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Clarification regarding Explanation 5 to clause (i) of sub-section (l) of section 9 of Income-tax Act 1961 ('Act') regarding

Income Tax - 04/2015 - Dated:- 26-3-2015 - CIRCULAR No. 4 /2015 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes North Block, New Delhi Dated 26th March, 2015 Subject: Clarification regarding Explanation 5 to clause (i) of sub-section (l) of section 9 of Income-tax Act, 1961 ('Act') - regarding Section 9 of the Income-tax Act provides for incomes which are deemed to accrue or arise in India. Clause (i) of sub-section (1) of the said section read .....

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s as under:- " 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" 3. A number of representations have been received by the Board stating that the purpose .....

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red by a foreign company outside India. This may cause unintended double taxation and would be contrary to the generally accepted principles of source rule as well as the object and purpose of the amendment made by the Finance Act 2012. 4. The matter has been examined in the Board. The Explanatory Memorandum to the Finance Bill 2012 explains the purpose of the amendment to section 9 (1)(i) in the following words:- "Section 9 of the Income-tax Act provides cases of income, which are deemed t .....

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his clause is to widen the application as it covers incomes, which are accruing or arising directly or indirectly. The section codifies source rule of taxation wherein the state where the actual economic nexus of income is situated has a right to tax the income irrespective of the place of residence of the entity deriving the income. Where corporate structure ls created to route funds, the actual gain or income arises only in consequence of the investment made in the activity to which such gains .....

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accrue or arise where there are conflicting decisions of various judicial authorities. Therefore, there is a need to provide clarificatory retrospective amendment to restate the legislative intent in respect of scope and applicability of section 9 and 195 and also to make other clarificatory amendments for providing certainty in law." 5. The Explanatory Memorandum clearly provides that the amendment of section 9(1) (i) was to reiterate the legislative intent in respect of taxability of gain .....

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