Section 9 of Income Tax Act 1961-Income deemed to accrue or arise in India
(1) The following incomes shall be deemed to accrue or arise in India:—
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.
Explanation 1.—For the purposes of this clause—
(a) in the case of a business, other than the business having business connection in India on account of significant economic presence, of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ;
(b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export ;
(c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India ;
(d) in the case of a non-resident, being—
(1) an individual who is not a citizen of India ; or
(2) a firm which does not have any partner who is a citizen of India or who is resident in India ; or
(3) a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph film in India;
(e) in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to the display of uncut and unassorted diamond in any special zone notified by the Central Government in the Official Gazette in this behalf.
Explanation 2.—For the removal of doubts, it is hereby declared that “business connection” shall include any business activity carried out through a person who, acting on behalf of the non-resident,—
(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident or habitually concludes contracts or habitually plays the principal role leading to conclusion of contracts by that non-resident and the contracts are—
(i) in the name of the non-resident; or
(ii) for the transfer of the ownership of, or for the granting of the right to use, property owned by that non-resident or that non-resident has the right to use; or
(iii) for the provision of services by the non-resident; or
(b) 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; or
(c) habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:
Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business :
Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non-resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status.
Explanation 2A.—For the removal of doubts, it is hereby declared that the significant economic presence of a non-resident in India shall constitute “business connection” in India and “significant economic presence” for this purpose, shall mean—
(a) transaction in respect of any goods, services or property carried out by a non-resident with any person in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or
(b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed:
Provided that the transactions or activities shall constitute significant economic presence in India, whether or not—
(i) the agreement for such transactions or activities is entered in India; or
(ii) the non-resident has a residence or place of business in India; or
(iii) the non-resident renders services in India:
Provided further that only so much of income as is attributable to the transactions or activities referred to in clause (a) or clause (b) shall be deemed to accrue or arise in India.
Explanation 3.—Where a business is carried on in India through a person referred to in clause (a) or clause (b) or clause (c) of Explanation 2, only so much of income as is attributable to the operations carried out in India shall be deemed to accrue or arise in India.
Explanation 3A.—For the removal of doubts, it is hereby declared that the income attributable to the operations carried out in India, as referred to in Explanation 1, shall include income from—
(i) such advertisement which targets a customer who resides in India or a customer who accesses the advertisement through internet protocol address located in India;
(ii) sale of data collected from a person who resides in India or from a person who uses internet protocol address located in India; and
(iii) sale of goods or services using data collected from a person who resides in India or from a person who uses internet protocol address located in India:
Provided that the provisions contained in this Explanation shall also apply to the income attributable to the transactions or activities referred to in Explanation 2A.
Explanation 4.—For the removal of doubts, it is hereby clarified that the expression “through” shall mean and include and shall be deemed to have always meant and included “by means of”, “in consequence of” or “by reason of”
Explanation 5.—For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India:
Provided that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in a Foreign Institutional Investor as referred to in clause (a) of the Explanation to section 115AD for an assessment year commencing on or after the 1st day of April, 2012 but before the 1st day of April, 2015:
Provided further that nothing contained in this Explanation shall apply to an asset or capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I or Category-II foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 prior to their repeal, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992):
Provided also that nothing contained in this Explanation shall apply to an asset or a capital asset, which is held by a non-resident by way of investment, directly or indirectly, in Category-I foreign portfolio investor under the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2019, made under the Securities and Exchange Board of India Act, 1992 (15 of 1992):
[Provided also that nothing contained in this Explanation shall apply to—
(i) an assessment or reassessment to be made under section 143, section 144, section 147 or section 153A or section 153C; or
(ii) an order to be passed enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154; or
(iii) an order to be passed deeming a person to be an assessee in default under sub-section (1) of section 201,
in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India made before the 28th day of May, 2012:
Provided also that where—
(i) an assessment or reassessment has been made under section 143, section 144, section 147 or section 153A or section 153C; or
(ii) an order has been passed enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154; or
(iii) an order has been passed deeming a person to be an assessee in default under sub-section (1) of section 201; or
(iv) an order has been passed imposing a penalty under Chapter XXI or under section 221, in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India made before the 28th day of May, 2012 and the person in whose case such assessment or reassessment or order has been passed or made, as the case may be, fulfils the specified conditions, then, such assessment or reassessment or order, to the extent it relates to the said income, shall be deemed never to have been passed or made, as the case may be:
Provided also that where any amount becomes refundable to the person referred to in fifth proviso as a consequence of him fulfilling the specified conditions, then, such amount shall be refunded to him, but no interest under section 244A shall be paid on that amount.
Explanation.—For the purposes of fifth and sixth provisos, the specified conditions shall be as provided hereunder:—
(i) where the said person has filed any appeal before an appellate forum or any writ petition before the High court or the Supreme court against any order in respect of said income, he shall either withdraw or submit an undertaking to withdraw such appeal or writ petition, in such form and manner as may be prescribed;
(ii) where the said person has initiated any proceeding for arbitration, conciliation or mediation, or has given any notice thereof under any law for the time being in force or under any agreement entered into by India with any other country or territory outside India, whether for protection of investment or otherwise, he shall either withdraw or shall submit an undertaking to withdraw the claim, if any, in such proceedings or notice, in such form and manner as may be prescribed;
(iii) the said person shall furnish an undertaking, in such form and manner as may be prescribed, waiving his right, whether direct or indirect, to seek or pursue any remedy or any claim in relation to the said income which may otherwise be available to him under any law for the time being in force, in equity, under any statute or under any agreement entered into by India with any country or territory outside India, whether for protection of investment or otherwise; and
(iv) such other conditions as may be prescribed.]
Explanation 6.—For the purposes of this clause, it is hereby declared that—
(a) the share or interest, referred to in Explanation 5, shall be deemed to derive its value substantially from the assets (whether tangible or intangible) located in India, if, on the specified date, the value of such assets—
(i) exceeds the amount of ten crore rupees; and
(ii) represents at least fifty percent of the value of all the assets owned by the company or entity, as the case may be;
(b) the value of an asset shall be the fair market value as on the specified date, of such asset without reduction of liabilities, if any, in respect of the asset, determined in such manner as may be prescribed;
(c) “accounting period” means each period of twelve months ending with the 31st day of March:
Provided that where a company or an entity, referred to in Explanation 5, regularly adopts a period of twelve months ending on a day other than the 31st day of March for the purpose of—
(i) complying with the provisions of the tax laws of the territory, of which it is a resident, for tax purposes; or
(ii) reporting to persons holding the share or interest,
then, the period of twelve months ending with the other day shall be the accounting period of the company or, as the case may be, the entity:
Provided further that the first accounting period of the company or, as the case may be, the entity shall begin from the date of its registration or incorporation and end with the 31st day of March or such other day, as the case may be, following the date of such registration or incorporation, and the later accounting period shall be the successive periods of twelve months:
Provided also that if the company or the entity ceases to exist before the end of accounting period, as aforesaid, then, the accounting period shall end immediately before the company or, as the case may be, the entity, ceases to exist;
(d) “specified date” means the—
(i) date on which the accounting period of the company or, as the case may be, the entity ends preceding the date of transfer of a share or an interest; or
(ii) date of transfer, if the book value of the assets of the company or, as the case may be, the entity on the date of transfer exceeds the book value of the assets as on the date referred to in sub-clause (i), by fifteen percent.
Explanation 7.— For the purposes of this clause,—
(a) no income shall be deemed to accrue or arise to a non-resident from transfer, outside India, of any share of, or interest in, a company or an entity, registered or incorporated outside India, referred to in Explanation 5,—
(i) if such company or entity directly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity nor holds voting power or share capital or interest exceeding five percent of the total voting power or total share capital or total interest, as the case may be, of such company or entity; or
(ii) if such company or entity indirectly owns the assets situated in India and the transferor (whether individually or along with its associated enterprises), at any time in the twelve months preceding the date of transfer, neither holds the right of management or control in relation to such company or entity, nor holds any right in, or in relation to, such company or entity which would entitle him to the right of management or control in the company or entity that directly owns the assets situated in India, nor holds such percentage of voting power or share capital or interest in such company or entity which results in holding of (either individually or along with associated enterprises) a voting power or share capital or interest exceeding five percent of the total voting power or total share capital or total interest, as the case may be, of the company or entity that directly owns the assets situated in India;
(b) in a case where all the assets owned, directly or indirectly, by a company or, as the case may be, an entity referred to in Explanation 5, are not located in India, the income of the non-resident transferor, from transfer outside India of a share of, or interest in, such company or entity, deemed to accrue or arise in India under this clause, shall be only such part of the income as is reasonably attributable to assets located in India and determined in such manner as may be prescribed;
(c) “associated enterprise” shall have the meaning assigned to it in section 92A;
(ii) income which falls under the head “Salaries”, if it is earned in India.
Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for—
(a) service rendered in India; and
(b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment,
shall be regarded as income earned in India ;
(iii) income chargeable under the head “Salaries” payable by the Government to a citizen of India for service outside India ;
(iv) a dividend paid by an Indian company outside India ;
(v) income by way of interest payable by—
(a) the Government ; or
(b) a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, 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
(c) a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India.
Explanation.—For the purposes of this clause,—
(a) it is hereby declared that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head office or any permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India and the permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery shall apply accordingly;
(b) “permanent establishment” shall have the meaning assigned to it in clause (iiia) of section 92F;
(vi) income by way of royalty payable by—
(a) the Government ; or
(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised 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
(c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government :
Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.
Explanation 1.—For the purposes of the first proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the Assessing Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.
Explanation 2.—For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—
(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44B;
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v).
Explanation 3.—For the purposes of this clause, “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data.
Explanation 4.—For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.
Explanation 5.—For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not—
(a) the possession or control of such right, property or information is with the payer;
(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.
Explanation 6.—For the removal of doubts, it is hereby clarified that the expression “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;
(vii) income by way of fees for technical services payable by—
(a) the Government ; or
(b) a person who is a resident, except where the fees are payable in respect of services utilised in 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
(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.
Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.
Explanation 2.—For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consi-deration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but 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”;
(viii) income arising outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of section 2, paid on or after the 5th day of July, 2019 by a person resident in India to a non-resident, not being a company, or to a foreign company.
Following clause (viii) shall be substituted for the existing clause (viii) of sub-section (1) of section 9 by the Finance Act, 2023, w.e.f. 1-4-2024 :
(viii) income arising outside India, being any sum of money referred to in sub-clause (xviia) of clause (24) of section 2, paid by a person resident in India —
(a) on or after the 5th day of July, 2019 to a non-resident, not being a company, or to a foreign company; or
(b) on or after the 1st day of April, 2023 to a person not ordinarily resident in India within the meaning of clause (6) of section 6.
(2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal court or of a High court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India.
Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and 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.
Related Rule(s)
[CCCA.—Report of audit in case of income by way of royalties, etc., in case of non-residents
Rule 6GA of Income-tax Rules-Form of report of audit to be furnished under sub-section (2) of section 44DA
The report of audit of accounts of the non-resident (not being a company) or a foreign company, which is required to be furnished under sub-section (2) of section 44DA shall be in Form No. 3CE.]
Rule 10 of Income-tax Rules-Determination of income in the case of non-residents
In any case in which the [Assessing Officer] is of opinion that the actual amount of the income accruing or arising to any non-resident person whether directly or indirectly, through or from any business connection in India or through or from any property in India or through or from any asset or source of income in India or through or from any money lent at interest and brought into India in cash or in kind cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax [* * *] may be calculated:—
(i) at such percentage of the turnover so accruing or arising as the [Assessing Officer] may consider to be reasonable, or
(ii) on any amount which bears the same proportion to the total profits and gains of the business of such person (such profits and gains being computed in accordance with the provisions of the Act), as the receipts so accruing or arising bear to the total receipts of the business, or
(iii) in such other manner as the [Assessing Officer] may deem suitable.
Rule 11 of Income-tax Rules-Determination of income from transactions with non-residents
[Omitted by the IT (Twenty-first Amdt.) Rules, 2001, w.e.f. 21-8-2001.]
[I – DETERMINATION OF VALUE OF ASSETS AND APPORTIONMENT OF INCOME IN CERTAIN CASES.
Rule 11UB of Income-tax Rules-Fair market value of assets in certain cases
(1) The fair market value of asset, tangible or intangible, as on the specified date, held directly or indirectly by a company or an entity registered or incorporated outside India (hereafter referred to as “foreign company or entity”), for the purposes of clause (i) of sub-section (1) of section 9, shall be computed in accordance with the provisions of this rule.
(2) Where the asset is a share of an Indian company listed on a recognised stock exchange on the specified date, the fair market value of the share shall be the observable price of such share on the stock exchange :
Provided that where the share is held as part of the shareholding which confers, directly or indirectly, any right of management or control in relation to the aforesaid company, the fair market value of the share shall be determined in accordance with the following formula, namely:—
Fair market value = (A+B)/C
Where;
A = the market capitalisation of the company on the basis of observable price of its shares quoted on the recognised stock exchange;
B = the book value of liabilities of the company as on the specified date;
C = the total number of outstanding shares :
Provided further that where, on the specified date, the share is listed on more than one recognised stock exchange, the observable price of the share shall be computed with reference to the recognised stock exchange which records the highest volume of trading in the share during the period considered for determining the price.
(3) Where the asset is a share of an Indian company not listed on a recognised stock exchange on the specified date, the fair market value of the share shall be its fair market value on such date as determined by a merchant banker or an accountant in accordance with any internationally accepted valuation methodology for valuation of shares on arm’s length basis as increased by the liability, if any, considered in such determination.
(4) Where the asset is an interest in a partnership firm or an association of persons, its fair market value shall be determined in the following manner, namely:—
(i) the value on the specified date of such firm or association of persons, shall be determined by a merchant banker or an accountant in accordance with any internationally accepted valuation methodology as increased by the liability, if any, considered in such determination;
(ii) the portion of the value computed in clause (i) as is equal to the amount of its capital shall be allocated among its partners or members in the proportion in which capital has been contributed by them and the residue of the value shall be allocated among the partners or members in accordance with the agreement of partnership firm or association of persons for distribution of assets in the event of dissolution of the firm or association, or, in the absence of any such agreement, in the proportion in which the partners or members are entitled to share profits and the sum total of the amount so allocated to a partner or member shall be treated as the fair market value of the interest of that partner or member in the firm or the association of persons, as the case may be.
(5) The fair market value of the asset other than those referred to in sub-rules (2), (3) and (4) shall be the price it would fetch if sold in the open market on the specified date as determined by a merchant banker or an accountant as increased by the liability, if any, considered in such determination.
(6) The fair market value of all the assets of a foreign company or an entity shall be determined in the following manner, namely:—
(i) where the transfer of share of, or interest in, the foreign company or entity is between the persons who are not connected persons, the fair market value of all the assets owned by the foreign company or the entity as on the specified date, for the purpose of such transfer, shall be determined in accordance with the following formula, namely:—
Fair market value of all assets = A+B
Where;
A = Market capitalisation of the foreign company or entity computed on the basis of the full value of consideration for transfer of the share or interest;
B = Book value of the liabilities of the company or the entity as on the specified date as certified by a merchant banker or an accountant;
(ii) in any other case, if, —
(a) the share of the foreign company or entity is listed on a stock exchange on the specified date, the fair market value of all the assets owned by the foreign company or the entity shall be determined in accordance with the following formula, namely:—
Fair market value of all the assets = A + B
Where;
A = Market capitalisation of the foreign company or entity computed on the basis of the observable price of the share on the stock exchange where the share of the foreign company or the entity is listed;B = book value of the liabilities of the company or the entity as on the specified date:
Provided that where, as on the specified date, the share is listed on more than one stock exchange, the observable price in the aforesaid formula shall be in respect of the stock exchange which records the highest volume of trading in the share during the period considered for determining the price;
(b) the share in the foreign company or entity is not listed on a stock exchange on the specified date, the value of all the assets owned by the foreign company or the entity shall be determined in accordance with the following formula, namely:—
Fair market value of all the assets = A+ B
Where;
A = fair market value of the foreign company or the entity as on the specified date as determined by a merchant banker or an accountant as per the internationally accepted valuation methodology;
B = value of liabilities of the company or the entity if any, considered for the determination of fair market value in A.
(7) Where fair market value has been determined on the basis of any interim balance sheet referred to in the first proviso to clause (ix) of the Explanation, then the fair market value shall be appropriately modified after finalisation of the relevant financial statement in accordance with the applicable laws and all the provisions of this rule and rules 11UC and 114DB shall apply accordingly.
(8) For determining the fair market value of any asset located in India, being a share of an Indian company or interest in a partnership firm or association of persons, all the assets and business operations of the said company or partnership firm or association of persons shall be taken into account irrespective of whether the assets or business operations are located in India or outside.
(9) The rate of exchange for the calculation in foreign currency, of the value of assets located in India and expressed in rupees shall be the telegraphic transfer buying rate of such currency as on the specified date.
Explanation : For the purposes of this rule and rule 11UC,—
(i) “accountant” means an accountant referred to in the Explanation to sub-section (2) of section 288 and for the purposes of sub-rule (6) includes any valuer recognised for undertaking similar valuation by the Government of the country where the foreign company or the entity is registered or incorporated or any of its agencies, who fulfils the following conditions, namely:—
(a) if he is a member or partner in any entity engaged in rendering accountancy or valuation services then,—
(i) the entity or its affiliates has presence in more than two countries; and
(ii) the annual receipt of the entity in the year preceding the year in which valuation is undertaken exceeds ten crore rupees;
(b) if he is pursuing the profession of accountancy individually or is a valuer then,—
(i) his annual receipt in the year preceding the year in which valuation is undertaken, from the exercise of profession, exceeds one crore rupees; and
(ii) he has professional experience of not less than ten years.
(ii) “connected person” shall have the meaning as assigned to it in clause (4) of section 102;
(iii) “right of management or control” shall include the right to appoint majority of the directors or to control the management or policy decision exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of shareholding or management rights or shareholders agreements or voting agreements or in any other manner;
(iv) “telegraphic transfer buying rate” shall have the meaning as assigned to it in the Explanation to rule 26;
(v) “observable price” in respect of a share quoted on a stock exchange shall be the higher of the following:—
(a) he average of the weekly high and low of the closing prices of the shares quoted on the said stock exchange during the six months period preceding the specified date; or
(b) the average of the weekly high and low of the closing price of the shares quoted on the said stock exchange during the two weeks preceding the specified date;
(vi) “book value of the liabilities” means the value of liabilities as shown in the balance-sheet of the company or the entity as the case may be, excluding the paid-up capital in respect of equity shares or members’ interest and the general reserves and surplus and security premium related to the paid up capital;
(vii) “specified date” shall have the meaning as assigned to it in clause (d) of Explanation 6 to clause (i) of sub-section (1) of section 9;
(viii) the terms “merchant banker” and “recognised stock exchange” shall have the meaning as assigned to them in rule 11U;
(ix) balance sheet”,—
(a) in relation to an Indian company, means the balance-sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date which has been audited by the auditor of the company appointed under the laws relating to companies in force; and
(b) in any other case, means the balance-sheet of the company or the entity (including the notes annexed thereto and forming part of the accounts) as drawn up on the specified date and submitted to the relevant authority outside India under the laws in force of the country in which the foreign company or the entity is registered or incorporated:
Provided that where the balance-sheet as on the specified date is not drawn up, pending finalisation of accounts, as mentioned in clauses (a) and (b), the balance-sheet shall mean an interim balance-sheet drawn up as on the specified date and approved by the Board of directors of the company or an equivalent body in case of any other entity:
Provided further that where the specified date is the date referred to in sub-clause (ii) of clause (d) of Explanation 6 to clause (i) of sub-section (1) of section 9, the balance-sheet means the balance-sheet as drawn up on the specified date and certified by an accountant.]
Rule 11UC of Income-tax Rules-[Determination of Income attributable to assets in India.
(1) The income from transfer outside India of a share of, or interest in, a company or an entity referred to in clause (i) of sub-section (1) of section 9, attributable to assets located in India, shall be determined in accordance with the following formula, namely:—
A×B/C
Where;
A = Income from the transfer of share of, or interest in, the company or the entity computed in accordance with the provisions of the Act, as if, such share or interest is located in India;
B = Fair Market Value of assets located in India as on the specified date, from which the share or interest referred to in A derives its value substantially, computed in accordance with rule 11UB;
C = Fair Market Value of all the assets of the company or the entity as on the specified date, computed in accordance with rule 11UB:
Provided that if the transferor of the share of, or interest in, the company or the entity fails to provide the information required for the application of the aforesaid formula then the income from the transfer of such share or interest attributable to the assets located in India shall be determined in such manner as the Assessing Officer may deem suitable.
2) The transferor of the share of, or interest in, a company or an entity that derives its value substantially from assets located in India, shall obtain and furnish along with the return of income a report in Form No. 3CT duly signed and verified by an accountant providing the basis of the apportionment in accordance with the formula and certifying that the income attributable to assets located in India has been correctly computed.]
Rule 11UD of Income-tax Rules-[Thresholds for the purposes of significant economic presence
(1) For the purposes of clause (a) of Explanation 2A to clause (i) of sub-section (1) of section 9, the amount of aggregate of payments arising from transaction or transactions in respect of any goods, services or property carried out by a non-resident with any person in India, including provision of download of data or software in India during the previous year, shall be two crore rupees;
(2) For the purposes of clause (b) of Explanation 2A to clause (i) of sub-section (1) of section 9, the number of users with whom systematic and continuous business activities are solicited or who are engaged in interaction shall be three lakhs.]
[J – Indirect transfer period to 28th May, 2012 of assets situate in India
Rule 11UE of Income-tax Rules-Specified conditions under Explanation to fifth and sixth provisos to Explanation 5 to clause (i) of sub-section (1) of section 9
(1) For the purposes of clauses (i), (ii) and (iii) of the Explanation to fifth and sixth provisos to Explanation 5 to clause (i) of sub-section (1) of section 9, the declarant shall furnish an undertaking in Form No. 1 and shall append the undertakings from all the interested parties in Part M of the Annexure to the undertaking in Form No. 1 and furnish all the attachments required to be furnished under any clause or Part thereof.
(2) The conditions for the purposes of clause (iv) of the Explanation to fifth and sixth provisos to Explanation 5 to clause (i) of sub-section (1) of section 9 shall be the following, namely: –
(a) the declarant and all the interested parties shall irrevocably withdraw, terminate or discontinue all the appeals or applications or petitions or proceedings, against the relevant order or orders and furnish evidence thereof and a declaration in the undertaking in Form No. 1 to the effect that it shall not, under any circumstances, reopen or file any such appeal, application, petition or proceeding in future against the relevant order or orders;
(b) the declarant and all the interested parties shall irrevocably withdraw, terminate or discontinue all the proceedings for arbitration, conciliation or mediation, or notices thereof against the relevant order or orders and furnish evidence thereof and a declaration in the undertaking in Form No. 1 to the effect that it shall not, under any circumstances, reopen or file any such proceeding or initiate any such arbitration, conciliation or mediation in future against the relevant order or orders;
(c) the declarant and all the interested parties shall irrevocably withdraw, terminate or discontinue all the proceedings to enforce or pursue attachments in respect of any award, order or judgment or any other relief against the Republic of India or Indian affiliates with respect to the relevant order or orders and furnish evidence thereof and a declaration in the undertaking in Form No. 1 to the effect that it shall not, under any circumstances, reopen or file any such proceeding in future against the Republic of India or Indian affiliates with respect to the relevant order or orders;
(d) the declarant and all the interested parties shall irrevocably terminate, release, discharge, and forever irrevocably waive all rights, whether direct or indirect, and any claims, demands, liens, actions, suits, causes of action, obligations, controversies, debts, costs, attorneys’ fees, court’s fees expenses, damages, judgments, orders, declaratory relief, and liabilities of whatever kind or nature at law, in equity, or otherwise, whether now known or unknown previously (or in future discovered), suspected or unsuspected, and whether or not concealed or hidden, which have existed or may have existed, or do exist or which hereafter can, shall or may exist in relation to any award, order, judgment, or any other relief against the Republic of India or Indian affiliates in connection with the relevant order or orders and furnish evidence thereof and a declaration in the undertaking in Form No. 1 to the effect that it shall not, under any circumstances, reopen or file any such proceeding or initiate any such arbitration, conciliation or mediation in future against the relevant order or orders;
(e) he declarant and all the interested parties shall irrevocably waive any right to seek or pursue any claim for costs in respect of any proceeding referred to in clause (a), (b), (c) or (d), including but not limited to any proceeding initiated by the Republic of India to set aside the award, order or judgment, or any other relief, referred to in clause (a), (b), (c) or (d), issued in favour of the declarant or any of the interested parties;
(f) the declarant and all the interested parties shall terminate, release, discharge, and forever irrevocably waive any right, whether direct or indirect, any remedies, claims, demands, liens, actions, suits, causes of action, obligations, controversies, debts, costs, attorneys’ fees, court’s fees, expenses, damages, judgments, orders, compensation, and liabilities of whatever kind or nature at law, in equity, or otherwise, whether now known or unknown, suspected or unsuspected, and whether or not concealed or hidden, which have existed or may have existed, or do exist or which hereafter can, shall or may exist, based on pursuit of any remedy or any and all claims, demands, damages, judgments, awards, costs, expenses, compensation or liabilities of any kind (whether asserted or unasserted), in relation to any facts, events, or omissions occurring at any time in relation to taxation of income referred to in the fifth and sixth proviso to Explanation 5 to clause (i) of sub-section (1) of section 9 or relevant order or orders, or any related award, judgment or court order, which may otherwise be available to the declarant or any of its interested parties;
(g) he declarant and all the interested parties shall indemnify, defend and hold harmless the Republic of India and Indian affiliates from and against any and all costs, expenses (including attorneys’ fees and court’s fees), interest, damages, and liabilities of any nature arising out of or in any way relating to the assertion or, bringing, filing or maintaining of any claim, at any time after the date of furnishing the undertaking in Form No. 1 by the declarant, by any person and the declarant and all the interested parties shall furnish an indemnity bond to this effect, such that the declarant and the interested parties fully assume the risk of any omission or mistake with respect to identification and procurement of authorisations and undertakings from any related parties or interested parties as provided in the undertaking, and secures the Republic of India and Indian affiliates from any claim related to any relevant order or orders, or in relation to any award, order, judgment, or any other relief against the Republic of India and Indian affiliates in connection with any relevant order or orders;
(h) the declarant and all the interested parties shall refrain from facilitating, procuring, encouraging or otherwise assisting any person (including but not limited to any related party or interested party) from bringing any proceeding or claims of any kind related to any relevant order or orders, or in relation to any award, order, judgment, or any other relief against the Republic of India or Indian affiliates in connection with any relevant order or orders; and
(i) the declarant and all the interested parties shall notify by a public notice or press release that, by signing the undertaking in Form No. 1 or Part M of the Annexure to the undertaking in Form No. 1, as the case may be, any claims arising out of or relating to the relevant orders or any related award, judgment or court order, no longer subsist, and that such person or entity issuing the public notice has signed the undertaking, and that such undertaking includes an indemnity against any claims brought against the Republic of India or any India affiliate contrary to the undertaking, and that the declarant and all the interested parties shall furnish a copy of such public notice to the Republic of India.
(3) The execution, delivery and performance of the undertaking in Form No. 1 submitted by the declarant, undertakings from all the interested parties in Part M of the Annexure to the undertaking in Form No. 1 and indemnity bond by the declarant and interested parties in Part N of the Annexure to the undertaking in Form No. 1 shall be duly authorised by all necessary corporate action, including but not limited to any Board resolution or similar authorisation under applicable law and a copy of such Board resolution and legal authorisation shall be furnished by the declarant.]
Rule 11UF of Income-tax Rules-[Manner of furnishing undertaking under rule 11UE
1) The undertaking in Form No. 1 under sub-rule (1) of rule 11UE shall be submitted by the declarant to the jurisdictional Principal Commissioner or Commissioner within forty-five days from the date of commencement of the Income-tax (31st Amendment) Rules, 2021.
(2) After the undertaking in Form No. 1 under sub-rule (1) of rule 11UE is furnished by the declarant, the jurisdictional Principal Commissioner or Commissioner shall, within a period of fifteen days from the date of receipt of the said undertaking,—
(a) grant a certificate in Form No. 2 accepting such undertaking; or
(b) pass an order rejecting such undertaking, where the undertaking in Form No. 1 is incorrect or incomplete or any part thereof or any of the attachments or evidences or the indemnity bonds provided therein or any of the authorisations, as referred to in sub-rule (3) of rule 11UE is incorrect or incomplete or not furnished, after giving an opportunity of being heard to the declarant.
(3) After the grant of certificate in Form No. 2, the conditions under sub-rule (2) of rule 11UE shall be fulfilled by the declarant and interested parties and an intimation to this effect shall be filed by the declarant in Form No. 3 within sixty days of the date of receipt of certificate in Form No. 2 under sub-rule (2) with the jurisdictional Principal Commissioner or Commissioner.
(4) The jurisdictional Principal Commissioner or Commissioner may, on an application made by the declarant, extend the period of sixty days under sub-rule (3) by a further period not exceeding sixty days.
(5) Where the intimation in Form No. 3 is filed after the period of sixty days under sub-rule (3) or further period extended under sub-rule (4), as the case may be, then, notwithstanding anything contained in any other provision of rule 11UE and this rule, such intimation in Form No. 3 shall be treated as invalid and the provisions of this rule shall apply as if such person had never furnished the intimation in Form No. 3.
(6) No intimation in Form No. 3 under sub-rule (3) shall be required to be furnished by the declarant if the following conditions are satisfied, namely:—
(a) the declarant or any of the interested parties has not filed, with respect to all the relevant order or orders, any—
(i) appeal or application or petition or proceeding;
(ii) arbitration, conciliation or mediation and no notices have been given thereof; or
(iii) proceeding to enforce or pursue attachments in respect of any award, order or judgment or any other relief against the Republic of India or Indian affiliates; and
(b) where, with respect to the relevant order or orders, any—
(i) appeals or applications or petitions or proceeding;
(ii) arbitration, conciliation or mediation; or
(iii) proceeding to enforce or pursue attachments in respect of any award, order or judgment or any other relief against the Republic of India or Indian affiliates,
has been filed or notice thereof has been given by the declarant or any interested parties, the declarant and all such interested parties have irrevocably withdrawn all such appeals, applications, petitions, proceeding, arbitration, conciliation and mediation and no further appeal or application or petition or proceeding or arbitration or conciliation or mediation has been filed by the declarant or any such interested party against the Republic of India or any of the Indian Affiliates before the withdrawal of such arbitration, conciliation or mediation and evidence thereof has been furnished at the time of furnishing the undertaking in Form No. 1 referred to in sub-rule (1) of rule 11UE; and
(c) where with respect to the relevant order or orders, any—
(i) appeals or applications or petitions or proceeding;
(ii) the arbitration, conciliation or mediation;
(iii) the proceeding to enforce or pursue attachments in respect of any award, order or judgment or any other relief against the Republic of India or Indian affiliates,
had been filed by the declarant or any of the interested parties and have been disposed of, no further appeal or application or petition or proceeding or arbitration or conciliation or mediation has been filed by the declarant or any such interested party against the Republic of India or any of the Indian Affiliates on or before the disposal of such arbitration, conciliation or mediation and evidence thereof has been furnished at the time of furnishing the undertaking in Form No. 1 referred to in sub-rule (1) of rule 11UE.
(7) After the receipt of intimation in Form No. 3 under sub-rule (3) or grant of certificate in Form No. 2 under sub-rule (2) in cases covered under sub-rule (6), the jurisdictional Principal Commissioner or Commissioner shall pass an order granting relief in Form No. 4 or decline to grant relief in accordance with the procedure specified in sub-rule (8).
(8) The jurisdictional Principal Commissioner or Commissioner may, after giving an opportunity of being heard to the declarant, decline to grant relief under sub-rule (7) where,—
(a) the declarant has not fulfilled any of the conditions stipulated under sub-rule (2) of rule 11UE;
(b) the intimation in Form No. 3 or any part thereof is incorrect or incomplete;
(c) the intimation in Form No. 3 has not been filed in a case other than that covered under sub-rule (6);
(d) any of the attachments provided in Form No. 3 is incorrect or incomplete or has not been furnished;
(e) any of the evidence required to be furnished along with Form No. 3 is incorrect or incomplete or has not been furnished; or
(f) the intimation in Form No. 3 submitted by the declarant is not duly authorized by all necessary corporate action, including but not limited to any Board resolution or similar authorization under applicable law or a copy of such Board resolution or legal authorization is incorrect or incomplete or not furnished by the declarant.
(9) The order granting the relief under sub-rule (7) or declining to grant relief under sub-rule (8) shall be passed,—
(a) within a period of thirty days from the date of receipt of Form No. 3 by the Principal Commissioner or Commissioner, in cases where intimation in Form 3 has been furnished to the Principal Commissioner or Commissioner under sub-rule (3).
(b) within thirty days of the issue of Form No. 2, in cases covered under sub-rule (6).
(10) No order rejecting the undertaking in Form No. 1 under clause (b) of sub-rule (2) or declining relief under sub-rule (8), shall be passed by the Principal Commissioner or Commissioner without the approval of the Chief Commissioner.
(11) For the purpose of rejecting the undertaking under clause (b) of sub-rule (2) or declining to grant relief under sub-rule (8), the Principal Commissioner or Commissioner shall intimate the reasons thereof to the declarant and give him an opportunity of submitting a renewed undertaking in Form No. 1 or renewed intimation in Form No. 3, as the case may be, within a further period not exceeding thirty days.
(12) Where the renewed undertaking or renewed intimation is not filed within such further period under sub-rule (11), then, notwithstanding anything contained in any other provision of the rule 11UE and this rule, such undertaking or intimation shall be treated as invalid and the provisions of this rule shall apply as if such person had never furnished the undertaking in Form No. 1 or intimation in Form No. 3, as the case may be.
(13) The extended period allowed under sub-rule (11) for submitting a renewed undertaking in Form No. 1 or a renewed intimation in Form No. 3 shall be excluded from,–
(a) the period of fifteen days under sub-rule (2) for granting a certificate in Form No. 2 or passing an order rejecting such undertaking, as the case may be, by the jurisdictional Principal Commissioner or Commissioner; or
(b) thirty days under clauses (a) and (b) of sub-rule (9) for passing an order granting relief under sub-rule (7) or declining relief under sub-rule (8), as the case may be, by the jurisdictional Principal Commissioner or Commissioner.
(14) For the purposes of computing the period of limitation under sub-rule (2) or (9), where immediately after the exclusion of the period or extended period allowed to the declarant, the period of limitation available to the Principal Commissioner or Commissioner, for granting certificate or passing or issuing an order under sub-rule (2) or (9), is less than fifteen days, such remaining period shall be extended to fifteen days and the period of limitation under said sub-rules shall be deemed to be extended accordingly.
(15) The undertaking in Form No. 1 shall be deemed to have never been filed if the Principal Commissioner or Commissioner has passed an order rejecting the undertaking in Form No. 1 under clause (b) of sub-rule (2) or declined to grant relief to the declarant under sub-rule (8).
(16) The directions of the jurisdictional Principal Commissioner or Commissioner, in Form No. 4, shall be binding on the assessing officer who shall, –
(a) give effect to such directions and pass an order and issue the refund, if any, and revoke attachments, if any, within a period of fifteen days from the date of the receipt of such directions; and
(b) file an application to withdraw any appeal or application or petition or proceeding filed by any Income-tax Authority or intimate the concerned person, where appeals or applications or petitions or proceeding has been filed by any other person representing the Republic of India, with respect to the specified orders covered under Form No. 4, within sixty days from the date of receipt of such directions.
(17) Any dispute with respect to the undertaking or part of the undertaking or indemnity bond specified Forms prescribed under these rules or in respect of any direction or order issued thereunder shall be governed by the relevant Indian laws and be decided in accordance with the procedures specified under the Act, under the exclusive jurisdiction of the relevant income-tax authorities, tribunals or courts in India, as the case may be, which are empowered to decide disputes under the Act.
(18) The Form Nos. 1, 2, 3 and 4 of Appendix IV shall be the Forms for the purposes of this rule and rule 11UE.
Explanation: – For the purposes of this rule and rule 11UE, unless the context otherwise requires,–
(a) “declarant” means the person in whose case a specified order has been passed or made, as the case may be;
(b) “Indian affiliate” means any of departments, agencies, instrumentalities, public sector companies, and other entities of the Republic of India, owned or controlled, directly or indirectly, allegedly or in fact, by any thereof, as well as any officials, officers, directors, employees, attorneys, representatives, those providing financing, and agents of any of these persons, whether in India or in any other country or territory outside India;
(c) “interested party” means the following, namely:-
(i) all the companies or entities in the entire chain of holding of the declarant till the ultimate holding company or entity;
(ii) any person to whom the declarant has transferred any of its claims under any award, judgment, or court order pertaining to the relevant orders or under the relevant orders or granted any rights;
(iii) any person other than the person mentioned in sub-clauses (i) and (ii), in whose favour any interest has been created or assigned by the declarant or under any law or rules made thereunder with respect to any of the relevant order; and
(iv) any person who has initiated any proceedings with respect to any of the relevant orders;
(d) “related party” means affiliates, predecessors, successors, all the companies or entities in the entire chain of holding till the ultimate holding company or entity, subsidiaries (whether direct or indirect), assignees, agents, shareholders (present and future), owners, directors, officers, those providing financing, and employees of the declarant;
(e) “relevant order” means any specified order passed or made in respect of income accruing or arising through or from the transfer of an asset or a capital asset situate in India in consequence of the transfer of a share or interest in a company or entity registered or incorporated outside India made before the 28th day of May, 2012, particulars whereof are provided in Part A of the Annexure to the undertaking in Form No. 1;
(f) “specified order” means,
(i) an assessment or reassessment order under section 143, section 144, section 147 or section 153A or section 153C; or
(ii) an order passed for enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154; or
(iii) an order passed deeming a person to be an assessee in default under sub-section (1) of section 201; or
(iv) an order passed imposing a penalty under Chapter XXI or under section 221;
(g) “ultimate holding company or entity” means a company or an entity that has ultimate control of the declarant directly or indirectly and such company or entity is not itself controlled by, or is subsidiary of, any other company or entity.]
Related FAQ(s)
Q. When is a business connection said to be established?
Ans:- Business connection includes a profession at connection. Business connection includes any activity carried out through a person acting on behalf of a non-resident who performs any one or more of the following:
- If such person has in India authority to conclude contracts on behalf of the non-resident (it will not include cases where authority is restricted to contract for purchase of goods or merchandise on behalf such non-resident); or
- If such person in India habitually maintains stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident;
- If such person habitually secures orders in India mainly or wholly for the non-resident or for the other non-resident under the same management.
No business connection shall be deemed to have been established, if the business is carried on through an independent broker, general commission agent or other agent (i.e., a broker or commission agent who is not working mainly or wholly for such non-resident or other non-resident under same management), provided such person is working in his ordinary course of business.
Only so much of income which accrues or arises due to such business connection is deemed to be income accruing or arising from India and not the entire income of the non-resident.