Non-Residents—Income Accruing or Arising through or from Business connection in India—Liability to Tax—Section 9 of the Income-tax Act, 1961 - Income Tax - 163/1975

Circular No. 163, dated May 29, 1975. Subject: Non-residents Income accruing or arising through or from business connection in India Liability to tax Sec. 9 of the Income-tax Act, 1961. Attention is invited to para. 3(7) of Board's Public Circular No. 23 of 1969 dated 23rd July, 1969, wherein it has been stated as follows : Where, however, there is a regular agency established in India for purchase of the entire raw materials required for the purpose of manufacture and sale abroad and the agent is chosen by reason of his skill, reputation and experience in the line of trade, it can be said that there is a business connection in India so that a portion of the profits attributable to the purchase of raw materials in India can be apportioned under Explanation (a) to section 9(1)(i). 2, The above sentence may convey the impression that a non-resident is liable to be taxed on a portion of the profits attributable to the purchase of raw materials required for the purposes of manufacture and sale abroad, if the purchases are made in India through a regular agency established in India for this purpose. By virtue of clause (b) of the Explanation to section 9(1)(i) of the Income-tax Act, 1961 , the correct legal position is that 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 purchase of goods in India for the purpose of export. Accordingly, the mere existence of an agency established by a non-resident in India will not be sufficient to make the non-resident liable to tax, if the sole function of the agency is to purchase goods for export. This legal position has also been explained in para. 3(5) of the Board's Public Circular cited above. 3. To remove any possible misunderstanding of the legal position the following sentence may be added at the end of para. 3(7) of the said Circular : The taxability of such portion of the profits will, however, be subject to the exemption provided in clause (b) of the Explanation to section 9(1)(i). (Sd.) M. S. Unninayar, Director, Central Board of Direct Taxes. (F. No. 488/23/73-FTD).