Income deemed to accrue in India.
5. (1) The income shall be deemed to accrue in India, if it accrues, whether directly or indirectly, through or from:
(a) any business connection in India;
(b) any property in India;
(c) any asset or source of income in India; or
(d) the transfer of a capital asset situated in India.
(2) Without prejudice to the generality of the provisions of sub-section (1), the following income shall be deemed to accrue in India, namely:—
(a) income from employment, if it is for–
(i) service rendered in India;
(ii) service rendered outside India by a citizen of India and the income is receivable from the Government; or
(iii) the rest period, or leave period, which precedes, or succeeds, the period of service rendered in India and forms part of the service contract of employment;
(b) any dividend paid by a domestic company outside India;
(c) any insurance premium including re-insurance premium accrued from or payable by any resident or non-resident in respect of insurance covering any risk in India;
(d) interest accrued from or payable by any resident or the Government;
(e) interest accrued from or payable by any non-resident, if the interest is in respect of any debt incurred and used for the purposes of—
(i) a business carried on by the non-resident in India; or
(ii) earning any income from any source in India;
(f) royalty accrued from or payable by any resident or the Government;
(g) royalty accrued from or payable by a non-resident, if the royalty is for the purposes of—
(i) a business carried on by the non-resident in India; or
(ii) earning any income from any source in India;
(h) fees for technical services accrued from or payable by any resident or the Government;
(i) fees for technical services accrued from or payable by any non-resident, in respect of services utilised for the purposes of—
(i) a business carried on by the non-resident in India; or
(ii) earning any income from any source in India;
(j) transportation charges accrued from or payable by any resident or the Government;
(k) transportation charges accrued from or payable by any non-resident, if the transportation charges are in respect of the carriage to, or from, a place in India.
(3) For the purposes of clause (a) of sub-section (1), in the case of a business of which all the operations are not carried out in India, the income of the business deemed to accrue in India shall be only such part of the income as is reasonably attributable to the operations carried out in India.
(4) The income deemed to accrue in India under sub-section (1) shall, in the case of a non-resident, not include the following, namely:—
(a) any income accruing through, or from, operations which are confined to the purchase of goods in India for the purposes of export out of India;
(b) interest accrued from or payable by a resident, in respect of any debt incurred and used for the purposes of—
(i) a business carried on by the resident outside India; or
(ii) earning any income from any source outside India;
(c) royalty accrued from or payable by a resident for the purposes of—
(i) a business carried on by the resident outside India; or
(ii) earning any income from any source outside India;
(d) royalty consisting of lump sum consideration accrued from or payment made by a resident for the transfer of any rights (including the granting of a licence) in respect of computer software supplied by the 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 issued by the Government of India;
(e) fees for technical services accrued from or payable by a resident, in respect of services utilised for the purposes of—
(i) a business carried on by the resident outside India; or
(ii) earning any income from any source outside India;
(f) transportation charges for the carriage by aircraft or ship accrued from or payable by any resident, if the transportation charges are in respect of the carriage from a place outside India to another place outside India, except where the airport or port of origin of departure of such carriage is in India;
(g) income from transfer, outside India, of any share or interest in a foreign company unless at any time in twelve months preceeding the transfer, the fair market value of the assets in India, owned, directly or indirectly, by the company, represent at least fifty per cent. of the fair market value of all assets owned by the company;
(h) interest accrued from or payable by a non-resident as referred to in sub-clause (ii) of clause (e) of sub-section (2), if such interest has not been claimed by the non-resident as a deduction from his tax bases chargeable in India.
(5) The provisions of clauses (c) to (k) of sub-section (2) shall be applicable, whether or not,—
(a) the payment is made in India;
(b) the services are rendered in India;
(c) the non-resident has a residence or place of business or any business connection in India; or
(d) the income has accrued in India.
(6) Where the income of a non-resident, in respect of transfer, outside India, of any share or interest in a foreign company, is deemed to accure in India under clause (d) of subsection (1), it shall be computed in accordance with the following formula—
A x B/C
Where A = Income from the transfer computed in accordance with provisions of this Code as if the transfer was effected in India;
B = fair market value of the assets in India, owned, directly or indirectly, by the company;
C = fair market value of all assets owned by the company.
