Section 5(2)(b) — Scope of Total Income (Non-Residents)

Section 5(2)(b) of the Income-tax Act, 1961, defines the scope of total income for non-resident individuals. This section specifies that the total income of a non-resident includes all income that is received or is deemed to be received in India, or accrues or arises or is deemed to accrue or arise in India during the previous year. This provision is significant as it determines the tax liability of non-residents in India, ensuring that income sourced from India is subject to Indian taxation. The statutory test involves determining the source of income and its connection to India. The burden of proof typically lies with the taxpayer to demonstrate the nature and source of income. In practice, this section is crucial for non-residents who have business interests, investments, or any form of income originating from India, as it affects how their global income is taxed by Indian authorities.

Common Litigation Flashpoints

1. Determining the source of income as Indian or foreign
2. Classification of income as received or deemed to be received in India
3. Interpretation of 'accrues or arises' in the context of international transactions
4. Taxation of income from digital services provided to Indian customers

Judgments on Section 5(2)(b) — Scope of Total Income (Non-Residents)

• Vodafone International Holdings B.V. vs Union of India & Anr. — SC,
  Section 9 of the Income Tax Act does not cover indirect transfers of capital assets situated in India.
• Union of India & Anr. vs M/s. Ganpati Dealcom Pvt. Ltd. — SC,
  The 2016 Amendment Act cannot be applied retrospectively as it creates new offences and substantive changes, which cannot be applied to past transactions.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.