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Corporate Tax Planning
Notes
Notes
1. The remittance from London of ` 30,000 is not taxable in the previous year 2005-06
because it does not amount to “receipt” of income.
2. Although the interest of ` 76,000 earned and received in India is taxable, it is not
included in the total income of the assessment year 2006-07, as it is not earned or
received in the previous year 2005-06. It will, therefore, be included in the total
income of X for the assessment year 2007-08.
Self Assessment
Fill in the blanks:
18. The ……………. of accounting an income would be taxable only when it is received by the
assessee himself or on his behalf.
19. …………. refers to the right to receive income.
20. …………….. to Section 5 specifically provides that an item of income accruing or arising
outside India shall not be deemed to be received in India merely because it is taken into
account in a balance sheet prepared in India.
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
As mentioned above 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 as:
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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