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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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