CHAPTER II-BASIS OF CHARGE: Charge of

income-tax, Scope of Total Income and

Residential Status
Section 4 to 9A
Section 4: Charge of income-tax
• (1) Where any Central Act enacts that income-tax shall
be charged for any assessment year at any rate or
rates, income-tax at that rate or those rates shall be
charged for that year in accordance with, and subject
to the provisions (including provisions for the levy of
additional income-tax) of, this Act in respect of the
total income of the previous year of every person :
• Provided that where by virtue of any provision of this
Act income-tax is to be charged in respect of the
income of a period other than the previous year,
income-tax shall be charged accordingly.
• (2) In respect of income chargeable under
sub-section (1), income-tax shall be deducted
at the source or paid in advance, where it is so
deductible or payable under any provision of
this Act.
• Section 4 is the charging section which
provides that:
• Tax shall be charged at the rates prescribed
for the year by the Annual Finance Act
• The charge is on every person specified
under section 2(31)
• Tax is chargeable on the total income earned
during previous year and not the assessment
year.
• Tax shall be levied in accordance with and
subject to the various provisions contained in
the Act.
Section 5: Scope of total income.
• (1) Subject to the provisions of this Act, the total
income of any previous year of a person who is a
resident includes all income from whatever source
derived which—
• (a) is received or is deemed to be received in India
in such year by or on behalf of such person ; or
• (b) accrues or arises or is deemed to accrue or
arise to him in India during such year ; or
• (c) accrues or arises to him outside India during
such year :
• Provided that, in the case of a person not
ordinarily resident in India within the
meaning of sub-section (6) of section 6,
the income which accrues or arises to
him outside India shall not be so
included unless it is derived from a
business controlled in or a profession set
up in India.
• (2) Subject to the provisions of this Act,
the total income of any previous year of
a person who is a non-resident includes
all income from whatever source derived
which—
• (a) is received or is deemed to be
received in India in such year by or on
behalf of such person ; or
• (b) accrues or arises or is deemed to
accrue or arise to him in India during
such year.
• Explanation 1.—Income accruing or arising
outside India shall not be deemed to be received
in India within the meaning of this section by
reason only of the fact that it is taken into
account in a balance sheet prepared in India.
• Explanation 2.—For the removal of doubts, it is
hereby declared that income which has been
included in the total income of a person on the
basis that it has accrued or arisen or is deemed
to have accrued or arisen to him shall not again
be so included on the basis that it is received or
deemed to be received by him in India.
 Section 6: Residence in India
• Residential status of an assessee determines
the scope of chargeability of his income.
Whether a person will be charged to a
particular income or not, depends on his
residential status.
• Sec. 6 provides the test for residential status
for the persons which.
General Points: Residential Status
of a Person
• Different for each previous year:
• Residential status is determined in respect of each
previous year. In other words, residential status of a
person may vary from one previous year to another
previous year.
• Single Status for each source of income:
• A person can have only one residential status for a
previous year i.e. he cannot be a resident for one
source of income and non-resident for another
source.
• Impact of citizenship:
• Citizenship and residential status are two
different concepts.
• A citizen of India may not be a resident in
India for the purpose of income-tax.
• Country Specific:
• A person can have same residential
status in more than one country.
 Section 6: Residence in India
• For the purposes of this Act,—
• (1) An individual is said to be resident in India in any
previous year, if he—
• (a) is in India in that year for a period or periods
amounting in all to one hundred and eighty-two
days or more ; or
• (c) having within the four years preceding that year
been in India for a period or periods amounting in
all to three hundred and sixty-five days or more, is
in India for a period or periods amounting in all to
sixty days or more in that year.
• First of all, an individual is classified as
resident or non-resident and again a resident
individual may further be categorized as
Ordinarily Resident or Not Ordinarily Resident
in India.
Resident in India
• An individual is said to be a resident in India, if
he satisfies any one of the following conditions:
• He is in India in the previous year for a period
of 182 days or more [Sec. 6(1)(a)]; or
• He is in India for a period of 60 days or more
during the previous year and for 365 or more
days during 4 previous years immediately
preceding the relevant previous year [Sec. 6(1)
(c)]
• Non-Resident in India
• An assessee who is not satisfying sec. 6(1)
shall be treated as a non-resident in India for
the relevant previous year.
Illustration 1
• Soaham came to India first time during the P.Y.
2021-22. During the previous year, he stayed
in India for:
• (i) 50 days;
• (ii) 183 days;
• (iii) 153 days.
• Determine his residential status for the A.Y.
2022-23.
• (i) Since Soaham resides in India only for 50 days during the
P.Y. 2021-22, he does not satisfy any of the conditions
specified in sec. 6(1).
• He is, therefore, a non-resident in India for the P.Y. 2021-22.
• (ii) Since Soaham resides in India for 183 days during the
previous year 2021-22, he satisfies one of the conditions
specified in sec. 6(1).
• He is, therefore, a resident in India for the P.Y. 2021-22.
• (iii) Soaham resides in India only for 153 days during the
previous year 2021-22. Though he resided for more than 60
days during the previous year but in 4 years immediately
preceding the previous year (as he came India first time),
he did not reside in India. Hence, he does not satisfy any of
the conditions specified in sec. 6(1).
• Thus, he is a non-resident for the P.Y. 2021-22.
Illustration 2
• Rahul, a British national, comes to India for
the first time during 2015-16.
• During the financial years 2015-16, 2016-17,
2017-18, 2018-19 and 2019-20, he was in
India for 55 days, 60 days, 80 days, 160 days
and 70 days respectively.
• Determine his residential status for the
assessment year 2020-21.
• Explanation 1.—In the case of an individual,
—
• (a) being a citizen of India, who leaves India
in any previous year as a member of the
crew of an Indian ship as defined in clause
(18) of section 3 of the Merchant Shipping
Act, 1958 (44 of 1958), or for the purposes
of employment outside India, the provisions
of sub-clause (c) shall apply in relation to
that year as if for the words "sixty days",
occurring therein, the words "one hundred
and eighty-two days" had been substituted ;
• (b) being a citizen of India, or a person of Indian
origin within the meaning of Explanation to
clause (e) of section 115C, who, being outside
India, comes on a visit to India in any previous
year, the provisions of sub-clause (c) shall apply in
relation to that year as if for the words "sixty
days", occurring therein, the words "one hundred
and eighty-two days" had been substituted and in
case of such person having total income, other
than the income from foreign sources, exceeding
fifteen lakh rupees during the previous year, for
the words "sixty days" occurring therein, the
words "one hundred and twenty days" had been
substituted.
• Explanation 2.—For the purposes of this
clause, in the case of an individual, being
a citizen of India and a member of the
crew of a foreign bound ship leaving
India, the period or periods of stay in
India shall, in respect of such voyage, be
determined in the manner and subject to
such conditions as may be prescribed.
 Exceptions to Section 6 (1)
• In the following cases, condition (ii) of sec. 6(1) [i.e.
sec. 6(1)(c)] is irrelevant:
• An Indian citizen, who leaves India during the
previous year for employment purpose.
• An Indian citizen, who leaves India during the
previous year as a member of crew of an Indian
ship.
• An Indian citizen or a person of Indian origin, who
normally resides outside India, comes on a visit to
India during the previous year.
• Gangesh, an Indian citizen, for the purposes of
employment, left India for first time on 1 April,
2021 and went to London. He came to India
on 11 January 2022 for only 190 days.
Determine his residential status for P.Y. 2021-
22.
• How to determine period of stay in India for
an Indian citizen, being a crew member?
• Explanation 2 to section 6(1) provides that in
the case of an Individual, being a citizen of
India and a member of the crew of a foreign
bound ship leaving India, the period or periods
of stay in India shall, in respect of such voyage,
be determined in the prescribed manner and
subject to the prescribed conditions.
• CBDT, Notification No. 70/2015 dated 17
August 2015, inserted Rule 126 in the Income-
tax Rules 1962.
Rule 126: Computation of period of stay in
India in certain cases.
• (1) For the purposes of clause (1) of section 6,
in case of an individual, being a citizen of India
and a member of the crew of a ship, the period
or periods of stay in India shall, in respect of
an eligible voyage, not include the period
computed in accordance with sub-rule (2).
• (2) The period referred to in sub-rule (1)
shall be the period beginning on the date
entered into the Continuous Discharge
Certificate in respect of joining the ship
by the said individual for the eligible
voyage and ending on the date entered
into the Continuous Discharge Certificate
in respect of signing off by that individual
from the ship in respect of such voyage.
• Explanation : For the purposes of this rule,
• (a) "Continuous Discharge Certificate" shall have the
meaning assigned to it in the Merchant Shipping
(Continuous Discharge Certificate-cum-Seafarer's
Identity Document) Rules, 2001 made under the
Merchant Shipping Act, 1958 (44 of 1958);
• (b) "eligible voyage" shall mean a voyage undertaken
by a ship engaged in the carriage of passengers or
freight in international traffic where—
• (i) for the voyage having originated from any port in
India, has as its destination any port outside India;
and
• (ii) for the voyage having originated from any port
outside India, has as its destination any port in India.
• Himank is an Indian citizen and a member of
the crew of an Australia bound Indian ship
engaged in carriage of passengers in
international traffic departing from Mumbai
port on 6th June, 2021.
• From the following details for the P.Y.2021-22,
determine the residential status of Himank for
A.Y.2022-23, assuming that his stay in India in
the last 4 previous years (preceding P.Y.2021-
22) is 400 days
• Date entered into the Continuous
Discharge Certificate in respect of joining
the ship by Himank : 6 June, 2021

• Date entered into the Continuous

Discharge Certificate in respect of signing
off the ship by Himank : 9 December,
2021
• Apply Explanation 2 to section 6(1) read
with Rule 126.
• The period beginning from 6th June,
2021 and ending on 9th December, 2021,
being the dates entered into the
Continuous Discharge Certificate in
respect of joining the ship and signing off
from the ship by Himank, an Indian
citizen who is a member of the crew of
the ship, has to be excluded for
computing the period of his stay in India.
• Accordingly, 187 days
[25+31+31+30+31+30+9] have to be
excluded from the period of his stay in
India.
• Himank’s period of stay in India during
the P.Y.2019-20 would be 178 days [i.e.,
365 days – 187 days].
• Since his period of stay in India during
the P.Y.2021-22 is less than 182 days, he
is a non-resident for A.Y.2022-23
• Clause (1A) is inserted after clause (1) of
section 6 by the Finance Act, 2020, w.e.f. 1-4-
2021 :
• (1A) Notwithstanding anything contained in
clause (1), an individual, being a citizen of
India, having total income, other than the
income from foreign sources, exceeding fifteen
lakh rupees during the previous year shall be
deemed to be resident in India in that previous
year, if he is not liable to tax in any other
country or territory by reason of his domicile
or residence or any other criteria of similar
nature.
• Explanation.—For the removal of
doubts, it is hereby declared that this
clause shall not apply in case of an
individual who is said to be resident in
India in the previous year under clause
(1).
• Hritvik left India for first time on 31 May
2021. Determine his residential status for
the previous year 2021-22 if:
• i) He left India for employment purpose
• ii) He left India on world tour
• Karma came India for first time on July 24,
2017.
• From July 24, 2017 to December 25, 2018
he was in India.
• Again, he came to India on August 5, 2021
for employment purpose & left India on
November 25, 2021 permanently.
• Determine his residential status for the
previous year 2021-22 assuming -
• a) He is a foreign citizen
• b) He is an Indian citizen
• (2) A Hindu undivided family, firm or
other association of persons is said to be
resident in India in any previous year in
every case except where during that year
the control and management of its affairs
is situated wholly outside India.
• HUF can be either a resident or non-
resident in India.
• Again, a resident HUF can further be
classified as ‘Ordinarily resident’ and
‘Not ordinarily resident’.
• Resident HUF: When the control &
management of affairs of HUF is wholly
or partly situated in India during the
relevant previous year, then it is treated
as resident in India.
• Control & management means –
1. controlling & directive power;
2. actual control & management (mere
right to control & manage is not
enough);
3. central control & management and not
the carrying out of day to day affairs.
• The place of central control &
management is situated where the head,
the seat & the directing power is
situated.
• The "control and management" means
de facto control and management and
not merely the right or power to control
and manage.
• CIT v Nanelal Gandalal (1960) 40 ITR 1
(SC)
• San Paulo (Brazilian) Rly Co. Ltd. v Carter
[1886] AC 31 HL
• Annamalai Chettiar v ITO [1958] 34 ITR
88 (Mad)
• VVRNM Subbayya Chettiar v CIT (1951) 19 ITR 168
(SC)
• Following propositions were established by the
Supreme Court:
• (1) Normally a Hindu undivided family is presumed
to be resident in India unless it is proved by the
assessee that the control and management of its
affairs situated wholly outside India.
• The control and management signifies the
controlling and directive power, the “head and
brain”; and "situated" implies the function of such
power at a particular place with some degree of
permanence.
• (2) The word "affairs", means affairs
which are relevant for the purpose of the
Income-tax Act and which have some
relations with income sought to be
assessed.
• (3) The seat of management and control
may be divided and if so it may have
more than one residence.
• (4) If the seat of management and
control is situated outside India, the bare
activities in India would not be enough to
support a finding that the seat of
management and control had shifted or
that a second centre for such
management and control had been
started in India.
• Narasimha Rao Bahadur v CIT [1950] ITR
181 (Mad)
Residential status of firms and association
of persons
• Resident: A firm or an AOP or BOI is said to be
a resident in India, if control & management of
its affairs are wholly or partly situated in India
during the relevant previous year.
• Control & management is vested in hands of
partners in case of firm and principal officer in
case of an AOP/BOI.
• Non-resident: If control & management of its
affairs are situated wholly outside India, then
it is a non-resident in India.
• propositions also apply to cases of firms and
other associations of persons
• Erin Estate Galah Ceylon v CIT (1958) 34 ITR 1
(SC)
• In case of firm or BOI or AOP, there is no
subdivision like ‘Ordinarily resident’ or ‘Not
ordinarily resident’.
• the central control and management and
not to the carrying on of day-to-day
business by servants, employees or agents.
• The business may be done from outside
India and yet its control and management
may be wholly within India.
• Therefore, control and management of a
business is said to be situated at a place
where the head and brain of the
adventure is situated.
• Narottam v CIT 23 ITR 454
• Non-resident HUF: HUF is non-resident in
India if the control & management of its affairs
is wholly situated outside India.
• (3) A company is said to be a resident in India
in any previous year, if—
• (i) it is an Indian company; or
• (ii) its place of effective management, in that
year, is in India.
• Explanation.—For the purposes of this clause
"place of effective management" means a
place where key management and
commercial decisions that are necessary for
the conduct of business of an entity as a
whole are, in substance made.
• (w.e.f. 1-4-2017)
• Resident Company: An Indian company is
always a resident in India.
• A non-Indian company is said to be a resident
in India, if its place of effective management,
in that year, is in India.
• ‘control’ means de facto control and not
merely de jure control.
• the control and management of a company’s
affairs is situate at the place where the
directors’ meetings are held and not where
the shareholders meetings are held.
• BR Naik v CIT (1945) 13 LTR. 124 (Bom.)
• Narottan & Pereira Ltd v CIT, (1953) 23 ITR 454
• Calcutta Jute Mills Co v Nicholson, ITC 83
• Apthorpe v PS Brewing Co Ltd 4 TC 41 (CA)

• Guiding Principles for determination of Place of

Effective Management (POEM) of a Company
[Circular No. 06 of 2017; Dated: 24 January 2017]
• Clarification for determination of Place of
Effective Management (POEM) of a company,
other than an Indian company-reg. [Circular No
08 of 2017; Dated: 23 February 2017]
• Non-Resident Company: If place of effective
management, in that year, is not in India, the
said company is non-resident in India for the
relevant previous year.
• There is no sub-division like ‘Ordinarily
resident’ or ‘Not ordinarily resident’
• (4) Every other person is said to be resident in
India in any previous year in every case,
except where during that year the control and
management of his affairs is situated wholly
outside India.
• “Other person” here means the person
other than individual, Hindu undivided
family, company, firm or other association
of persons.
• residential status of a statutory corporation,
local authority, idol or deity is determined
under the provisions of this clause.
• (5) If a person is resident in India in a
previous year relevant to an assessment
year in respect of any source of income,
he shall be deemed to be resident in
India in the previous year relevant to the
assessment year in respect of each of his
other sources of income.
• (6) A person is said to be "not ordinarily resident"
in India in any previous year if such person is—
• (a) an individual who has been a non-resident in
India in nine out of the ten previous years
preceding that year, or has during the seven
previous years preceding that year been in India for
a period of, or periods amounting in all to, seven
hundred and twenty-nine days or less; or
• (b) a Hindu undivided family whose manager has
been a non-resident in India in nine out of the ten
previous years preceding that year, or has during
the seven previous years preceding that year been
in India for a period of, or periods amounting in all
to, seven hundred and twenty-nine days or less; or
Additional Conditions To Test Whether
Resident Individual Is ‘Ordinarily Resident
Or Not’ [SEC. 6(6)]

• Only individuals and HUF can be resident but not

ordinarily resident in India.
• All other classes of assessees can be either a
resident or non-resident.
• A resident individual in India can further be
categorised as -
• i) Resident and ordinarily resident in India
• ii) Resident but not ordinarily resident in India
• A not-ordinarily resident person is one
who satisfies any one of the conditions
specified under section 6(6):
• (i) If such individual has been non-
resident in India in any 9 out of the 10
previous years preceding the relevant
previous year, or
• (ii) If such individual has during the 7
previous years preceding the relevant
previous year been in India for a period
of 729 days or less.
• In other words, under section 6 (6) a resident
individual is treated as “resident and
ordinarily resident” in India if he satisfies the
following two additional conditions:
i. He has been resident in India [as per sec.
6(1)] in at least 2 out of 10 previous years
immediately preceding the relevant
previous year; and
ii. He has resided in India for a period of 730
days or more during 7 previous years
immediately preceding the relevant
previous year.
• an individual becomes resident and ordinarily
resident in India if he satisfies at least one of
the basic conditions and the two additional
conditions.
• Basic Conditions [Sec 6 (1)]
a. He is in India in the previous year for a
period of 182 days or more [Sec. 6(1)(a)]; or
b. He is in India for a period of 60 days or
more during the previous year and for 365
or more days during 4 previous years
immediately preceding the relevant
previous year [Sec. 6(1)(c)]
In the case of an Indian In the case of an Indian In the case of an
citizen who leaves India citizen or a person of individual other than
during the previous Indian origin (who is that mentioned in
year for the purpose of abroad) who comes on columns (1) and (2)
employment (or as a a visit to India during
member of the crew of the previous year
an Indian ship)

(1) (2) (3)

a. Presence of at least a. Presence of at least a. Presence of at least
182 days in India during 182 days in India during 182 days in India during
the previous year the previous year the previous year
b. Non-functional b. Non-functional b. Presence of at least
60 days in India during
the previous year and
365 days during 4 years
immediately preceding
the relevant previous
year (i.e. during April 1
and March 31).
• resident and ordinarily resident = (Condition a
or b) + (Condition i and ii)
• Resident but not ordinarily resident:
• If a resident individual does not satisfy both
additional conditions as given u/s 6(6), he is
“Resident but not ordinarily resident in India”.
• satisfies at least one of the basic conditions
[i.e., condition (a) or (b)] but none of the
additional conditions [i.e., (i) and (ii)]
• satisfies at least one of the basic conditions
[i.e., condition (a) or (b)] and one of the two
additional conditions [i.e., (i) or (ii)]
• Non-resident:
• An individual is a non-resident in India if
he satisfies none of the basic conditions
[i.e., condition (a) or (b)].
• In the case of non-resident, additional
conditions [i.e., condition (i) and (ii)] are
not relevant
• Navjot, a foreign citizen, resides in India
during the previous year 2021-22 for 83
days.
• Determine his residential status for
previous year 2021-22 assuming his stay
in India during the last few previous
years are as follows -
Year Days Year Days Year Days Year Days

2006- 220 2010- 36 2014- 137 2018- 175

07 11 15 19

2007- 15 2011- 115 2015- 265 2019- 15

08 12 16 20

2008- 257 2012- 123 2016- 310 2020- 67

09 13 17 21

2009- 110 2013- 65 2017- 121 2021- 83

10 14 18 22
• Shoaib Akhter, a foreign cricketer visits
India for 100 days in every financial year.
• This has been his practice for the past 10
financial years.
• Find out his residential status for the
assessment year 2021-22.
• Will your answer be different if he has
been coming to India for 110 days
instead of 100 days every year.
• (6) A person is said to be "not ordinarily
resident" in India in any previous year if
such person is—
• (b) a Hindu undivided family whose
manager has been a non-resident in
India in nine out of the ten previous
years preceding that year, or has during
the seven previous years preceding that
year been in India for a period of, or
periods amounting in all to, seven
hundred and twenty-nine days or less; or
HUF: Resident and ordinarily resident/
Resident but not ordinarily resident
• If Karta of resident HUF satisfies both the following
additional conditions (as applicable in case of individual)
then, resident HUF will be Resident and ordinarily resident,
otherwise it will be Resident but not ordinarily resident.
• Additional conditions:
• 1. Karta of resident HUF should be resident in at least 2
previous years out of 10 previous years immediately
preceding relevant previous year.
• 2. Stay of Karta during 7 previous years immediately
preceding relevant previous year should be 730 days or
more.
• Residential status of the karta for the previous
year is not important but his status for
preceding 10 years is important.
• Soaham, an individual, is resident but not
ordinarily resident in India for the
assessment year 2022-23 (previous year
2021-22).
• During the previous year 2021-22, the
affairs of 2019 Batch (HUF) a Hindu
undivided family, whose Karta is Soaham
since 1995, are partly managed from Delhi
and partly from Nepal.
• Determine the residential status of 2019
Batch (HUF) for the assessment year 2022-
23.
• The head office of 2019 Batch (a Hindu
undivided family), is situated in Hong Kong.
The family is managed by Soaham (Since
1995) who is resident in India in 3 out of 10
years immediately preceding the previous
year 2021-22 and who is present in India for
more than 729 days during last 7 years.
Determine the residential status of the
family for the assessment year 2022-23 if
affairs of the family business are:
• (a) wholly controlled from Hong Kong
• (b) partly controlled from India.
• (c) a citizen of India, or a person of Indian
origin, having total income, other than the
income from foreign sources, exceeding
fifteen lakh rupees during the previous year,
as referred to in clause (b) of Explanation
1 to clause (1), who has been in India for a
period or periods amounting in all to one
hundred and twenty days or more but less
than one hundred and eighty-two days; or
• (d) a citizen of India who is deemed to be
resident in India under clause (1A).
• Explanation.—For the purposes of this
section, the expression "income from
foreign sources" means income which
accrues or arises outside India (except
income derived from a business
controlled in or a profession set up in
India) and which is not deemed to accrue
or arise in India.
• Section 2 (29A):
• "liable to tax", in relation to a person and
with reference to a country, means that
there is an income-tax liability on such
person under the law of that country for
the time being in force and shall include
a person who has subsequently been
exempted from such liability under the
law of that country;
• Eilin Maria, a foreign citizen, comes to India for the first
time on 1 September 2021. On 15 September 2021, she
joins a company on monthly salary of Rs. 60,000, as a
part-time production consultant (duty hours 6.30 pm to
9.30 pm). She does not have any source of income up to
September 14, 2021.
• On 9 October 2021, she starts a trading business in
computer hardware after obtaining the approval of her
employer. For the previous year ending March 31, 2022,
she has the following income —
• Salary from the part-time employment: Rs. 3,90,000;
income earned in India from the business of trading or
computer hardware: Rs. 7,86,000; and foreign income
from the same business: $40,000. Find out the residential
status of Eilin Maria for the assessment year 2022-23.
• Vishal is an Indian citizen, Currently, he is in
employment with an overseas company located
in Dubai. During different years, he is in India as
follows:
• 2021-22: 55; 2020-21: 190; 2019-20: 200; 2018-
19: 170; 2017-18: 200; 2016-17: 250; 2015-16:
70; 2014-15: 71; 2013-14: 72
• For the previous year 2021-22, Vishal is not
taxable in Dubai or in any other country/territory
by reason of his domicile or residence. Income of
Vishal for the previous year 2021-22 is Rs
16,00,000.
• Determine the residential status for AY 2022-23
• Sachin is an indian citizen, currently he is
in employment with a multinational
company and posted in Singapore.
During the previous year 2021-22, he
comes to india for a visit of 145 days. In
earlier 4 years, he is in india for more
than 900 days. Sachin wants to know his
residential status for the AY 2022-23.
• His Annual income for PY 2021-22 is as
follows:
• Income from salary, rent, consultancy and
interest earned and received in Singapore: Rs
29,00,000
• Income from business (accrued and received
outside India, controlled from Singapore):
21,00,000
• Income from another business (accrued and
received outside India, controlled from India):
8,00,000
• Interest on bank fixed deposits in India:
11,00,000
• Any other Income: Nil
• LIC Premium Paid in India: 2,60,000
Section 5: Scope of total income.
• (1) Subject to the provisions of this Act, the total
income of any previous year of a person who is a
resident includes all income from whatever source
derived which—
• (a) is received or is deemed to be received in India
in such year by or on behalf of such person ; or
• (b) accrues or arises or is deemed to accrue or
arise to him in India during such year ; or
• (c) accrues or arises to him outside India during
such year :
• Provided that, in the case of a person not
ordinarily resident in India within the
meaning of sub-section (6) of section 6,
the income which accrues or arises to
him outside India shall not be so
included unless it is derived from a
business controlled in or a profession set
up in India.
• (2) Subject to the provisions of this Act,
the total income of any previous year of
a person who is a non-resident includes
all income from whatever source derived
which—
• (a) is received or is deemed to be
received in India in such year by or on
behalf of such person ; or
• (b) accrues or arises or is deemed to
accrue or arise to him in India during
such year.
• Explanation 1.—Income accruing or arising
outside India shall not be deemed to be received
in India within the meaning of this section by
reason only of the fact that it is taken into
account in a balance sheet prepared in India.
• Explanation 2.—For the removal of doubts, it is
hereby declared that income which has been
included in the total income of a person on the
basis that it has accrued or arisen or is deemed
to have accrued or arisen to him shall not again
be so included on the basis that it is received or
deemed to be received by him in India.
Scope of Total Income (Incidence of Tax)

• Section 5 provides the scope of total

income in terms of the residential status
of the assessee
• There are certain incomes which may be
taxable in the hands of the assessee who
are residents in India but not in the
hands of the assessees who are not
residents in India.
• The scope of total income of an assessee
depends upon the following three
important considerations:
• (i) the residential status of the assessee;
• (ii) the place of accrual or receipt of
income, whether actual or deemed; and
• (iii) the point of time at which the
income had accrued to or was received
by or on behalf of the assessee.
• Resident and ordinarily resident
• The total income of a resident assessee
would, under section 5(1), consist of:
• (i) income received or deemed to be
received in India during the previous year;
• (ii) income which accrues or arises or is
deemed to accrue or arise in India during
the previous year; and
• (iii) income which accrues or arises outside
India even if it is not received or brought
into India during the previous year.
• Resident but not ordinarily resident
• Same as in the case of resident and
ordinarily resident.
• Exception: income accruing or arising to
him outside India is not to be included in
his total income.
• However, where such income is derived
from a business controlled from or
profession set up in India, then it must be
included in his total income even though
it accrues or arises outside India.
• Non-resident
• A non-resident’s total income under
section 5(2) includes:
• (i) income received or deemed to be
received in India in the previous year;
and
• (ii) income which accrues or arises or is
deemed to accrue or arise in India during
the previous year.
 Nature of Income Tax incidence in the case of
Resident & Resident but Non-
ordinarily not ordinarily resident
resident resident
Income accrued or deemed to be accrued and
received or deemed to be received in India
Income accrued outside India but received or
deemed to be received in India
Income accrued or deemed to be accrued in
India but received outside India
Income accrued and received outside India
from a business controlled in or profession
set-up in India
Income accrued and received outside India
from a business controlled or profession set-
up outside India
Income accrued and received outside India in
the previous year (it makes no difference if the
same is later remitted to India)
Income accrued and received outside India in
any year preceding the previous year and later
on remitted to India in current financial year
• Indian Income and Foreign Income
• Indian Income:
– If income is received (or deemed to be received) in
India during the previous year and at the same time it
accrues (or arise or is deemed to accrue or arise) in
India during the previous year.
– If income is received (or deemed to be received) in
India during the previous year but it accrues (or arise)
outside India during previous year.
– If income is received outside India during the previous
year but it accrues (or arises or is deemed to accrue
or arise) in India during the previous year.
• Foreign Income:
– Income is not received (or not deemed to be received)
in India; and
– Income does not accrue or arise (or does not deem to
accrue or arise) in India.
Whether income is Whether income accrues Status of Income
received (or deemed to be (or arises or is deemed to
received) in India during accrue or arise) in India
the relevant years during the relevant years

Yes Yes
Yes No
No Yes
No No
• Incidence of Tax

Individual and HUF

ROR RNOR NR

Indian Income Taxable in Taxable in India Taxable in India

India
Foreign Income Taxable in Only two types of Not taxable in India
India foreign incomes are
taxable in India
1. Rental income of Rs. 36.000 is received in India
on May 10, 2021 (it may accrue outside India or
in India)
2. Interest income of Rs. 46,000 accrues in India on
March 31, 2022 (it may be received in India or
outside India)
3. Income of Rs. 56,000 is deemed to be received
in India on April 20, 2021 (it may accrue outside
India or in India)
4. Income of Rs. 66,000 is deemed to accrue or
arise in India during the previous year 2021-22
(it may be received in India or outside India)
5. Business income / professional income of Rs.
76,000 is received and accrued outside India
during the previous year 2021-22. Business is
controlled from outside India or profession is set
up outside India
6. suppose business is controlled from India or
profession is set up in India
7. Rental income or salary income or interest
income of Rs. 86,000 is received outside India in
the previous year 2021-22 and at the same time
it accrues or arises outside India
8. Gift of Rs. 2 lakh received outside India by an
individual on November 6, 2021 from a friend
9. Gift of Rs. 1 lakh received in Delhi by an
individual on November 30, 2021 from a friend
10.Income of Rs. 96,000 earned and received
outside India in 2016-17 but later on remitted to
India in 2021 -22
• Aditi provides following details of
income, calculate the income which is
liable to be taxed in India for the A.Y.
2022-23 assuming that –
• a) She is an ordinarily resident
• b) She is not an ordinarily resident
• c) She is a non-resident
 Particulars Amount

Salary received in India from a former employer of USA 1,40,000

Income from tea business in Nepal being controlled from India 10,000

Interest on company deposit in Canada (1/3rd received in India) 30,000

Profit from a business in Mumbai controlled from UK 1,00,000

Profit for the year 2002-03 from a business in Tokyo remitted to 2,00,000
India
Income from a property in India but received in USA 45,000

Income from a property in London but received in Delhi 1,50,000

Income from a property in London but received in Canada 2,50,000

Income from a business in Jambia but controlled from Turkey 10,000

 Particulars Resident Resident Non-
& but not resident
Ordinarily ordinarily
resident resident
Salary received in India from a former employer of UK

Income from tea business in Nepal being controlled

from India
Interest on company deposit in Canada –
- 1/3rd received in India
- 2/3rd received outside India
Profit from a business in Mumbai controlled from UK

Past Profit from a business in Tokyo remitted to India

Income from a property in India but received in USA
Income from a property in London but received in Delhi

Income from a property in London but received in

Canada
Income from a business in Jambia but controlled from
Turkey
Income liable to tax in India 7,35,000 4,55,000 4,45,000
• INCOME RECEIVED IN INDIA
• Income received in India is taxable in all cases
(whether accrued in India or elsewhere)
irrespective of residential status of the assesse.
• Place: where the recipient gets the money (on
first occasion) under his control?
• Receipt vs Remittance
• Keshav Mills Ltd v. CIT [1953] 23 ITR 230 (SC)
• Cash vs. Kind
• Receipt vs. Accrual
• Actual receipt vs. Deemed receipt
• Section 7: Income deemed to be received
• The following incomes shall be deemed to be
received in the previous year :—
• (i) the annual accretion in the previous year to the
balance at the credit of an employee participating in
a recognised provident fund, to the extent provided
in rule 6 of Part A of the Fourth Schedule;
• (ii) the transferred balance in a recognised provident
fund, to the extent provided in sub-rule (4) of rule 11
of Part A of the Fourth Schedule;
• (iii) the contribution made, by the Central
Government or any other employer in the previous
year, to the account of an employee under a pension
scheme referred to in section 80CCD.
• Receipt by Agent
• Keshav Mills Co. Ltd v. CIT [1953] 23 ITR 230 (SC)
• Receipt of income by a bank, broker or other agent of
the assessee, is treated as receipt of income on behalf
of the assesse.
• CIT v. P.M. Rathod & Co. [1959] 37 ITR 145 (SC)
• If goods are sent by VPP, income is received at the time
of payment by buyer to the Post Office, irrespective of
the fact whether buyer directs the goods to be sent by
VPP or the seller does so on his own accord.
• Similarly, where goods are sent by rail and the railway
receipt is sent through a bank for being delivered to
the purchaser against payment, income is received at
time and place of payment to the bank.
• Advance Money
• CIT v. Mysore Chromite Ltd (1955) 27 ITR 128
• Madras branch of Eastern Bank Ltd. used to
advance to the assessee, in Madras, 80 per
cent of the amount of provisional invoice
consigned by the assessee and sale proceeds
were received from the foreign buyers on
behalf of the assessee by Eastern Bank Ltd. in
London, which adjusted against the sale
consideration.
• Supreme Court held that the entire price was
received in London.
• The payment of 80 per cent of the amount of
provisional invoice by the Madras branch of
Eastern Bank Ltd. was not a payment on
account of price, but was an advance made by
them to their own customer on security of
goods covered by the bill of lading.
• The Court further observed that the price was
first received by the Eastern Bank Ltd., London,
on behalf of the assessee.
• Receipt in the case of sale by commission
agent
• CIT v. S.K.F. Ball Bearing Co. Ltd [1960) 40 ITR
444
• where a commission agent effected sale and
recovered the proceeds in India on behalf of a
foreign principal, profits on sale would be
received in India, even if the commission agent
had remitted a substantial portion of the value
of goods to the foreign principal abroad before
the actual realisation of sale proceeds in India.
• Turner Morrison & Co. Ltd. v. CIT [1953] 23 ITR
152 (SC).
• Receipt by Cheque
• Raja Mohan Raja Bahadur v. CIT [1967] 66 ITR
378 (SC)
• Gurdas Singh v. CIT [1964] 54 ITR 259 (Punj.)
• Receipt when Cheque is sent by Post
• Azamjahi Mills Ltd v. CIT [1976] 103 ITR 449
(SC).
• Place of Payment
• CIT v. Patney & Co. [1959] 36 ITR 488 (SC)
• Shri Jagdish Mills Ltd. v. CIT [1959] 37 ITR 114
(SC).
• When sale proceeds are received in kind
• CIT v. Kameshwar Singh [1933] 1 ITR 94 (PC)
• Gold Coast Selection Trust Ltd v. Humphrey
[1949] 17 ITR
• CIT v. Avon Organics Ltd. [2013] 55 SOT 260
(Hyd.)
• Salary to non-resident seafarer
• Circular No. 13/2017, dated April 11,2017

• Mere book entry is not sufficient

• Gresham Life Assurance Society v. Bishop
[1902] AC 287
• Section 8: Dividend income
• For the purposes of inclusion in the total income of
an assesse:
• (a) any dividend declared by a company or
distributed or paid by it within the meaning of sub-
clause (a) or sub-clause (b) or sub-clause (c) or sub-
clause (d) or sub-clause (e) of clause (22) of section
2 shall be deemed to be the income of the previous
year in which it is so declared, distributed or paid, as
the case may be;
• (b) any interim dividend shall be deemed to be the
income of the previous year in which the amount of
such dividend is unconditionally made available by
the company to the member who is entitled to it.
• Accrue or Arise
• Dictionary meaning different
• 'Accrue' means 'to accretion or spring or
coming as a natural growth or result', to come
by way of increase.
• 'Arising' means 'coming into existence or notice
or presenting itself‘
• But both the terms are used in the same or
similar sense under the Act.
• Accrue or due
• CIT v Ashokbhai Chimanbhai [1965] 56 ITR 42
(SC)
• The words “accrues” and “arises” are used in
contradistinction to the word “receive”.
• Income is said to be received when it reaches
the assessee; when the right to receive the
income becomes vested in the assessee, it is
said to accrue or arise.
• Explanation 1.—Income accruing or arising
outside India shall not be deemed to be received
in India within the meaning of this section by
reason only of the fact that it is taken into
account in a balance sheet prepared in India.
• Explanation 2.—For the removal of doubts, it is
hereby declared that income which has been
included in the total income of a person on the
basis that it has accrued or arisen or is deemed
to have accrued or arisen to him shall not again
be so included on the basis that it is received or
deemed to be received by him in India.
• Laxmipat Singhania v. CIT [1969] 72 ITR 291
(SC)
• If a particular income is taxable on accrual
basis, it is not possible for the Assessing Officer
to ignore the accrual and thereafter to tax it as
the income of another year on the basis of
receipt.
• "Accrual" is generally unconditional
• H. Liebes &- Co. v. CIR CCA 90 F.2d.932, 936
• Income has been said to ‘accrue’ when there is
a right to payment and when there is
unconditional liability on behalf of the payer to
pay it to the taxpayer.
• Helveringv. Russian Finance & Construction
Corp. CCA, 77 F.2d.324, 327.
• If it not dependent upon happening of some
contingency, the right or obligation may be
classified as “accrued”.
• CIT v. Shri Goverdhan Ltd [1968] 69 ITR 67S
(SC).
• a liability depending upon a contingency is not
a debt in praesenti or in futuro till the
contingency happens.
• But if it is a debt, the fact that the amount has
to be ascertained does not make it any the less
a debt if the liability is certain and what
remains is only the quantification of the
amount.
• Income is said to accrue when it becomes due
• Morvi Industries Ltd. v. CIT [ 1971] 82 ITR 835
(SC).
• Income can be said to accrue when it is due.
Postponement of date of payment has a bearing
only insofar as the time of payment is concerned
but it does not affect the accrual of income.
• Franklin County Distilling Co. v. CIR CCA 6, 125
F.2d
• income “accrues” to the taxpayer at the time it
becomes due only where there is reasonable
expectancy that the right will be converted into
money or its equivalent.
• CIT v. Associated Commercial Corpn. [1963] 48
ITR 1 (Born.)
• A mere claim to a profit or a liability is not
sufficient to make the profit accrue.
• CIT v. Excel Industries Ltd. [2013] 219 Taxman
379 (SC)
• An income accrues when it become due but it
must also be accompanied by a corresponding
liability of the other party to pay the amount.
• Only then it can be said that for the purposes
of taxability aid income is not hypothetical and
it has really accrued to the assessee
• ‘Selling agents’ commission
• CIT v. Union Tile Exporters [1969] 71 ITR 453 (SC).
• Selling agents‘ commission accrues at the place
where sales are effected. If, however, contract of sale
is made in one place and the sale takes place at
another place, a part of selling agents' commission
accrues at the place where contract is made.
• CIT v. Avon Organics Ltd. [2013] 55 SOT 260 (Hyd.).
• Only because the remittances towards commission is
telegraphically transferred to the foreign agents from
bank account of the payer in India, it will not lead to
the inference that the income accrues in India.
• Commission payable for other services
• Shoorji Vallabhdas & Co. v. CIT [1960] 39 ITR
775 (S.C)
• commission payable to managing director
accrues at the place where duties of managing
director are performed.
• K.R.M.T.T. Thiagaraja Chetty & Co. v. CIT [1953]
24 ITR 535 (SC)
• If commission is payable to the managing
director at a percentage of net profit, the entire
commission accrues at the place where service
is performed, even if a part of the profit arises
outside India.
• Lakshmipat Singhania v. CIT [1969] 72 ITR 291
(SC)
• remuneration of a director accures at the place
of rendering service.
• Kathiawar Coal Distributing Co. v. CIT[1958]
34 ITR 182 (Born.)
• Commission payable for rendering other
services accrues at the place where services
are rendered.
• Accrual of Interest
• C.G. Krishnaswami Naidu v CIT [1966] 62 ITR 686
(Mad.)
• In case of a money lending transaction, the place of
accrual of interest would be the place where the
money is actually lent, irrespective of where it came
from, since, without actual advance, no commission
or interest accrues or arises.
• The actual place of user of the money may not have a
bearing in deciding the situs.
• Moreover, money-lending transaction is not
comparable to the business of manufacturing and sale
of goods and it is not possible to extend the doctrine
of apportionment to a case of money-lending.
• Interest in the case of compensation or in the
case of compulsory acquisition.
• No profit arises on the valuation of closing stock
• Chainrup Sampatram v. CIT [1953] 24 ITR 481 (SC)
• It is a misconception to think that any profit
"arises out of the valuation of closing stock".
• Valuation of unsold stock at the close of an
accounting period is a necessary part of the
process of determining the trading result of that
period and can in no sense be regarded as the
"source" of such profits, nor can the place where
such valuation is made be regarded as the situs of
their accrual
• Profit does not accrue in transfers between head
office and branch office
• Accrual of Dividends
• Kusumben D. Mahadevia v. CIT [1963] 47 ITR 214
(Born.)
• Dividends declared by a non-Indian company accrue
or arise at the place where the register of members
is kept.
• Accrual of Damages
• CIT v. Associated Commercial Corpn. [1963] 48 ITR 1
(Born.)
• Damages for breach of contract accrue when the
amount is decreed or admitted. Time of making
payment is not relevant
• J.P. Shrivastava & Sons v. CIT [1965] 57 ITR 624
(SC)
• If commission is to be paid on passing of audited
accounts in the general meeting of shareholders
of the company paying commission, commission
can accrue to the recipient only on the date of
said meeting.
• Profit on devaluation arises in the year of
devaluation
• Share of profit from a resident firm
• Profit on mortgage sale
• Income from non-performing assets
• Mesne profit
• Question as to source of income is not
relevant
• Accrual of business profit
• CIT v. Ashokbhai Chinumbhai [1965] 56 ITR 42
(SC)
• E.D. Sassoon & Co. Ltd. v. CIT[1954] 26 ITR 27
(SC)
• Cotton Agents Ltd. v. CIT[ 1960] 40 ITR 135 (SC)
• It is incorrect to state that profits do not
accrue until actually computed
• Accrual of business income in the case of
composite business
• Place where property in goods passes decides
accrual of profit in the case of sale of goods
– Retaining control over goods till destination
– Place of contract of sale and place of sale are
different
– Goods sent by rail
– Ascertained goods
– Unascertained goods
• Accrual of profit in the case of forward
contract
• Question of fact/law
• Section 9: Income deemed to accrue or arise
in India
• In some cases, income is deemed to accrue or
arise in India under section 9 even though it
may actually accrue or arise outside India
• Section 9 applies to all assessees irrespective of
their residential status and place of business.
Income Salary Salary from Income Income Incom Income Deeme
from earne Govt. to an from from e from d
connect d in Indian dividend interest from technic receipt
ion in India citizen for paid by payable by royalt al of gift
India services an Indian specified y service by non
rendered company person s reside
outside India nt

Sec. Sec. Sec. 9(1)(iii) Sec. 9(1) Sec. 9(1) Sec. Sec. Sec.
9(1)(i) 9(1)(ii) (iv) (v) 9(1) 9(1)(vii) 9(1)
(vi) (viii)
• Section 9 (1): The following incomes shall be
deemed to accrue or arise in India :—
• (i) all income accruing or arising, whether directly
or indirectly, through or from any business
connection in India, or through or from any
property in India, or through or from any asset or
source of income in India, or through the transfer of
a capital asset situate in India.

• R/W: R 10 for manner of computation of income of

non-residents in certain cases.
• Rules 11UB and 11UC and Form 3CT (Determination
of value of assets and apportionment of income in
certain cases).
• Income from connection in India [Sec. 9(1)(i)]
• All income accruing or arising, whether directly
or indirectly,:
• a) through or from any business connection in
India; or
• b) through or from any property/asset or
source of income in India; or
• c) through the transfer of a capital asset
situated in India.
• Income from business connection: The
following conditions should be satisfied –
• Condition one - The taxpayer has a “business
connection” in India.
• Condition two - By virtue of “business
connection” (it includes even profession
connection) in India, income actually arises
outside India.
• Meaning: Business connections may be in
several forms, e.g. a branch office in India or an
agent/ organisation of a non-resident in India.
• Few instances of business connection:
a) maintaining a branch office in India for the purchase
or sale of goods or transacting other business
b) appointing an agent in India for the systematic and
regular purchase of raw material or other
commodities or for the sale of the non-resident’s
goods or for other business purposes
c) erection a factory in India where the raw produce
purchased locally is worked into a form suitable for
export abroad
d) forming a local subsidiary company to sell the
products of the non-resident parent company
e) having financial association between a resident and
a non-resident company, etc.
• Explanation 2 to Section 9 (1) (i)
• Business connection shall include any business activity
carried out through a person who, acting on be-half of
the non-resident:
a) has and habitually exercises in India, an authority to
conclude contracts on behalf of the non-resident or
habitually concludes contracts or habitually plays the
principal role leading to conclusion of con-tracts by that
non-resident and the contracts are—
i. in the name of the non-resident; or
ii. for the transfer of the ownership of, or for the
granting of the right to use, property owned by that
nonresident or that non-resident has the right to
use; or
iii. for the provision of services by the non-resident; or
b) has no such authority, but he maintains in India
habitually a stock of goods or merchandise from which
he regularly delivers goods or merchandise on behalf
of the non-resident; or
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 common control, as that non-resident:

Provided that such business connection shall not include

any business activity 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 :
Provided further that where such broker, general
commission agent or any other agent works
mainly or wholly on behalf of a non-resident
(hereafter in this proviso referred to as the
principal non-resident) or on behalf of such non-
resident and other non-residents which are
controlled by the principal non-resident or have a
controlling interest in the principal non-resident
or are subject to the same common control as
the principal non-resident, he shall not be
deemed to be a broker, general commission
agent or an agent of an independent status.
• Explanation 3.—Where a business is
carried on in India through a person
referred to in clause (a) or clause (b) or
clause (c) of Explanation 2, only so much
of income as is attributable to the
operations carried out in India shall be
deemed to accrue or arise in India.
• Operations not taken as business connections:
a) Business activity through a broker (Proviso to
Ex. 2)
b) Where all operations are not carried out in
India [Ex. 1 (a)]
c) Purchase of goods for export [Ex. 1 (b)]
d) Collection of news and views [Ex. 1 (c)]
e) Shooting of cinematograph films in India (if
few conditions are satisfied) [Ex. 1 (d)]
f) Display of uncut and unassorted diamond in a
notified special zone [Ex. 1 (e)]
g) Fund management activity [Sec 9A]
• Explanation 3A.—For the removal of doubts, it is hereby
declared that the income attributable to the operations
carried out in India, as referred to in Explanation 1, shall
include 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.
• Provided that the provisions contained in this Explanation shall
also apply to the income attributable to the transactions or
• Explanation 4.—For the removal of
doubts, it is hereby clarified that 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 2A.—For the removal of doubts, it is
hereby declared that the significant economic
presence of a non-resident in India shall
constitute "business connection" in India and
"significant economic presence" for this purpose,
shall mean—
• (a) 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, if the aggregate of
payments arising from such transaction or
transactions during the previous year exceeds
such amount as may be prescribed; or
• (b) systematic and continuous soliciting of business
activities or engaging in interaction with such number
of users in India, as may be prescribed:
Provided that the transactions or activities shall
constitute significant economic presence in India,
whether or not—
• (i) the agreement for such transactions or activities is
entered in India; or
• (ii) the non-resident has a residence or place of
business in India; or
• (iii) the non-resident renders services in India:
Provided further that 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
• Income through or from any property, asset or
source of income in India [Sec. 9(1)(i)]
• Income from any assets or property in India
whether tangible / intangible, movable /
immovable; or
• Income from a source situated in India
• Income through the transfer of capital
asset situated in India [Sec. 9(1)(i)]
• Any gain on transfer of a capital asset
situated in India, shall be deemed to
accrue or arise in India.
• Explanation 5:
• For the removal of doubts, it is hereby
clarified that 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:
• DIT v. Copal Research Ltd. (2014] 49
taxmann.com 125 (Delhi):
• Substantially” means not less than 50 per cent.
• Circular No. 4/2015, dated March 26, 2015
• If a foreign company declares dividend outside
India, it cannot be deemed to accrue or arise in
India even if the foreign company declaring
dividend have substantial assets (held by it
directly or indirectly) located in India.

• However, this provision is not applicable in the

case of any asset or capital asset being
investment held by a non-resident, directly or
indirectly, in Category-I or Category II Foreign
Portfolio Investor under the SEBI (Foreign
Portfolio Investors) Regulations, 2014.
• Provided that nothing contained in
this Explanation shall apply to 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
• Provided further that nothing contained
in this Explanation shall apply to an asset
or capital asset, which is held by a non-
resident by way of investment, directly or
indirectly, 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 (15 of 1992):
• Provided also that nothing contained in
this Explanation shall apply to 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 (15 of 1992):
• Provided also that nothing contained in
this Explanation shall apply to—
• (i) an assessment or reassessment to be made
under section 143, section 144, section 147 or section
153A or section 153C; or
• (ii) an order to be passed enhancing the assessment or
reducing a refund already made or otherwise increasing
the liability of the assessee under section 154; or
• (iii) an order to be passed deeming a person to be an
assessee in default under sub-section (1) of section 201,
• in respect of income accruing or arising through or from
the transfer of an asset or a capital asset situate in India
in consequence of the transfer of a share or interest in a
company or entity registered or incorporated outside
India made before the 28th day of May, 2012:
• Explanation 6.—For the purposes of this clause, it is hereby
declared that:
• (a) 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—
• (i) exceeds the amount of ten crore rupees; and
• (ii) represents at least fifty per cent of the value of all the
assets owned by the company or entity, as the case may be;
• (b) 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;
• (c) "accounting period" means each period of twelve
months ending with the 31st day of March:
• Salaries earned in India [Sec. 9(1)(ii)]
• Salary payable for –
a) Services rendered in India; and
b) The rest period or leave period which is
preceded and succeeded by the period during
which services were rendered in India and
forms part of the service contract of
employment,
 shall be deemed to accrue or arise in India
• Income of an individual which falls under the
head “Salaries” is deemed to accrue or arise in
India if service is rendered in India
• Conversely, if service is rendered outside India salary
income cannot be deemed to be earned in India.
• However, this rule has an exception:
• Salary payable by the Government to Indian citizen
for services rendered outside India [Sec. 9(1)(iii)]
• Any salary –
a) payable by the Government;
b) to a citizen of India;
c) for services rendered outside India;
 shall be deemed to accrue or arise in India.
• any allowances or perquisites paid by the Government
to a citizen of India for services rendered outside India
shall be exempted [Sec. 10(7)]
• Income from dividend [Sec. 9(1)(iv)]
• Any dividend paid by an Indian company
outside India is deemed to accrue or arise in
India
• Income from Interest [Sec. 9(1)(v)]
• Income from royalty [Sec. 9(1)(vi)]
• Income from technical services [Sec. 9(1)(vii)]
• Rule 1 - When received from Government
• Rule 2- When received from a person resident
in India
• Rule 2 is not applicable in the following cases:
a. If borrowed money is utilized by the payer for
carrying on a business/profession outside
India or for earning any income outside India.
b. Payment of royalty/technical fees pertains to a
business/profession carried on by the payer
outside India or earning any income outside
India
• Rule 3 - When received from a non-resident:
• Interest, royalty or technical fees received from a
non-resident, is deemed to accrue or arise in India
in the hands of recipient, in the following cases:
a. borrowed money is utilized by the payer for
carrying on a business/ profession in India; or
b. payment of royalty/technical fees pertains to a
business/ profession carried on by the payer in
India or earning any income in India.
• Interest received outside India by a foreign bank
from its branch in India: in the hands of
recipient income shall be deemed to accrue or
arise in India.
• Rochit is a non-resident in India. Only Indian
income is taxable in the hands of Rochit in
India. During the previous year 2021-22, he
receives interest on different dates as given in
next slide.
• In all these cases, interest is received outside
India.
 Date Nature of interest received by Rochit Whether Whether
deemed to taxable in
accrue or arise India in the
in India hands of
Rochit

April 10, 2021 Rs. 10,50,000 is received from the Government of

India
May 1, 2021 Rs. 9,00,000 is received from A Ltd. (resident in India)
and A Ltd. has utilized the capital borrowed from
Rochit for carrying on business or profession outside
India or earning any income outside India

May 10, 2021 Rs. 2,00,000 is received from B Ltd. (resident in India)
and B Ltd. has utilized the capital borrowed from
Rochit for carrying on business or profession in India
or earning any income in India

June 1, 2021 Rs. 7,00,000 is received from C Ltd. (non-resident in

India) and C Ltd. has utilized the capital borrowed
from Rochit for carrying on business or profession in
India
June 10, 2021 Rs. 3,00,000 is received from D Ltd. (non-resident in
India) and D Ltd. has utilized the capital borrowed
from Rochit for carrying on business or profession
outside India or earning any income outside India or
earning income (not being business or professional
income) in India
• If in these cases, interest accrues or arises in
India, then it will be Indian income and taxable
in India.
• Conversely, if in these cases, interest does not
deem to accrue or arise in India, it will become
foreign income which will not be taxable in the
hands of Rochit, who is non-resident.
• Deemed Receipts of Gift [Sec. 9(1)(viii)]
• When
 a non-resident or a foreign company receives
any sum of money referred to in sec. 56(2)(x)
 such receipt is from a resident person
 such money is received outside India
 such money is received on or after 05-07-2019
• then
 such receipt is treated as income deemed to
accrue or arise in India
• Shivam is resident and ordinarily resident in India for the
assessment year 2022-23. He gives the following information
in respect of his income for the previous year 2021-22:
1. Capital gain on sale of a house situated in Pune (sale
consideration is received in Nepal): 10,00,000
2. Salary received in Sri Lanka for rendering service in
Tamilnadu: 1,60,000
3. Interest received from Government of India (it is paid to
him in Sri Lanka, the money is utilized by the Government
outside India): 2,56,000
4. Royalty received from A Ltd. (a foreign company which is
non-resident in India) outside India (royalty is paid for a
manufacturing business situated outside India): 92,00,000
Find out the taxable income of Shivam for the assessment year
2022-23.
• Satyam is non-resident in India. From the information
given below, find out his income chargeable to tax for
the assessment year 2022-23:
1. Royalty received by him outside India from the
Government of India: 8,17,000
2. Technical fees received from A Ltd. (an Indian company)
in Germany for advise given by him in respect of a
project situated in UK: 1,17,000
3. Income from a business situated in Bangladesh (goods
are sold in Bangladesh, sale consideration is received in
Bangladesh but business is controlled partly in
Bangladesh and partly in India): 2,17,000
4. Income from a business connection in India (it is
received outside India): 3,17,000
• Section 9A: Certain activities not to constitute
business connection in India
• See rules 10V to 10VB and Form Nos. 3CEJ, 3CEJA
and 3CEK.
• 'fund management activities' of offshore funds
carried on by the fund managers located in India
• Section 9A(1): 'Fund management activity' in case
of an 'eligible investment fund' carried out through
an 'eligible fund manager' shall not constitute
business connection in India
• Section 9A(2): 'Eligible investment fund' will not be
treated as resident in India even if 'eligible fund
manager' is situated in India
• Section 9A(3): Meaning of 'eligible investment
fund‘
• Section 9A(4): Meaning of 'eligible fund manager‘
• Section 9A(5): Eligible investment fund to furnish
information in prescribed form relating to
fulfilment of prescribed conditions
• Section 271FAB: Penalty for failure to furnish
statement or information or document by an
eligible investment fund
• Section 9A(6): No impact of taxability of total
income of the eligible investment fund which
otherwise would have been taxable
• Section 9A(7): No effect on the scope of total
income or total income of eligible fund manager
• Section 9A(8): Provisions of section 9A shall be
applied as per the guidelines to be prescribed
• Section 9A(8A): Relaxation for eligible investment
fund and eligible fund manager located in
International Financial Services Centre (IFSC)
[Section 9A amended] [W.e.f. A.Y.2022-23]
• Section 9A(9): Meaning of certain terms used in
section 9A
• Section 9B: Income on receipt of capital asset or
stock in trade by specified person from specified
entity
• The Finance Act, 2021 has inserted section 9B
w.r.e.f. A.Y.2021-22
• receipt of any stock in trade and/or any capital
asset by the specified person from the specified
entity in connection with the dissolution or
reconstitution of the specified entity to be deemed
transfer m the hands of the specified entity.
• Profit or gain from such deemed transfer shall be
deemed to be income of the specified entity.
• Where a specified person receives during the
previous year any capital asset or stock in trade
or both from a specified entity in connection
with the dissolution or reconstitution of such
specified entity, then the specified entity shall be
deemed to have transferred such capital asset or
stock in trade or both, as the case may be, to the
specified person in the year in which such capital
asset or stock in trade or both are received by the
specified person.
• Further, any profits and gains arising from such
deemed transfer of capital asset or stock in trade
or both, as the case may be, by the specified
entity shall be-
• (i) deemed to be the income of such specified
entity of the previous year in which such capital
asset or stock in trade or both were received by
the specified person; and
• (ii) chargeable to income-tax as income of such
specified entity under the head "Profits and gains
of business or profession" or under the head
"Capital gains", in accordance with the provisions
of this Act.