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Income Tax Laws – I

Notes 21. Income from salary (not being perquisite/allowance) if service is rendered outside India
(provided the employer is Government of India and the employee is a citizen of India) is
deemed to accrue or arise in ……………….

2.6 Categories of Income which are Deemed to Accrue or Arise in
India

There are seven main categories of income which are deemed to accrue or arise in India even
though they may actually accrue or arise outside India. These are explained below:
1. Income from business connection: The expression “business connection” has been explained
in Explanation 2 to section 9(1)(i) to encompass the following:

(i) ‘Business connection’ shall include any business activity carried out through a person
acting on behalf of the non-resident.
(ii) He must have an authority which is habitually exercised to conclude contracts on
behalf of the non-resident. However, if his activities are limited to the purchase of
goods or merchandise for the non-resident, this provision will not apply.

(iii) Where he has no such authority, but habitually maintains in India a stock of goods
or merchandise from which he regularly delivers goods or merchandise on behalf
of the non-resident, a business connection is established.
(iv) Business connection is also established where he habitually secures orders in India,
mainly or wholly for the non-resident. Further, there may be situations when other
non-residents control the above-mentioned non-resident. Secondly, this non-resident
may also control other non-residents. Thirdly, all other non-residents may be subject
to the same common control, as that of the non-resident. In all the three situations,
business connection is established, where a person habitually secures orders in
India, mainly or wholly for such non-residents.

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Caution The following exceptions must be kept in mind while dealing with income from
business connection:
“Business connection”, however, shall not be held to be established in cases where the
non-resident carries on business through a broker, general commission agent or any
other agent of an independent status, if such a person is acting in the ordinary course of his
business.
A broker, general commission agent or any other agent shall be deemed to have an
independent status where he does not work mainly or wholly for the non-resident. He
will however, not be considered to have an independent status in the three situations
explained in (iv) above, where he is employed by such a non-resident.

Where a business is carried on in India through a person referred to in (ii), (iii) or (iv)
mentioned above, only so much of income as is attributable to the operations carried out
in India shall be deemed to accrue or arise in India.
2. Income from property, asset or source of income: Any income which arises from any
property which may be either movable, immovable, tangible or an intangible property
would be deemed to accrue or arise in India.

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