Income deemed to accrue or arise in India - “Through or from any business connection in India.” - Section 9(1)(i) - International Taxation - Income Tax

Income deemed to accrue or arise in India Through or from any business connection in India Any income accruing or arising to an assessee in any place outside India whether directly or indirectly through or from any business connection in India , or through or from any property, any asset or source of income in India or through the transfer of a capital asset situated in India Would be deemed to accrue or arise in India. [ Section 9(1)(i) ] Meaning of Business Connection Business Connection shall include any business activity carried out through a person who, acting on behalf of the non-resident. [ Explanation 2 of Section 9(1)(i) ] In case he have an authority , which is habitually exercises in India, 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 in the name of the non-resident; or for the transfer of the ownership of property owned by that non-resident, or for the granting of the right to use, that non-resident has the right to use; or for the provision of services by the non-resident; or In case he has no such authority , habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or habitually secures orders in India , mainly or wholly for the non resident or Further, there may be situation when the person actin on behalf of the non resident secure order for other non resident. in such situation, business connection for other non-resident is established if, Such other non resident control the non-resident or such other non resident is controlled by the non-resident or such other non resident is subject to same control as that of non resident. In all the three situations, business connection is established, where a person habitually secure order in India, mainly or wholly for such non resident. Example: Situation 1 - Mr. Q acting on behalf of Mr. M (Non-Resident) secures order for Mr. M Business Connection is directly established. Situation 2 - Mr. Q acting on behalf of Mr. M (Non-Resident) secures order for Mr. N (Non-Resident) Business connection is established if Mr. M is controlled by Mr. N or Mr. N is controlled by Mr. M or Commonly controlled by Mr. P, being the person who controls Mr. M as well as Mr. N. Agents having independent status are not included in Business Connection Business Connection, however, shall not be established, where the non-resident carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business. A broker, general commission agent or any other agent having an independent status where he does not works mainly or wholly on behalf of a non-resident However, he will not be considered having independent status where he carries on business as referred to in above points of a, b c of Section 9(1)(i). only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India. In the case of a Non-resident the following shall not be treated as Business Connection in India [ Explanation 1 of section 9(1)(i) ] In the case of business , in respect of which all the operations are not carried out in India [ Explanation 1(a) read with Explanation 2A 3A added by Finance Act 2020, W.e.f. AY 2021-22 of Section 9(1)(i) ] In the case of a business, other than the business having business connection in India on account of significant economic presence , of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India . Significant Economic Presence [SEP] [Explanation 2A to section 9(1)(i)] : Significant Economic Presence of a Non-Resident in India shall also constitute business connection in India SEP means Nature of Transaction Condition Transaction in respect of any goods, services or property carried out by a non-resident with any person in India including provision of download of data or software in India Aggregate of payments arising from such transaction or transactions during the previous year exceeds 2 crores. Systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India The users should be atleast 3 Lakhs. Further, above transactions or activities shall constitute significant economic presence in India, whether or not - the agreement for such transactions or activities is entered in India; or the non-resident has a residence or place of business in India; or the non-resident renders services in India: However, where a business connection is established by reason of SEP only so much of income as is attributable to the transactions or activities referred to in clause (A) or clause (B) shall be deemed to accrue or arise in India. Income as is reasonably attributable to the operations carried out in India includes 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. Internet protocol Address - The provisions contained in this Explanation shall also apply to the income attributable to the transactions or activities referred to in Explanation 2A. [Explanation 3A of Section 9(1)(i)] Purchases of goods in India for export [Explanation 1(b) of section 9(1)(i)] In the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export. Collection of news and views in India for transmission out of India [Explanation 1(c) of section 9(1)(i)] In the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India. Shooting of cinematograph films in India [ Explanation 1(d) of section 9(1)(i) ] In the case of a non-resident, being - an individual who is not a citizen of India; or a firm which does not have any partner who is a citizen of India or who is resident in India; or a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph film in India. Activities confined to display of rough diamonds in Special Notified Zones [ Explanation 1(e) of section 9(1)(i) ] In the case of a foreign company engaged in the business of mining of diamonds, No income shall be deemed to accrue or arise in India to it through or from the activities which are confined to the display of uncut and unassorted diamond in any special zone notified by the Central Government in the Official Gazette in this behalf. [ For more detail refer this chapter ] Note:- The board has withdrawal Circular no. 23 date July 23, 1969, circular No. 163 dated May, 29, 1975 and Circular no. 786 dated 7 February 2000 vide Circular no. 7/2009 dated 22.10.2009 . However these circular were explanatory circular and It is noticed that interpretation of the Circular by some of the taxpayers to claim relief is not in accordance with the provisions of section 9 of the Income-tax Act, 1961 or the intention behind the issuance of the Circular. The following clarification given by the central board of direct taxes vide Circular no. 23 date July 23, 1969, circular No. 163 dated May, 29, 1975 and Circular no. 786 dated 7 February 2000 would be four useful in deciding question the applicability of the provisions of section 9 in certain specific situation.