUBLE TAXATION AVOIDANCE AGREEMENT
- DIRECTIVE PRINCIPLES FOR INTERNATIONAL AGREEMENTS UNDER INDIAN CONSTITUTION AND ROLE OF VIENNA CONVENTION IN APPLICATION AND INTERPRETATION OF TAX TREATIES
- INDIAN JUDICIARY ON PRINCIPLES OF INTERPRETATION IN VIENNA CONVENTION AND ARTICLE 33: INTERPRETATION OF TREATIES AUTHENTICATED IN TWO OR MORE LANGUAGES INDIA AND TAX INFORMATION AND EXCHANGE AGREEMENT (TIEA)
- INTERPRETATION OF TREATIES – MONIST VIEW , DUALISTIC VIEW AND TREATY OVER DOMESTIC LAW
- INTERNATIONAL TAX CONFLICTS AND DOUBLE TAXATION INTRODUCTION AND BASIC PRINCIPLES OF INTREPRETATION OF A TREATY
- CUSTOMARY INTERNATIONAL LAW OF TREATY INTERPRETATION – OBJECTIVE INTERPRETATION , SUBJECTIVE INTERPRETATION AND PURPOSIVE INTERPRETATION
- CUSTOMARY LAW OF TREATY INTERPRETATION PRINCIPLE OF EFFECTIVENESS AND CONTEMPORANEA EXPOSITIO AND LIBERAL CONSTRUCTION
- EXTRINSIC AIDS TO INTERPRETATION OF A TAX TREATY
- OBJECTIVES OF TAX TREATIES ,OBJECTIVE OF DTAAs AND PURPOSE OF ENTERING INTO A DTAA INTO INDIAN CONTEXT – SECTION – 90(1) ?
Section 8A - Anti-Avoidance Measures
Section 8B - BEPS
Section 9 - E-Commerce
- HOW BUSINESS IS TRANSACTED THROUGH E-COMMERCE AND PREVALENT BUSINESS FORMS IN VARIOUS SEGMENTS OF DIGITAL ECONOMY?
- GROWTH OF E-COMMERCE AND TAXATION ISSUES ON E-COMMERCE ?
- PERMANENT ESTABLISHMENT IN E-COMMERCE AND DETERMINATION OF NATURE OF INCOME IN E-COMMERCE TRANSACTIONS?
- OECD RECOMMENDATIONS UNDER ACTION PLAN 1 OF BEPS TO TACKLE TAXATION ISSUES OF E-COMMERCE AND INTRODUCTION OF NEW CHAPTER OF EQUALIZATION LEVY ?
- WHO IS LIABLE TO DEDUCT EQUALISATION LEVY AND WHOSE INCOME IS LIABLE FOR DEDUCTION OF EQUALISATION LEVY ?
Article on CA Students
10 things to Believe - As you appear for May 2018 Examinations
MCQ - CA Final
SCOPE OF TOTAL INCOME AND INCOME DEEMED TO BE RECEIVED IN INDIA AND ACCRUE OR ARISE IN INDIA
SCOPE OF TOTAL INCOME
The incidence of tax on any person depends upon his residential status. The scope of total income of an Assessee depends upon the following considerations:
- Residential status of Assessee (i.e., resident or non-resident or ordinarily not resident)
- Place of accrual or receipt of income (in India or outside India),
whether actual or deemed; and
- the point of
- time of accrual or
- receipt of income
- by or on behalf of the Assessee
AS PER SECTION 5(2), INCOME OF NON-RESIDENT INCLUDES
- Income received in India in the previous year or
- Income deemed to be received in India; or
- Income which accrues or arises in India during the PY ; or
- Income which is deemed to accrue or arise in India
- during the previous Year.
EXAMPLE 1 : –
- Mr. Alexender is a non-resident individual. He received an interest income of Rs 2,40,000 in India during the previous year 2016-17. Whether such income is includible in the total income of Mr. Alexender under the IT Act, 1961 ?
SOLUTION : –
- Interest income is received in India during the previous year 2016-17. Any income which is received in India is taxable in the hands of all Assessees, i.e., (residents and non-residents). Thus, interest income would be included in the total income of Mr. Alexender for PY 2016-17 and hence taxable for AY 2017-18.
EXAMPLE 2 : –
- Mr. Gogo is a non-resident Assessee. He received interest income of Rs 55,000 outside India during the previous year 2016-17, but the interest accrued and arose in India. Whether such interest income is includible in the total income of Mr. Gogo?
SOLUTION : –
- Interest income of Mr. Gogo is taxable in India as it accrues or arises in India. Receipt of interest income outside India is not relevant when such income accrues or arise in India.
MEANING OF “INCOME RECEIVED OR DEEMED TO BE RECEIVED”
- Income received or deemed to be received in India during the previous year is taxable in hands of all Assessees irrespective of –
- their residential status (i.e., resident or non-resident) ; and
- the place of its accrual (i.e., In India or outside India)
- Receipt of income refers to first occasion when recipient gets money under his control. For amount received as income, remittance or transmission from one place or person to another does not constitute receipt of income of subsequent recipient or at the place of subsequent receipt.
EXAMPLE 1 : –
- Mr. Shiva a non-resident, sold his property in UK, and proceeds were credited to his bank in UK. Subsequently, sale proceeds were transferred to his bank account in India. Whether such sale proceeds of property were taxable in India?
SOLUTION : –
- The receipt of income refers to only the first occasion when the recipient gets the money under his control. The first occasion when Mr. Shiva gets the money under his control was at the time when such income was transferred to his bank account in UK. Such sale proceeds are not taxable in India as such income is first received outside India (i.e, in UK)
EXAMPLE 2 : –
- Mr. Raju was a non-resident for Indian for tax purposes. He sold his property situated in Singapore and credited the amount to his bank account in India. Subsequently, such sale proceeds were transferred to his bank account in UK. Whether such sale proceeds are taxable in India ?
SOLUTION : –
- The receipt of income refers to only the first occasion when the recipient gets the money under his control. The first occasion when Mr. Raju gets the money under his control was when such income was credited to his bank account in India. Such sale proceeds are taxable in India as such income is first received in india.
INCOME DEEMED TO BE RECEIVED IN INDIA
MEANING OF INCOME ‘ACCRUING’ AND ‘ARISING’
- “Accrue” means the right to receive income.
- “Due” means the right to enforce payment of income.
EXAMPLE 1 : –
- Mr. B has made certain fixed deposits of Rs 4,00,000 on March 1, 2017 for 90 days. In this case, one-month interest on fixed deposit will accrue on March 31, 2017 but such interest is not due for payment. Such interest will be due for payment after 90 days.
EXAMPLE 2 : –
- Salary for work performed on November will accrue throughout day to day, but will become due on November 30 or 1st December, as per terms of employment.
WHETHER INCOME TAXED ON ACCRUAL ETC, CAN IT BE TAXED ON RECEIPT – EXPLANATION 2 TO SECTION 5
- Explanation 2 to section 5 makes it clear that once an item of income is included in the assessee’s total income and subjected to tax on the ground of its accrual/deemed accrual or receipt, it cannot again be included in the person’s total income and subjected to tax either in the same or in a subsequent year on the ground of its receipt – whether actual or deemed.
EXAMPLE : –
- Mohit is working as a lecturer in Indian University. He is getting consulting income of Rs. 50,000 per month.
- He has received consulting fee of 11 months (from April-February) during the previous year 2016-17. Fee of March, 2017 was received in first week of April, 2017.
- While filing return of Income for Previous Year 2016-17, he has shown total consulting fee of Rs. 6,00,000 (after including the fee of March, 2017).
- Whether fee of March, 2017 was taxable in the previous year 2017-18 on receipt basis ?
SOLUTION : –
- Where fee of March (i.e., Rs 50,000) has been included in the previous year 2016-17 on accrual basis, it shall not be included again in the previous year 2017-18 on receipt basis.
INCOME ACCRUING ARISING OUTSIDE INDIA CONSIDERED IN A BALANCE SHEET IN INDIA – EXPLANATION 1 TO SECTION 5
- Explanation 1 to section 5 specifically provides that an item of income accruing or arising outside India shall not be deemed to be received in India merely because it is taken into account in a balance sheet prepared in India.
EXAMPLE : –
- During the year 2016-17, US Branch of ICO (an Indian Co.) receives income from consulting services provided in USA to a US resident. While preparing the Financial Statement and balance sheet, ICO included the consulting income of its branch. Whether consulting income of Branch can be deemed to be received in India?
SOLUTION : –
- Consulting income of Branch accrued or arise outside India (i.e., in USA) shall not be deemed to be received in India merely because it is taken into account by ICO in a balance sheet prepared in India.
ACCRUE OR ARISE IN INDIA
- Section 9 is specifically meant for non-residents, as residents are liable to pay tax on their global income, i.e., Indian income and foreign income.
ActNon-residents would be required to pay tax on income which is deemed to accrue or arise in India even though it may actually accrue or arise outside India.
INCOME ACCRUING OR ARISING FROM ANY BUSINESS CONNECTION/ PROPERTY/ SOURCE OF INCOME IN INDIA – SECTION 9(1)(I)
- Any income accruing or arising in any place outside India Whether directly or indirectly through or from any business connection in India, through or from any property in India, through or from any asset or source of income in India or through the transfer of a capital asset situated in India [Section 9(1)(i)].
Deemed Income – Business Connection or asset in India
WHAT IS BUSINESS CONNECTION ?
- ‘Business connection’ shall include any business activity carried out through a person acting on behalf of the non-resident [Explanation 2 to section 9(1)(i)]
BUSINESS ACTIVITIES CARRIED OUT THROUGH A PERSON ACTING ON BEHALF OF NR – SECTION 9(1)(I)
BUSINESS CONNECTION WHEN AGENT OF NON-RESIDENT HAS AUTHORITY TO CONCLUDE CONTRACTS IN INDIA – SECTION 9(1)(I)
- The “ business connection” shall include any business activity carried out through a person who, acting on behalf of the non-resident have
- which is habitually exercised to conclude contracts
- on behalf of the non-resident .
- EXAMPLE 1 : –
- Beta Inc., USA manufactures and sells certain software worldwide. It appoints Rajesh as sales head who negotiates price and delivery terms with customers on the pricing terms and delivery terms on behalf of Beta Inc.
- Beta Inc. is bound by terms negotiated by Rajesh.
- Whether Beta Inc. has any business connection exist in India?
SOLUTION : –
- In order to establish business connection in India, the agent must have an authority, which is habitually exercised to conclude contracts on behalf of the non-resident.
- Rajesh is negotiating with customers on pricing and delivery terms and Beta Inc. does not have an authority to modify the pricing and delivery terms.
- Beta Inc. has a Business connection in India as Mr. Rajesh is habitually exercising authority to conclude contract on behalf of Beta Inc.
EXAMPLE 2 : –
- NY Inc. manufactures and sells certain software for distribution worldwide. It appoints TOM as sales head.
- TOM informs potential customers about Product features, price list but does not negotiate with customers on the pricing terms and delivery terms.
- Only NY Inc. negotiates on pricing and delivery terms of contract, and the contracts are concluded outside India.
- Whether NY Inc. has any business connection exist in India?
SOLUTION : –
- In order to establish a business connection in India, the agent must have an authority, which is habitually exercised to conclude contracts on behalf of the non-resident.
- Tom is only informing product details & standard price lists on behalf of NY Inc. and he does not negotiate or conclude contracts with customers on pricing and delivery terms.
- NY Inc. has authority to negotiate or decide pricing and delivery terms.
- Thus, Tom does not have authority to conclude contracts on behalf of NY Inc. In view of this NY Inc. has no business connection in India.
BUSINESS CONNECTION WHEN AGENT OF NR MAINTAINS STOCK OF GOODS IN INDIA – SECTION 9(1)(I)
- The “ business connection” shall include any business activity carried out through a person who
- has no such authority to conclude contract,
- but habitually maintains in India
- a stock of goods or merchandise
- from which he regularly delivers goods or merchandise
- on behalf of the non-resident.
BUSINESS CONNECTION WHEN AGENT OF NR SECURES ORDERS IN INDIA FOR THE NR – SECTION 9(1)(I)
- The “ business connection” shall include any business activity
- carried out through a person who
- habitually secures orders in India,
- mainly or wholly
- for the non-resident.
- Further, there may be situations when the person acting on behalf of the non-resident (NR 1) secure order for other non-residents. In such situation, business connection for other non-residents is established if,
- such other non-resident controls the NR-1 or
- such other non-resident is controlled by NR-1 or
- such other non-resident is subject to same control as that of NR-1.
- In all the three situations, business connection is established, where a person habitually secures orders in India, mainly (more than 90% but less than 100%) or wholly for such non-residents.
AGENTS HAVING INDEPENDENT STATUS ARE NOT INCLUDED IN BUSINESS CONNECTION
- No Business connection shall be established, where the non-resident carries on business through a broker, general commission agent or any other agent having an independent status, if such a person is acting in the ordinary course of his business.
- A broker, general commission agent or any other agent shall be deemed to have an independent status where he does not work mainly or wholly for the non-resident.
EXAMPLES OF ORDINARY COURSE OF BUSINESS [NO BUSINESS CONNECTION] : –
EXAMPLE 1 : –
- An Indian newspaper company collecting advertisement for other foreign newspaper, acts in ordinary course of its business when it enters into a solicitation agreement with foreign principal. In such a case, no business connection exit in India.
EXAMPLE 2 : –
- The department of posts accepts money orders for transfer of funds within India. Engaging itself with same type of business, i.e., money transfer services across international borders is just an extension of its business and hence, is in the ordinary course of business.
Points to be considered for business connection
- The Agent, would not be considered to have an independent status in the three situations (i.e., authority to conclude contract, maintenance of stock, procurement of orders in India) explained in preceding slides, where he is employed by such a non-resident.
- Where a business is established, then only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India [Explanation 3 to section 9(1)(i)]
EXCEPTIONS IN CASE OF BUSINESS CONNECTION
The following shall not be treated as business connection of a non-resident in India [Explanation 1 to section 9(1)(i)]:
- For business whose part of operations are carried out in India [Explanation 1(a) to section 9(1)(i)]:
- In the case of a business of which all the operations are not carried out in India, the income of the business deemed to accrue or arise in India shall be only such part of income as is reasonably attributable to the operations carried out in India.
Purchase of goods in India for export [Explanation 1(b) to section 9(1)(i)] : –
- No income shall be deemed to accrue or arise in India to a non-resident from operations, which are confined to the purchase of goods in India for the purpose of export.
Collection of news and views in India for transmission out of India [Explanation 1(c) to section 9(1)(i)]:
- Where a non-resident is engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India.
Shooting of cinematograph films in India [Explanation 1(d) to section 9(1)(i)]:
- In the case of a non-resident, no income shall be deemed to accrue or arise in India through or from operations which are confined to the shooting of any cinematograph film in India, if such non-resident is :
- an individual, who is not a citizen of India or
- a firm which does not have any partner who is a citizen of India or who is resident in India; or
- a company which does not have any shareholder who is a citizen of India or who is resident in India.