Section 9: Incomes which Accrue or Arise in India or are Deemed to Accrue or Arise in India

Section 9 : Income Accrue or Deemed to Accrue or Arise in India :

Section 9 describes the Incomes which Accrue or Arise in India or are Deemed to Accrue or Arise in India for the purpose of computation of Taxable Income according to Residential Status of an Assessee as per Income Tax Act.

(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 clement is necessary, that he must have created a debt in his favor.

(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:

(2A)     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.

Inclusive meaning of “Business Connection”

(I)    Business connection to include any business activity carried out through a dependent agent [Explanation 2 to section 9(1)]

“Business connection” shall include any business activities carried through a person who, acting on behalf of the non-resident, -—

—        has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident or
habitually concludes contracts or

—        habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are—

(i)         in the name of the non-resident; or

(ii)        for the transfer of the ownership of. or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or

(iii)       for the provision of services by the non-resident.

(II)   “Business connection” to include “Significant Economic Presence” also [ Explanation 2A inserted under Section 9(1)(i)]

For the removal of doubts, it is hereby declared that the significant economic presence of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose. shall mean—

(a)        transaction in respect of any goods, services or property carried out by a nonresident with any person in India including provision of download of data or software in India. if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or

(b)       systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed:

Provided that the transactions or activities shall constitute significant economic presence in India, whether or not—

(i)         the agreement for such transactions or activities is entered in India; or

(ii)        the non-resident has a residence or place of business in India; or

(iii)       the non-resident renders services in India:

Provided further that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall he deemed to accrue or arise in India.

(III) Income attributable to (lie operations carried out iii India, as referred to in Explanation 1, shall include certain incomes I Explanation 3A]

For the removal of doubts, it is hereby declared that the income attributable to the operations carried out in India, as referred to in Explanation 1, shall include income from

(i)         such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India;

(ii)        sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India and

(iii)       sale of goods or services using data collected from a person who resides in India or from a person who uses internet protocol address located in India:

In the case of a Non-Resident, the following shall not, however, be treated as business connection in India:

(i)         Operations confined to purchase of goods in India for purpose of exports;

(ii)        Operations confined to collection of news and views for transmission outside India by or on behalf of Non-Resident who is engaged in the business of running news agency or of publishing newspapers. magazines or journals;

(iii)       Operations confined to shooting of cinematograph films in India if such Non-Resident is:

(a)       an individual—he should not be a citizen of India; or

(b)       a firm- the firm should not have any partner who is a citizen of India or who is resident in India; or

(c)        a company — the company does not have any shareholder who is a citizen of India or who is resident in India.

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

(iv)       In the case of a foreign company engaged in the business of mining of diamonds, no income shall he deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamond in any Special Zone notified by the Central Government in the Official Gazette in this behalf.

(2B)      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.

(2C)      Income from the transfer of any capital asset situated in India:

 Where the capital asset is situated 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.

(2D)     Any income which falls under the head ‘Salaries’ if it is earned in India:

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

(2E) 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:

(i)         Income should be chargeable under the head Salaries’;

(ii)        The payer should be Government of India;

(iii)       The recipient should be an Indian Citizen — whether Resident or Non-Resident;

(iv)       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).

(2F)  Interest Payable by:

(i)         Government; or

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

(iii)       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.

(2G) Royally Payable by:

(i)         Government; or

(ii)        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

(iii)       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 an source in India.

shall be income which is deemed to accrue or arise in India in the hands of the recipient.

(2H) Fees for Technical Services Payable by:

(i)         Government; or

(ii)        A person who is a resident in India, except where services are utilized for a business or profession carried on outside India or earning any income from any source outside India; or

(iii)       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.

(2I) Deemed Accrual of Gift made to a Non-Resident [Section 9(viii)]

Income arising outside India, being any sum of money exceeding Rs. 50,000 paid on or after 5.7.2019 by a person resident in India to a non-resident, not being a company, or to a foreign company, shall be deemed to accrue or arise in India.