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Income Deemed to Accrue or Arise in India [Section 9]
(For CMA Inter Group 1)
[Issued on July 15, 2013]


1. Income from a business connection in India.
A business connection involves a relation between a business carried on and some activity in India
which contributes to the earning of profits.
Some examples of non-resident having business connection in India are
(a) Branch or agent or
(b) Subsidiary in India or
(c) Factory in India
A new Explanation has been added to section 9(1) which clarifies that
Business connection shall include following activities carried out by non-resident, through a person
acting on his behalf:-
(i) Concluding contracts on behalf of non-resident.
(ii) Maintaining stock of goods and delivering them on behalf of non-resident.
(iii) Securing orders in India
Apportionment of profit:-
If all business operations are not carried out in India, the income of the business deemed to accrue or
arise in India shall be only such part of income as is reasonably attributable to the operations carried
out in India. [Explanation 1 to section 9(1)]
The apportionment of profits should be on a rational basis and should not be arbitrary.
For example if in India only negotiation was done in relation to trading while the contract was
performed entirely outside India, it was held that only 10% of profits shall be deemed to accrue or arise
in India.
However in case of Non-resident the following operations confined to India shall not be treated as
business connection in India:
(i) Purchase of goods in India for the purpose of exports.
(ii) collection of news and views for transmission outside India by Non-resident who is engaged in the
business of running news agency or of publishing newspapers, magazines or journals.
(iii) Shooting of cinematography films in India if
(a) An individual- he is not a citizen of India
(b) Firm - no partner is citizen or resident of India
(c) Company - no shareholder is citizen or resident of India.
2. Income from any property, assets or source of income situated in India.
3. Income from the transfer of any capital assets situated in India.
4. Any income from salary if it is payable for services rendered in India.
5. Salary payable by the Govt. to an Indian citizen for services rendered outside India.
However, all allowances and perquisites received by Citizen of India rendering services outside
India, who is a govt. employee are fully exempt
6. Dividend paid by an Indian company outside India.
7. Interest payable by:
(i) Govt.
(ii) Resident in India
Except where interest is payable in respect of money borrowed and used for the purpose of

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business or profession or earning any income from any source outside India or
(iii) A non-resident if interest is payable for money borrowed and used for a business or
profession in India
8. Royalty payable by:
(i) Govt.
(ii) A person who is a resident in India except where it is payable in respect of any right/
information/ property used for the purposes of a business or profession carried on outside India
or earning any income from any source outside India or
(iii) A person who is a non-resident provided royalty is payable in respect of any right/
information/ property used for the purpose of the business or profession carried on in India.
However it shall not apply to
lump sum royalty paid by a resident for transfer of computer software supplied by a non-resident
manufacturer along with a computer under a scheme approved by govt.
Royalty means: -
(i) Transfer of rights in respect of a
patent, invention, model, design, process or
trade mark or
copyright, literary, artistic or scientific work including films or video tapes.
(ii) use of
any patent, invention, model , design or process etc.
(iii) giving anti information
concerning the working of a patent, invention, model, design or process etc.
(iv) rendering any services
in connection with the above activities.
(H) A person who is a resident in India,
9. Fees for Technical Services:
(i) Govt.
(ii) A person who is resident in India
Except where services are utilized for a business or profession carried on outside India or
earning any income from any source outside India or
(iii) A non-resident provided fee is payable in respect of services for a business carried in India.
Fees for technical services means any consideration for the rendering of any managerial, technical or
consultancy services.