Income deemed to accrue or arise in India - section 9(1)(i) - trading of goods - Income Tax - 886/CBDT

INSTRUCTION NO. 886/CBDT Dated : September 29, 1975 Section(s) Referred: 9(1)(i) Statute: Income - Tax Act, 1961 Sir, In terms of clause (b) of the Explanation to section 9(1)(i) of the Income-tax Act, 1961, no income shall be deemed to accrue or arise in India to a non-resident through or from operations which are confined to the purchase of goods in India for the purpose of export. Prior to 1-4-1964, this clause of the Explanation was subject to a proviso which read as under:- "Provided that the non-resident has no office or agency in India for this purpose and the goods are not subjected to any kind of manufacturing process before being exported from India." Section 5 of the Finance Act, 1964 amended section 9(1) by way of omitting the aforesaid proviso. The effect of this amendment was explained in para 52 of Board's Circular No. 20(LXXVI)D of 1964 dated the 7th July, 1964 as follows:- "........ The effect of this amendment is that in respect of the assessment year 1964-65, and subsequent years, a non-resident will not be liable to tax in India on any income attributable to operations confined to purchase of goods in India for export, even though the non-resident has an office or agency in India for the purpose, or the goods are subjected by him to any manufacturing process before being exported from India." 2. It is hereby clarified that there is no implication in the paragraph quoted above that if the goods purchased in India are subjected to any manufacturing process, the profits attributable to the manufacturing operations will be exempt from tax. 3. A further question that arises about the scope of Section 9(1)(i) is whether the profit attributable to the operation of purchase of goods in India will also become taxable where the goods are subjected to any separately identifiable process by or on behalf of the non-resident before being exported. The Board has been advised that if the operations of the non-resident are not confined to the purchase of goods for the purpose of export and if the goods are subjected to any separately identifiable process by or on behalf of the non-resident before being exported, whether it amounts to a manufacturing process or not, clause (b) of the Explanation to section 9(1)(i) will not be applicable in such situations and, therefore, the question of taxability will have to be entirely determined by reference to the provisions of section 9(1)(i) read with clause (a) of the said Explanation. The result will be that in such cases even the profit attributable to the purchase of goods in India will be taxable in India in addition to the profit attributable to the processes whether of a manufacturing nature or not to which the goods are subjected before export. 4. These instructions may be brought to the notice of all officers in your charge. The I.T.Os. should be asked to review such cases and take necessary action for revising the assessments to the extent possible.