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Section 9 of the Indian Income

Tax Act, 1961
Income deemed to accrue or
arise in India
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Importance
Section 5 outlines the scope of Taxation of
residents and non-residents.
For all types of assessees the total income
shall inter alia include Income accruing or
arising in India or deemed to be accruing
or arising in India.
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9(1)(i)
Arising directly or indirectly from any
business connection or property situated
in India
From any asset or source of income in
India or from the transfer of any Capital
Asset situated in India.






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Explanation 1 to 9(1)(i)
Income of a Non-Resident limited to only the
operations carried out in India.
Exclusions
1. Operations confined to purchase of goods in
India for the purchase of exports
2. Collection of news and views by a Non-
Resident for transmission outside India.
3. Operations confined to shooting of films in
India by Non-residents and non-citizens
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Explanation 2 to Section 9(1)(i)
Business connection shall include following
business activities carried out through a person
(excluding an agent of independent status) who
on behalf of the Non-resident
concludes contracts
delivers goods from a stock maintained by him in
India
secures orders mainly or wholly for him. (N-R)

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Business Connection
CIT vs R.D. Aggarwal 56 ITR 20 (SC)
1. The expression "business connection"
undoubtedly means something more than
"business".
2. It predictes an element of continuity
3. A stray or isolated transaction is normally not to
be a business connection.
4. A real and intimate relation between trading
activity carried on outside the taxable territories
and trading activity within the territories.
5. Wider than the term Business





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CIT vs Gulf Oil 108 ITR 874
Where the transactions are at arms length
and are on a principal to principal basis
then it shall not be within the purview of
the Explanation 2.
Circular no.23 dated 23 July 1969 also
emphasis in many places the arms length
requirement for it to be a principal to
principal transaction.

Business Connection
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9(1)(ii)
Salaries
For services rendered in India
Rest period or Leave period before and
after the services rendered in India which
forms part of the service contract of
employment
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9(1)(iii)
Salaries paid by the Government to a
citizen of India for service outside India

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9(1)(iv)
Dividend payable by an Indian Company
outside India.
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Source based taxation
Interest 9(1)(v)
Royalties 9(1)(vi)
Fees for technical Fees 9(1)(vii)

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Interest
Payable by the Government
Payable by the resident except where
payable for any debt incurred and moneys
used for the purposes of business carried
outside India or for earning Income from
any source outside India
Payable by a Non-resident where the
interest is payable for any business carried
on in India
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Royalties
Payable by the Government
Payable by a resident except where the
right, property or information is used for
business carried on outside India or for
earning income outside India
Payable by a Non-resident where the right,
property or information is used for
business carried on in India or for earning
income outside India.

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Fees for Technical fees
Payable by the Government
Payable by a Resident except where the
services are utilised in a business carried
on outside India or for earning any Income
outside India
Payable by a Non-resident for a business
carried on in India or for earning any
income outside India.
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Impact of Ishikawajma
Ishikawajma-Harima Heavy Industries Ltd.
vs DIT 288 ITR 408 (SC)
For Technical Services to be taxable in
India the services must not only be used in
India but also be rendered in India.
Amendment to Section 9











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Amendment to Section 9
"Explanation.For the removal of doubts,
it is hereby declared that for the purposes
of this section, where income is deemed to
accrue or arise in India under clauses (v),
(vi) and (vii) of subsection(1), such income
shall be included in the total income of the
non-resident, whether or not the non-
resident has a residence or place of
business or business connection in India..
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The decision of the SC stands and the
amendment in no way actually goes on to
interfere with that judgment.


Amendment to Section 9
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