Income Deemed to accrue or arise in India – Section 9 (Part 1)
Introduction : Under Income tax it there are two virtues by which income is taxed in India; i.e., either such Income has accrued in India or such Income has been received in India. However, under said act there is provision which is dealing with Incomes that are deemed to accrue or arise in India. Deeming provision is provision where even when transaction is not covered under original provision but by putting deeming provision it is covered will be covered under original provision and will be treated accordingly. In this article we will discuss provision relating to Income deemed to accrue or arise in India.
Whether Section 9 of Income Tax Act, 1961; is applicable to every person?
It shall be noted that section 9 of Income Tax Act, 1961 is applicable to every person whether such person is resident or non-resident.
Section 9(1) Clause (i)
Income accruing or arising outside India, directly or indirectly through or from any business connection in India then said Income will be deemed to accrue or arise in India. For understanding this clause, it is important to understand that what is business connection in India.
The definition of business connection has been determined in Inclusive manner and therefore any business activity carried out through a person acting on behalf of the non-resident will deemed to be treated as business connection in India.
It shall be noted that there is difference between business connection in India and business connection with India. Simply, if transacting party is India it does not mean that there will be business connection in India.
For establishing business connection in India, the following conditions must be satisfied by the person who is acting on behalf of non-resident
Illustration: Mr. D is working as agent of Mr. H who is non-resident. Mr. D secures order in India for the products sold by Mr. H, also he is working as agent of some of the local vendors for whom he secures order. Whether Mr. H will have business connection in India.
It has been stated that if any non-resident has an agent in India who habitually procures order on behalf of said non-resident than it will be treated as if it has business connection in India. In the given case as Mr. D is working as agent for Mr. H and he procures order on behalf of Mr. H; it will be treated as business connection in India and income arising from such transaction will be Income deemed to accrue or arise in India.
What if Mr. D is not working as agent neither he has authority to conclude contracts on behalf of Mr. H; but he ensures maintenance and delivery of stock as an when needed?
In such case also, it will be treated as business connection in India and income arising from such transaction will be Income deemed to accrue or arise in India as it has been stated that even though he is not working as agent and do not have authority to conclude contract on behalf of Mr. H but if he is maintaining stock and ensure delivery of such stock as an when needed on behalf of such non-resident, he will attract the deeming provisions.
What if Mr. D is procuring order for another person Mr. B who is also non-resident. Mr. B is controlled by Mr. H. Whether the transaction will fall under above provision?
It has been clarified that in case where one person is non-resident on whose behalf order is obtained and he is controlled by another non-resident person or he is controlling another non-resident person or both the said person are controlled by third person; than in that case business connection will be established.
Coming to above illustration if Mr. H is controlling Mr. B or Mr. B is controlling Mr. H or Mr. H and Mr. B both are controlled by some common person, and any agent is procuring order on behalf of Mr. B than in that case it will be deemed to be treated as if it has a business connection in India. Therefore, order procured by Mr. D on behalf of Mr. B will be covered under section 9(1) clause (i) of Income Tax Act, 1961.
What if agent if operating Independently?
There is specific clarification in this regard that business connection will not be established in case where any non-resident assessee is carrying its business through broker, general commission agent or any other agent having an independent status, and if such a person is acting in the ordinary course of his business.
For establishing his independence, it is necessary that he does not work mainly or wholly for the said non-resident. Even if he is working for more than one non-resident but he is working for non-resident who is controlled by common person or where one is controlled by other.
What if business connection is established? Whether total income of such person will be taxed in India?
If business connection is being established than in that case only income which is attributable to transaction which has business connection in India; will be taxed in India.
Which are the cases where even whole of operations is not carried out in India but still it will be treated as Income deemed to accrue or arise in India?
- Income from advertisement, targeting customers residing in India or accessing which are accessing advertisement through IP address located in India
- Income from sale of data collected from persons residing in India or who are using IP address located in India.
- Income from sale of goods and services using data collected from persons residing in India or who is using IP address located in India.
In this part we have analyses one point which has been given under section 9(1) clause (i) of Income Tax Act, 1961. In next part we will discuss on other transaction covered under Section 9.