Section 9 — Income Deemed to Accrue or Arise in India

Section 9 of the Income-tax Act, 1961, outlines the circumstances under which income is deemed to accrue or arise in India, even if it may not physically originate within the country. This section is crucial for determining the tax liability of non-residents and foreign entities. It covers various types of income, including business connections, property, asset transfers, dividends, interest, royalties, and fees for technical services. The statutory test involves assessing the nexus between the income and its source in India. The burden of proof typically lies with the taxpayer to demonstrate that the income does not fall under the purview of this section. Practically, this section is significant for multinational corporations and foreign investors, as it affects cross-border transactions and the structuring of international operations.

Common Litigation Flashpoints

1. Determining the existence of a business connection in India
2. Characterization of income as royalties or fees for technical services
3. Attribution of income to a permanent establishment
4. Taxation of indirect transfers of Indian assets

Judgments on Section 9 — Income Deemed to Accrue or Arise in India

• M/s. Goldman Sachs Services Pvt. Ltd. vs Joint Commissioner of Income Tax — ITAT, 2020
  Disallowance under section 14A is not applicable if no exempt income is earned during the assessment year.
• DCIT-7(1)(1) vs Goldman Sachs (India) Securities Pvt. Ltd. — ITAT,
  Discount on issue of employees stock options is allowable as deduction in computing the income under the head profits and gains of business.
• State, CBI vs Sashi Balasubramanian & Anr. — SC,
  Public servants cannot claim immunity under the Kar Vivad Samadhan Scheme, 1998, as the Scheme does not apply to them.
• Reliance Jio Infocomm USA Inc. vs Deputy Commissioner of Income Tax — ITAT,
  Payments for standard telecommunication services without transfer of rights do not constitute 'Royalty' under the India-US DTAA.
• Myntra Inc. vs Assistant Commissioner of Income Tax — ITAT,
  The 'make available' condition under Article 12(4)(b) of the India-US DTAA is not satisfied if the services do not involve a transfer of technical knowledge or skills.
• 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.
• The Authority for Advance Rulings (Income Tax) and Others vs Tiger Global International II Holdings — SC,
  The DTAA between India and Mauritius allows capital gains to be taxed only in Mauritius, provided the entity holds a valid TRC.
• SAP Labs India Private Limited vs Income Tax Officer, Circle 6, Bangalore — SC,
  The High Court can scrutinize the Tribunal's determination of the arm's length price if it is alleged to be perverse or not in accordance with the guidelines under the IT Act and Rules.
• Sony Ericsson Mobile Communications India Pvt. Ltd. vs Commissioner of Income Tax – III — HC,
  AMP expenses can be considered an international transaction if they benefit the foreign AE and require compensation at arm's length price.
• The Commissioner of Income-Tax, Bombay City II vs Shri Sitaldas Tirathdas — SC,
  Income is not deductible if it is applied to discharge an obligation after it reaches the assessee.
• Hyatt International Southwest Asia Ltd. vs Additional Director of Income Tax — SC,
  A Permanent Establishment exists if the enterprise has a fixed place of business at its disposal through which it carries on its business activities.
• C.I.T., Mumbai vs M/s. Walfort Share & Stock Brokers P. Ltd. — SC,
  Section 14A does not apply to dividend stripping transactions prior to 1.4.2002, and losses from such transactions cannot be disallowed as artificial.
• M/s DIT (International Taxation), Mumbai vs M/s Morgan Stanley & Co. INC — SC,
  A Permanent Establishment exists if services are furnished through employees in India, and the arm's length price should be determined using the most appropriate method, such as TNMM.
• Maruti Suzuki India Ltd vs Commissioner of Income Tax — HC,
  AMP expenses incurred by an assessee cannot be treated as an international transaction under Section 92B unless there is evidence of an agreement or understanding with the associated enterprise.
• 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.
• Assessing Officer Circle (International Taxation) 2(2)(2) New Delhi vs M/S Nestle SA — SC,
  The MFN clause in a DTAA requires a specific notification to be effective, and mere entry of a third country into OECD does not automatically trigger benefits.
• M/s. Texas Instruments (India) Private Limited vs ACIT (LTU), Bengaluru — ITAT,
  Expenses incurred for software usage and IT support services, which do not result in acquisition of any asset or enduring benefit, are revenue in nature.
• Union of India and Anr. vs Azadi Bachao Andolan and Anr. — SC,
  The provisions of a Double Taxation Avoidance Agreement, once notified, override the provisions of the Income-tax Act to the extent of inconsistency.
• Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax & Anr. — SC,
  Payments for software do not constitute 'royalty' under Section 9(1)(vi) of the Income Tax Act, and thus, no tax is deductible at source under Section 195.