Section 9

Income deemed to accrue or arise in India

Constitutional validity

Section 9(1)(vii)(b) cannot be said to be unconstitutional - Section 9(1)(vii)(b) cannot be said to be unconstitutional for want of legislative competence and violation of article 14 of the Constitution - G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564 (AP).

Scope and object

Income actually received is outside the scope of deeming fiction - Where the income, profits and gains are actually received in India, it is no longer necessary for the revenue authorities to have recourse to the fiction - Turner Morrison & Co. Ltd. v. CIT [1953] 23 ITR 152 (SC).

Actual accrual is different from deemed accrual - The concept of actual accrual or arising of income in the taxable territories, although not dependent upon the receipt of the income in the taxable territories, is quite distinct and apart from the notion of deemed accrual or arising of the income - Carborandum Co. v. CIT [1977] 108 ITR 335 (SC).

‘Deemed’ involves a number of concepts, like place, person and year - The term ‘deemed’ brings within the net of chargeability income not actually accruing but which is supposed notionally to have accrued. It involves a number of concepts. By statutory fiction income which can in no sense be said to accrue at all may be considered as so accruing. Similarly, the fiction may relate to the place, the person or be in respect of the year of taxability - CIT/CEPT v. Bhogilal Laherchand [1954] 25 ITR 50 (SC).

Conditions precedent - It is not necessary that income falling in one category under any one of the clauses of section 9(1) should also satisfy the requirements of the other clauses to bring it within the ambit of the expression ‘income deemed to accrue or arise in India’ - G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564 (AP).

Business connection

There must be element of continuity as well as real and intimate connection - The expression ‘business connection’ undoubtedly means something more than ‘business’. A business connection involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories. The expression ‘business connection’ postulates a real and intimate relation between trading activity carried on outside the taxable territories and trading activity within the territories, the relation between the two contributing to the earning of income by the non-resident in his trading activity - CIT v. R.D. Aggarwal & Co. [1965] 56 ITR 20 (SC).

‘Business’ include profession, vocation and callings - The expression ‘business’ does not necessarily mean trade or manufacture only. It is being used as including within its scope profession, vocations and calling from a fairly long-time.

In the context in which the expression ‘business connection’ is used in section 9(1), there is no warrant for giving a restricted meaning to it excluding ‘professional’ connection, from its scope - Barendra Prasad Ray v. ITO [1981] 129 ITR 295 (SC).

Mere purchase abroad and use in India is not ‘continuing business’ - The term ‘business connection’ postulates a continuity of business relationship between the foreigner and the Indian. There is no question of continuing business relation when a person purchase the machinery or other goods abroad and uses them in India and earns profit. - CIT v. Fried Krupp Industries [1981] 128 ITR 27 (Mad.).

Isolated transactions are not covered - An isolated transaction between a non-resident and a resident in British India without any course of dealings such as might fairly be described as a business connection, does not attract the application of section 9, but when there is a continuity of business relationship between the person in British India who helps to make the profits and the person outside British India who receives or realises the profits, such relationship does constitute a business connection - Anglo-French Textile Co. Ltd. v. CIT (No. 2) [1953] 23 ITR 101 (SC).

Capital gains derived outside India is excluded - If the words ‘business connection in India’ were wide enough to cover all transactions including transactions in capital assets, there was no reason for Parliament to specifically include income (a) through or from any property in India, (b) through or from any asset or source of income from India, and (c) through or from sale of a capital asset situate in India. From the very fact that the transfer of a capital asset situate in India has been brought within the purview of section 9 and rule 10(2), the intention of Parliament was not to bring within its purview any income derived out of sale or purchase of a capital asset effected outside India - CIT v. Quantas Airways Ltd. [2002] 256 ITR 84/122 Taxman 935 (Delhi).


‘Source’ is a practical and not legal concept - All income accruing or arising from any ‘source of income in India’ is deemed to accrue or arise in India. The word ‘source’ does not mean any legal concept, but refers to that which a practical man would regard as a real source of income - Performing Right Society Ltd. v. CIT [1974] 93 ITR 44 (Cal.).

‘Property’ must be tangible, but not confined to immovables - The word ‘property’ used in sub-section (1) of section 42 of 1922 Act means something tangible; though it is not confined to immovable property or to buildings or lands appurtenant thereto - CIT v. Currimbhoy Ebrahim & Sons Ltd. [1935] 3 ITR 395 (PC).

Business operations

Onus is on revenue to prove existence of operations in India - In order to rope in the income of a non-resident under the deeming provision it must be shown by the department that some of the operations were carried out in India in respect of which the income is sought to be assessed - Carborandum Co. v. CIT [1977] 108 ITR 335 (SC).

If no operations are carried in India, deeming concept cannot apply - If no operations of business are carried out in the taxable territories, it follows that the income accruing or arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India - CIT v. Toshoku Ltd. [1980] 125 ITR 525 (SC)/CIT v. Fried Krupp Industries [1981] 128 ITR 27 (Mad.).

Transactions must be systematic and well-defined - It is not every business activity of a manufacturer that comes within the expression ‘operation’ to which the provisions of section 42(3) of the 1922 Act [corresponding to section 9 of the 1961 Act] are attracted. Activities which are not well defined or are of a casual or isolated character would not ordinarily fall within the ambit of this rule. In a case where all that may be known is that a few transactions of purchase of raw materials have taken place in British India, it could not ordinarily be said that the isolated acts were in their nature ‘operations’ within the meaning of that expression - Anglo-French Textile Co. Ltd. v. CIT (No. 2) [1953] 23 ITR 101 (SC).

Salary paid abroad

Explanation - Explanation to section 9(1)(ii) added by the Finance Act, 1983 with retrospective effect from 1-4-1979 cannot be considered to be declaratory nor can it apply to a period anterior to April 1, 1979 - CIT v. I.G. Belline [1999] 102 Taxman 339 (Guj.).

Explanation added to section 9(1)(ii) with retrospective effect from 1-4-1979 was not procedural in nature - CIT v. Goslino Mario [2000] 241 ITR 312 (SC).

From Explanation to section 9(1)(ii) it is not possible to infer corollary, that in all cases where services are rendered outside India, salary cannot be deemed to accrue in India ipso facto. In certain cases, even if the services are rendered outside India, the income can still accrue or arise in India. It would depend on the facts of each case - CIT v. Halliburton Offshore Services Inc. [2004] 140 Taxman 405/271 ITR 395 (Uttaranchal).

Salary paid to foreign employee on oil rig for off-period in his contract is exigible to tax under section 9(1)(ii) - CIT v. Sedco Forex International Drilling Co. Ltd. [2003] 264 ITR 320/[2004] 134 Taxman 109 (Uttaranchal).

Payment to non-citizens are not covered under clause (iii) - If income is earned by a person who is not a citizen of India by rendering services outside India, then section 9(1)(iii) will have no application. Similar will be the case if salary is payable to a person by a private organisation for rendering services outside India - Grindlays Bank Ltd. v. CIT [1991] 56 Taxman 213 (Cal.).

Others - Where liability to pay salaries to assessees arose outside India in terms of contract between their employer - Italian company and Indian company and salary was payable outside India, section 9(1)(ii) would not apply - CIT v. Goslino Mario [2000] 241 ITR 312 (SC).


Dividend income paid to a non-resident by Indian company is deemed to accrue in India only on payment and not on declaration - Under section 9(1)(iv), it is clearly stipulated that a dividend paid by an Indian company outside India will constitute income deemed to accrue in India on effecting such payment. In section 9(1)(iv), the words used are ‘a dividend paid by an Indian company outside India’. This is in contradistinction to section 8 which refers to a dividend declared, distributed or paid by a company. The words ‘declared or distributed’ occurring in section 8 do not find place in section 9(1)(iv). Therefore, it is clear that dividend income paid to a non-resident is deemed to accrue in India only on payment and not on declaration - Pfizer Corporation v. CIT [2003] 259 ITR 391/129 Taxman 459 (Bom.).

Royalty/fees for technical services

Deeming concept applies whether there is business connection or not - Whether there is a business connection or not, any income by way of fees for technical services should be taken to have been covered by the provision in section 9(1)(vii) - CIT v. Copes Vulcan Inc. [1987] 167 ITR 884 (Mad.).

Cases falling under clause (vi) cannot be brought under clause (vii) - If the case falls under clause (vi) of section 9(1) and is exempted from the operation of clause (vi) by virtue of the proviso, then one cannot refer to clause (vii) which is a general clause - Meteor Satellite Ltd. v. ITO [1980] 121 ITR 311 (Guj.).

Definition of royalty in Explanation 2 applies to clause (vi) only - The definition of the term ‘royalty’ in Explanation 2 to section 9(1)(vi) is not a general definition applicable wherever that term occurs but is applicable to section 9(1)(vi) only - Citizen Watch Co. Ltd. v. IAC [1984] 148 ITR 774 (Kar.).