Income deemed to accrue or arise in India - “Through or from transfer of Capital Asset situated in India.” - Section 9(1)(i) - International Taxation - Income Tax

Income deemed to accrue or arise in India - Through or from transfer of Capital Asset situated in India. - Section 9(1)(i) Capital gains arising through or from the transfer of a capital asset situated in India would be deemed to accrue or arise in all cases irrespective of the fact whether. - The capital asset is movable or immovable, tangible or intangible.; The place of registration of the document of transfer etc., in India or outside; and The place of payment of the consideration for the transfer is within India or outside. Accordingly, the expression through shall mean and include and shall be deemed to have always meant and included by means of , in consequence of or by reason of . [Explanation 4, Section 9(1)(i)] Further, an asset or a capital asset being any share or interest in a company or entity registered or 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 , its value substantially from the assets located in India. [Explanation 5, Section 9(1)(i)] Cases where an asset or capital asset held by a non-resident is not deemed to be situated in India- An asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, In a Foreign Institutional Investor as referred to in clause (a) of the Explanation to section 115AD for an assessment year commencing on or after the 1st day of April, 2012 but before the 1st day of April, 2015. In Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 prior to their repeal, made under the Securities and Exchange Board of India Act,1992. in Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992. The CBDT has, vide Circular No. 28/2017 , dated 07.11.2017, clarified that the provisions of section 9(1)(i) read with Explanation 5, shall not apply in respect of income accruing or arising to a non-resident on account of redemption or buyback of its share or interest held indirectly (i.e. through upstream entities registered or incorporated outside India ) in the specified funds if such income accrues or arises from or in consequence of transfer of shares or securities held in India by the specified funds and such income is chargeable to tax in India. The above benefit shall be applicable only in those cases where the proceeds of redemption or buyback arising to the non resident do not exceed the pro-rata share of the non-resident in the total consideration realized by the specified funds from the said transfer of shares or securities in India. It is further clarified that a non-resident investing directly in the specified funds shall continue to be taxed as per the extant provisions of the Act. Declaration of dividend by a foreign company [ Circular No. 4/2015 dated 26.03.2015 ] Declaration of dividend by such a foreign company outside India does not have the effect of transfer of any underlying assets located in India. It is therefore, clarified 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 5 to section 9 (1)(i) of the Act . *Indirect Transfer It is hereby clarified that an capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, its value substantially from the assets located in India [Explanation 6 of Section 9(1)(i)] - the share or interest, referred to in Explanation 5, shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if, on the specified date, the value of such assets - exceeds the amount of ten crore rupees; and represents at least fifty per cent. of the value of all the assets owned by the company or entity, as the case may be; [Explanation 6(a) of Section 9(1)(i)] Exception: Income shall not be deemed to accrue or arise to a NR from transfer of interest in a foreign entity if the transferor along with its associated enterprises does not hold right of management or control in foreign entity or voting power or share capital or interest exceeding 5% of the total voting power or total share capital or total interest, as the case may be, of foreign entity that directly owns the assets situated in India at any time during 12 months preceding the date of transfer. Notes :- Where an asset or a capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992. Specified date: date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by fifteen per cent: FMV of Assets: the value of an asset shall be the fair market value as on the specified date, of such asset without reduction of liabilities, if any, in respect of the asset, determined in such manner as may be prescribed. Accounting Year: accounting period means each period of twelve months ending with the 31st day of March: Provided that where a company or an entity, referred to in Explanation 5, regularly adopts a period of twelve months ending on a day other than the 31st day of March for the purpose of - complying with the provisions of the tax laws of the territory, of which it is a resident, for tax purposes; or reporting to persons holding the share or interest, then, the period of twelve months ending with the other day shall be the accounting period of the company or, as the case may be, the entity. Where all the assets owned by the foreign entity are not located in India, only so much of income as is proportionate to the assets located in India shall be deemed to accrue or arise in India.