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Unit 2: Residential Status and Taxation

(iii) a person who is a non-resident, only where the fees are payable in respect of services Notes
utilised in a business or profession carried on by the non-resident in India or where
such services are utilised for the purpose of making or earning any income from any
source in India.
A fee for technical services means any consideration (including any lump sum
consideration) for the rendering of any managerial, technical or consultancy services
(including providing the services of technical or other personnel). However, it does not
include consideration for any construction, assembly, mining or like project undertaken
by the recipient or consideration which would be income of the recipient chargeable
under the head ‘Salaries’.
Income deemed to accrue or arise in India to a non-resident by way of interest, royalty
and fee for technical services to be taxed irrespective of territorial nexus (Explanation to
section 9).
Income by way of interest, royalty or fee for technical services which is deemed to accrue
or arise in India by virtue of clauses (v), (vi) and (vii) of section 9(1), shall be included in
the total income of the non-resident, whether or not:
(i) the non-resident has a residence or place of business or business connection in India;
or
(ii) the non-resident has rendered services in India.
In effect, the income by way of fee for technical services, interest or royalty, from services
utilized in India would be deemed to accrue or arise in India in case of a non-resident and
be included in his total income, whether or not such services were rendered in India.

Self Assessment

State whether the following statements are true or false:
22. The expression “business connection” has been explained in Explanation 2 to
section 9(1)(i)

23. Any income which arises from any property which may be either movable, immovable,
tangible or an intangible property would not considered to be deemed to accrue or arise
in India.
24. All dividends paid by an Indian company must be deemed to accrue or arise in India.
25. The term ‘royalty’ means consideration also including any lump sum consideration but
excluding any consideration which would be the income of the recipient chargeable under
the head ‘Capital gains’.

Case Study Make It Count: Residential Status Key to Taxation

n individual is taxed in India based on his tax residential status — which, in turn,
depends on the number of days he is in India during a tax year (April 1 to March
A31). Based on this calculation, an individual may be Resident and Ordinarily
Resident (ROR), Resident but Not Ordinarily Resident (RNOR), or Non-resident (NR).
While an ROR is liable to tax in India on worldwide income, an RNOR or NR is taxed in
India primarily on income sourced in India. It is vital to correctly determine an individual’s
Contd...

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