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Income Tax Laws – I

Notes Section 9(1)(iii) provides that the salaries are chargeable to tax if the same is payable by
the Government to a Indian Citizen for services rendered outside India. The residential
status and the place of receipt of salary are not relevant for the purpose of this sub-
section. For income to be treated as deemed to accrue or arise in India following four
conditions needs to be satisfied:
Income should be chargeable under the head “Salaries”
Salary should be payable by Government of India
The recipient should be an Indian Citizen, irrespective of their residential status

The services should be rendered outside India

Notes It is important to note that all allowances or perquisites paid out
side India by the Government to the Indian Citizens for their rendering services outside
India are exempt under section 10(7).
5. Income from dividends: All dividends paid by an Indian company must be deemed to
accrue or arise in India. Under section 10(34), income from dividends referred to in section
115-O are exempt from tax in the hands of the shareholder. It may be noted that dividend
distribution tax under section 115-O does not apply to deemed dividend under section
2(22) (e), which is chargeable in the previous year in which such dividend is distributed or
paid.
6. Interest: Under section 9(1)(v), an interest is deemed to accrue or arise in India if it is
payable by -

(i) the Central Government or any State Government.
(ii) a person resident in India except where it is payable in respect of any money borrowed
and used for the purposes of a business or profession carried on by him outside
India or for the purposes of making or earning any income from any source outside
India

(iii) a non-resident when it is payable in respect of any debt incurred or moneys borrowed
and used for the purpose of a business or profession carried on in India by him.
Interest on money borrowed by the non-resident for any purpose other than a
business or profession, will not be deemed to accrue or arise in India. Thus, if a non-
resident ‘A’ borrows money from a non-resident ‘13’ and invests the same in shares
of an Indian company, interest payable by ‘A’ to ‘13’ will not be deemed to accrue or
arise in India.
7. Royalty: Royalty will be deemed to accrue or arise in India when it is payable by:
(i) the Government; or
(ii) a person who is a resident in India except in cases where it is payable for the transfer
of any right or the use of any property or information or for the utilization of
services for the purposes of a business or profession carried on by such person
outside India or for the purposes of making or earning any income from any source
outside India; or

(iii) a non-resident only when the royalty is payable in respect of any right, property or
information used or services utilised for purposes of a business or profession carried
on in India or for the purposes of making or earning any income from any source in
India.

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