Section - 9 of Income Tax Act, 1961

BY COTHA S SRINIVAS
SECTION 5 :

Type In India Outside India

I Accrues Accrues

N Arises Arises

C Received Not Applicable

O Deemed to Accrue Not Applicable
M Deemed to Arise Not Applicable
E Deemed to be Received Not Applicable
SECTION 5 :
Resident & Resident But
Particulars Ordinarily Not Ordinarily Non-Resident
Resident Resident

1) Income received or Taxable Taxable Taxable

deemed to be received
in India

2) Income accruing or Taxable Taxable Taxable

arising or deemed to
accrue or arise in India

3) Income accruing or Taxable Not Taxable Not Taxable

arising outside India
 SECTION 9 : INCOME DEEMED TO
ACCRUE OR ARISE IN INDIA
Sl No. Section Income

Business Income, Professional Income, House Property Income,

1 9(1)(i)
Capital Gains, Income from Other Sources
2 9(1)(ii) Any salary income, if it is earned in India
Any salary payable by the Government to an Indian citizen for
3 9(1)(iii)
service outside India
4 9(1)(iv) Dividend paid by an Indian company outside India
5 9(1)(v) Interest payable by Government, resident or non-resident
6 9(1)(vi) Royalty payable by Government, resident or non-resident

Fees for technical services payable by Government, resident or

7 9(1)(vii)
non-resident.
 Section 9 (1)(i)
Section- 9 enumerates various categories of income which shall be
deemed to accrue or arise in India under certain circumstances. The income
dealt with in each clause is distinct and independent of the other.
It may be noted that in case of specific class of income one must look at the
specific clause and not to general provisions of clause(i).

All income accruing or arising

whether directly or indirectly

through or from any

Any Any Any Asset Transfer of

Business Property or source a Capital
OR OR OR
connection of income asset situate
in India in India in India in India
Section-9(1)(i) : Any income through or from any
Business Connection in India
Business: The expression Business is defined in the Act as any
trade, commerce, manufacture or any adventure or concern in the
nature of trade, commerce or manufacture, but the Act contains
no definition of the expression Business Connection
Business Connection : For the purpose of Determination of
Business Connection one must satisfies below Conditions
a business in India
a connection between non resident and that business
a non resident has earned an income through such
connection
continuity about the business connection
Section 9 (1)(i) - Explanations
1. Exemptions (a) to (e) ;
3. Meaning of Business Connection (a) to (c) ;
4. Attribution of income ;
5. Meaning of Through;
6. Underlying asset transfer ;
7. Share or interest defined (a) to (d)
8. Exemption to transfer (a) to (c)
Explanation 1 to Sec. 9(1)(i)
In the case of non-residents, the following shall not be considered as business
connection in India and therefore, no income shall be deemed to accrue or
arise in India
All Operations are not in India reasonably attributable to the
operations in India ;
Transactions that are confined to mere purchase of goods in India for
export;
Operations confined to collection of news and views in India for
transmission out of India by or on behalf of non-resident, who is engaged
in the business of running news agency or of publishing newspaper or
magazines or journals;
Explanation 1 to Sec. 9(1)(i)
Operations confined to the shooting of cinematograph film in India,
where such non-resident is:
a) An individual who is not a citizen of India; or
b) A firm not having any partner who is a citizen of India or who is
resident in India; or
c) A company not having any shareholder who is a citizen of India or
who is resident in India
Activities confined to the display of uncut and unassorted diamond in
any special zone notified by the Central Government by a foreign
company engaged in the business of mining of diamonds
Explanation 2 to Sec. 9(1)(i)
Meaning of Business Connection shall include any business activity
carried through a person who, acting on behalf of the non-resident
a. has and habitually exercises in India, an authority to conclude
contract on behalf of the non-resident ;
(activities limited to the purchase of goods or merchandise is
excluded)
b. has no such authority, but habitually maintains in India stock of
goods or merchandise and delivers the same on behalf of the non-
resident ;
c. habitually secures orders in India, mainly or wholly for the
non-resident or for that non-resident and other non-residents
controlling, controlled by, or subject to the same control, as that
non-resident;
Explanation 2 to Sec. 9(1)(i)

Dependent Agent Vs. Independent Agent

Business Connection shall not include business activity by an

Independent Agent

Business Connection includes an activity by an agent working mainly or

wholly for the non-resident and other non-residents controlling,
controlled by, or subject to the same control, as that non-resident;

Agent means broker, general commission agent or other agent.

Explanation 3 to Sec. 9(1)(i)

Where a business is carried on in India by a person referred to in clause

(a) to (c) of Explanation 2, only so much of income attributable to the
operations carried out in India shall be deemed to accrue or arise in
India

Explanation 4 to Sec. 9(1)(i)

Through shall mean and include and shall be deemed to have always
meant and included
by means of , in consequence of or by reasons of .
vSection-9(1)(i) : Any income through or from
from any Property in India
Any income which arises from any property which is situated in
India is deemed to accrue or arise in India. The term property
includes any tangible property both movable or immovable.
Intangible assets are covered within the term "asset".

vSection-9(1)(i): Any income through or from

any asset or source of income in India
The term asset will include all intangible rights, unlike property
which covers only tangible properties. The term source means
not a legal concept but something which a practical man would
regard as a real source of income.
vSection-9(1)(i): Any income through the the
transfer of a capital asset situate in India
Income accruing or arising, directly or indirectly through
the transfer of capital asset is deemed to accrue or arise in
India provided such capital asset is situated in India. The
capital asset may be movable or immovable, tangible or
intangible. Such income should be chargeable under the head
"Capital Gain" under section 45 of the Act. The fact that the
documents of transfer are registered outside India or
consideration for transfer is paid outside India is irrelevant for
income to be chargeable under this clause.
Explanation 5 to Sec. 9(1)(i)
an asset or capital asset
being
any share of or interest in
a company registered outside India
or
an entity incorporated outside India
shall be deemed to be and
shall always be deemed to have been situated in India,
if the share or interest derives,
directly or indirectly,
Explanation 6 to Sec. 9(1)(i)
(a) Value Substantially defined

(b) Value of an asset shall be Fair Market Value

(c) Accounting Period

(d) Specified Date

CBDT Circular no. 4/2015 dt. 26.03.2015 clarifies that the

dividends declared and paid by a foreign company outside
India in respect of shares which derive their value
substantially from assets situated in India would not be
deemed to be income accruing or arising in India by virtue
of the provisions of Explanation above.
Explanation 7 to Sec. 9(1)(i)
(a) Exemption for minority share holders or minority interest holders
No income shall be deemed to accrue or arise to a non-resident from
transfer, outside India, of any share of, or interest in, a company or an entity,
registered or incorporated outside India,
(i) If company or entity directly owns the assets situated in India
(ii) If company or entity indirectly owns the assets situated in India

Transferor (whether individually or alongwith its associated enterprises)

at any time in the 12 months preceding the date of transfer,
Neither holds the right of management or control in relation to such
company or entity
Not holds voting power or share capital or interest exceeding 5% of the total
voting power or total share capital or total interest of such company or
Explanation 7 to Sec. 9(1)(i)

(b) If all assets owned directly or indirectly,

by a company or entity are not located in India,
the income of non-resident transferor,
from transfer outside India of a share of, or interest in,
such company or entity, deemed to accrue or arise in India,
shall be only such part of the income as is
reasonably attributable to assets located in India
and determined in such manner as may be prescribed.
 Sec. 9(1)(ii) Any salary income, if it
is earned in India
Income which falls under the head Salaries shall be
regarded as income earned in India, if the income is payable
for:-
i) Services rendered in India; and
ii) 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.
However, Sec. 10(6) grants exemption in respect of salary
earned by foreign nationals under certain circumstances and
subject to certain conditions.
Sec. 9(1)(iii) Any salary payable by the Government
to an Indian citizen for service outside India
It provides that the salaries are chargeable to tax if the same
is payable by the Government to a Indian Citizen for services
rendered outside India. The residential status and the
place of receipt of salary are not relevant for the purpose
of this sub section.
For income to be treated as deemed to accrue or arise in
India following four conditions needs to be satisfied :
Income should be chargeable under the head "Salaries"
Salary should be payable by Government of India
The recipient should be an Indian Citizen, irrespective of
their residential status
Sec. 9(1)(iv) Dividend paid by an Indian
INDIAN company outside India
v Dividend paid by an Indian Company outside India is deemed to
accrue or arise in India by virtue of the provisions of section 9(1)
(iv).
v Therefore, any dividend paid by an Indian Company shall be
chargeable to tax in India irrespective of the residential status
of the assessee.
v Dividend from a foreign company paid in India shall be taxable in
India on receipt basis as income is received in India.
v The place of accrual of dividend should be decided on the basis of
the place of registered office of the company. The place of
declaration or payment of such dividend is immaterial.
v Dividend declared by a Domestic company is exempt U/s.10(34)
 Sec. 9(1)(v) Interest

Section 9(1)(v) provides that income by way of a interest is deemed

to accrue or arise in India in case of interest is payable by
the Government both Central or State

resident person except where the interest pertains to any

debt incurred or moneys borrowed and used for the purposes
of business or profession carried on by such person outside
India or for the purpose of making or earning any income
from any source outside India
a non resident where interest pertains to any debt incurred or
moneys borrowed and used for the purpose of a business or
profession carried on by such person in India
 Sec. 9(1)(v) Interest payable by
government, resident or non-resident

Explanation : for the purpose of clause (v) of section 9(1)

(a) In case of a non-resident, being a person engaged in the business of

banking
any interest payable by the Permanent Establishment (PE) in India of
such non-resident to
The head office or
Any permanent establishment or
Any other part of such non-resident
Outside India shall be deemed to accrue or arise in India and
Shall be chargeable to tax in addition to any income of the PE
PE shall be deemed to be a separate and independent of non-resident for
Sec. 9(1)(vi) ROYALTY
General Meaning of Royalty -
All these rights are valuable intellectual property rights

This can be transferred by way of

sale and purchase,

assignment,
license or lease.
Taxation of these rights needs to be analysed
Sec. 9(1)(vi) ROYALTY
Scope of Total Income -
An ordinary resident pays tax in respect of his

- Indian Income
- Foreign Income

A not ordinary resident pays tax in respect of his

- Indian Income
- Foreign income only if it is derived from his business
controlled in India or Profession set up in India

Sec. 9(1)(vi) ROYALTY

Royalty / Fees for Technical Service

Payer Payee

Govt Pays to NR Indian Income

Sec. 9(1)(vi) ROYALTY

Royalty / Fees for Technical Service

Payer Payee

Resident Pays to NR Indian

By Rule
Income

By Exception Non-Indian
Income
Sec. 9(1)(vi) ROYALTY

Royalty / Fees for Technical Service

Payer Payee

Non-Indian
NR Pays to NR By Rule
Income

By Indian
Exception Income

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY

Exceptions

Business/Prof carried on
Outside India
Resident utilization Making/earning any income
Payer from any source
Outside India

Business/Prof carried on
in India
NR
Utilization
Payer Making/earning any income
from any Source
in India
SSB & Associates Group Dynamics
Sec. 9(1)(vi) ROYALTY

Royalties When an Indian income

Royalty payable by-

a) The Government;

b) Resident;

Exception : Royalty is not Indian income where the royalty is

payable in respect of any right, property or information used or
services utilized for the purpose of a business or profession carried
on by payer outside India or for the purposes of making or earning
any income from any sources outside India

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY

c) Non-resident
Requirement or condition:
Royalty in respect of any right, property or information used
or services utilized for the purposes of a business or profession
carried on by payer in India or for the purposes of making or
earning any income from any source in India.

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY

Sec 9(1)(vi)
Exception 1 -

If Royalty is payable in pursuance of an agreement made

before the 1st day of April, 1976, and the agreement is
approved by Central Government
Explanation 1 : For the purposes of the foregoing proviso, an
agreement made on or after 1st day of April, 1976 shall be
deemed to have been made before that date if the agreement
is made in accordance with proposals approved by the
Central Government before that date.
SSB & Associates Group Dynamics
Sec. 9(1)(vi) ROYALTY

Sec 9(1)(vi)
Exception 2

If Royalty is paid in respect of a computer software supplied

by a non resident manufacturer alongwith computer or
computer based equipment.
Under any scheme approved under the policy on computer
software Export, Software Development and Training, 1986 of
the Government of India.

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY

Computer Software means (Explanation 3)

any computer programme recorded on any disc, tape,

perforated media or other information storage device and

Includes any such programme or any customised electronic

data;

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY

Royalty : Meaning Explanation 2

Royalty means consideration

Including any lump sum consideration

Excluding any consideration which would be the income

of the recipient chargeable under the head Capital gains

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY

Consideration may be in the form of

- Lump sum
- Proportionate
- Progressive
- Degressive
- Based on Sales
- Based on Profits
- Based on Production
SSB & Associates Group Dynamics
Sec. 9(1)(vi) ROYALTY

For the transfer of all or any rights

(including the granting of a license) in respect of

- A patent,
- Invention,
- Model,
- Design,
- Secret formula or,
- Process or,
- Trade mark or,
- Similar property;
SSB & Associates Group Dynamics
[clause(i)]
Sec. 9(1)(vi) ROYALTY

The imparting of any information Concerning the

working of, or the use of,
- A patent,
- Invention,
- Model,
- Design,
- Secret formula or
- Process or
- Trade mark or
- Similar property;
SSB[clause(ii)]
& Associates Group Dynamics
Sec. 9(1)(vi) ROYALTY

The use of any

- Patent,
- Invention,
- Model,
- Design,
- Secret formula or
- Process or
- Trade mark or
- Similar property; [clause (iii)]
SSB & Associates Group Dynamics
Sec. 9(1)(vi) ROYALTY

The imparting of any information concerning

Technical
Knowledge

Industrial
Experience

Commercial
Skill
Scientific [clause (iv)]

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY

The use or right to use any

- Industrial,

- Commercial or

- Scientific equipment

- But not including the amounts referred to in section 44BB;

[clause (iva)]

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY

The transfer of all or any rights

(including the granting of a license) in respect of any

- Copyright

- Literary

- Artistic or

- Scientific work including films or video tapes for use in

connection with radio broadcasting,
- Excluding consideration for the sale, distribution or exhibition of
cinematographic films; or [clause
(v)]
SSB & Associates Group Dynamics
Sec. 9(1)(vi) ROYALTY

The rendering of any services in connection with the

activities referred to in sub-clauses (i) to (iv), (iva) and (v)

[Clause vi]

SSB & Associates Group Dynamics

Sec. 9(1)(vi) ROYALTY
Explanation 4 :

Transfer of all or any rights in respect of any right, property

or information includes and has always included transfer of all
or any right for use or right to use a computer software
(including granting of a licence) irrespective of the medium
through which such right is transferred
Sec. 9(1)(vi) ROYALTY
Explanation 5 :

Royalty includes and has always included consideration in

respect of any right, property or information, whether or not
(a) the possession or control of such right, property or
information is with the payer;
(b) such right, property or information is used directly by
the payer;
(c) the location of such right, property or information is in
India.
Sec. 9(1)(vi) ROYALTY
Explanation 6 :

Process includes and shall be deemed to have always

included transmission by satellite (including up-linking,
amplification, conversion for down-linking of any signal) cable,
optic fibre or any other similar technology, whether or not such
process is secret.
Sec. 9(1)(vii) technical service
Section 9(1)(vii) provides that income by way of
technical service is deemed to accrue or arise in India if
payable by
the Government both Central or State

resident person except where the fees are payable in

respect of services utilised in a business or profession
carried on by such person outside India or for the
purpose of making or earning any income from
any source outside India
a non resident where the fees are payable in respect of
services utilised in a business or profession carried
on by such person in India or for the purpose of
Sec. 9(1)(vii) technical service
Fees for technical services means

Consideration (including any lump sum consideration)

For the rendering of any

Managerial, technical or consultancy services

(including the provision of services of technical or other

personnel)
But excludes

Consideration for any construction, assembly, mining or like

project undertaken by the recipient or
Consideration which is chargeable under the head Salaries
Sec. 9(1)(vii) technical service
Exception 1 -

If Technical Service is payable in pursuance of an agreement

made before the 1st day of April, 1976, and the agreement is
approved by Central Government.

Explanation 1 : For the purposes of the foregoing proviso, an

agreement made on or after 1st day of April, 1976 shall be
deemed to have been made before that date if the agreement
is made in accordance with proposals approved by the
Central Government before that date.
Sec. 9(2) exemption
Any pension payable outside India to a person residing
permanently outside India shall not be deemed to accrue or
arise in India, if the pension is payable to a person to be a
Judge of the Federal Court or of a High Court.
Explanation for the purposes of this section, income of a
non-resident shall be deemed to accrue or arise in India being
interest, royalty and technical service and shall be included in
the total income of the non-resident, whether or not,
(i) the non-resident has a residence or place of business or
business connection in India; or
(ii) the non-resident has rendered services in India.
 Practical Query Session
1) Is Payment for online advertisement on the portal of a foreign
company is Royalty or FTS ?
Answer :- No
The Mumbai Tribunal has held that the payments made to a foreign
company for services rendered relating to uploading and display of
the banner advertisement on its portal is not taxable in India as
royalty or Fees for Technical Services (FTS). In rendering this
decision, the Tribunal has followed its earlier decision in the case of
Yahoo India (P.) Ltd v. CIT [2011] 46 SOT 105 (Mum).

2) Payment to obtain license for use of database is it Royalty ?

Answer :- Yes
Held in the case of CIT v. Wipro Limited (203 Taxman 621) (Kar
HC)
 Practical Query Session

3) Payments to Satellite Operators for broadcasting does not

qualify as royalties?
Answer :- No`
The Delhi High Court in the case of Asia Satellite Telecommunications
Co. Ltd. Vs. DCIT held that payments made for using capacity in a
transponder for uplinking / down linking data do not constitute
royalty under the provisions of the Income-tax Act, 1961. The High
Court held that the customers did not make payments for the use of
any process or equipment, since control over the process or
equipment was with the taxpayer and not with the customers.
4) Is any service provided by machine or robots amounts to FTS ?
Answer :- No
 Practical Query Session

5) Whether Subscription fee received by Non-resident from

customers for Database usage services amounts to Royalty ?
Answer :- No
The subscription fee received data base services not in the nature of
royalty and hence it would not be taxable in India as royalty.
If in case a permanent establishment exists, then such subscription fee
would be taxable as business income it was held in the case of Factset
Research System Inc., in re(2009) 182 Taxmann 266 (AAR New
Delhi)

6) Whether the services of audit in relation to issuance of ISO 9000

certification will fall within the scope of FTS or not?