Chapter II

Basis of Charge

 

Charge of income-tax.

24[R1]  4.(1)      Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and 25[R2] [subject to the provisions (including provisions for the levy of additional income-tax) of, this Act] in respect of the total income of the previous year 26[R3] [***] of every person:

 

Provided that where by virtue of any provision of this Act in­come-tax is to be charged in respect of the income of a period other than the previous year, income-tax shall be charged accord­ingly.

(2)        In respect of income chargeable under sub-section (1), in­come-tax shall be deducted at the source or paid in advance, where it is so deductible or payable under any provision of this Act.

 

Scope of total income.

27[R4]  5.(1)     Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income form whatever source derived which—

(a)        Is received or is deemed to be received in India in such year by or on behalf of such person; or

(b)        Accrues or arises or is deemed to accrue or arise to him in India during such year; or

(c)        Accrues or arises to him outside India such year:

 

            Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India.

 

(2)     Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—

            (a)        Is received or is deemed to be received in India in such year by or on behalf of such person; or

            (b)        Accrues or arises or is deemed to accrue or arise to him in India during such year.

 

Explanation 1: Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.

 

Explanation 2: For the removal of doubts, it is hereby de­clared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.

 

Residence in India.

6.         For the purposes of this Act,—

(1)        An individual is said to be resident in India in any previous year, if he—

(a)        is in India in that year for a periods amounting in all to one hundred and eighty-two days or more; or

(b)        28[R5] [***];

(c)        having within the four years preceding that year been in India for a period or periods amounting in all to three hun­dred and sixty-five days or more, is in India for a period or peri­ods amounting in all to sixty days or more in that year.

                        29[R6] [Explanation : In the case of an individual,—

(a)        being a citizen of India, who leaves India in any previous year 29a[R7] [as a member of the crew of an Indian ship as defined in clause (18)of section 3 of the Merchant Shipping Act, 1958 (44 of 1958), or] for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring there­in, the words “one hundred and eighty-two days” had been substi­tuted;

(b)        being a citizen of India, or a person of Indian origin within the meaning of Explanation to clause (e) of section 115C, who, being outside India, comes on a visit to India in any previ­ous year, the provisions of sub-clause (c) shall apply in rela­tion to that year as if for the words “sixty days”, occurring therein, the words “one hundred and fifty days” had been substi­tuted.]

 

(2)        A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and manage­ment of its affairs is situated wholly outside India.

 

(3)        A company is said to be resident in India any previous year, if—

(i)         it is an Indian company; or

(ii)        During that year, the control and management of its affairs is situated wholly in India.

 

(4)        Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly out­side India.

 

(5)        If a person is resident in India in a previous year relevant to an assessment year in respect of any source of in­come, he shall be deemed to be resident in India in the previous year relevant to the assessment year in respect of each of his other sources of income.

 

(6)        A person is said to be “not ordinarily resident” in India in any previous year if such person is—

           

(a)        an individual who has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more; or

           

(b)        a Hindu undivided family whose manager has not been resident in India in nine out of the ten previous years preceding that year, or has not during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and thirty days or more.

 

Income deemed to be received.

7.         The following incomes shall be deemed to be received in the previous year:—

(i)         The annual accretion in the previous year to the bal­ance at the credit of an employee participating in a recognised provident fund, to the extent provided in rule 6 of Part A of the Fourth Schedule;

(ii)        The transferred balance in a recognised provident fund, to the extent provided in sub-rule (4) of rule 11 of Part A of the Fourth Schedule.

 

Dividend income.

8.         30[R8] [For the purposes of inclusion in the total income of an assessee,—

(a)        any dividend] declared by a company or distributed or paid by it within the meaning of sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) or sub-clause (e) of clause (22) of section 2 shall be deemed to be the income of the previ­ous year in which it is so declared, distributed or paid, as the case may be;

31[R9] (b)         any interim dividend shall be deemed to be the income of the previous year in which the amount of such dividend is unconditionally made available by the company to the member who is entitled to it.]

 

Income deemed to accrue or arise in India.

32[R10]  9.(1) The following incomes shall be deemed to accrue or arise in India—

 

33[R11] (i)        all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, 34[R12] [***] or through the trans­fer of a capital asset situate in India.

                        Explanation: For the purposes of this clause—

 

(a)        in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the opera­tions carried out in India;

 

(b)        In the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from opera­tions which are confined to the purchase of goods in India for the purpose of export;

 

35[R13] [***]

 

36[R14] [(c)        in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India;]

           

37[R15] [(d)        in the case of a non-resident, being—

           

(1)        an individual who is not a citizen of India; or

           

(2)        a firm which does not have any partner who is a citizen of India or who is resident in India; or

           

(3)        a company which does not have any shareholder who is a citizen of India or who is resident in India,No income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph film in India;]

(ii)        Income which falls under the head “Salaries”, if it is earned in India.

                        38[R16] [Explanation : For the removal of doubts, it is hereby declared that income of the nature referred to in this clause payable for service rendered in India shall be regarded as income earned in India;]

(iii)       Income chargeable under the head “Salaries” pay­able by the Government to a citizen of India for service out­side India;

(iv)       a dividend paid by an Indian company outside India;

39[R17] [(v)        income by way of interest payable by—

           

(a)        the Government; or

 

(b)        a person who is a resident, except where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or

 

(c)        a person who is a non-resident, where the interest is payable in respect of any debt incurred, or moneys borrowed and used, for the purposes of a business or profession carried on by such person in India;

(vi)       Income by way of royalty payable by—

           

(a)        The Government; or

           

(b)        a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or

           

(c)        a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India:

           

            Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government.

           

            Explanation 1 : For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Govern­ment before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writ­ing to the 40[R18] [Assessing] Officer (such option being final for that assessment year and for ever subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.

           

            Explanation 2: For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—

           

(i)         The transfer of all or any rights (including the grant­ing of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property;

 

(ii)        The imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;

 

(iii)       The use of any patent, invention, model design, secret formula or process or trade mark or similar property;

 

(iv)       The imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;

 

(v)        the transfer of all or any rights (including the grant­ing of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or

 

(vi)       The rendering of any services in connection with the activities referred to in sub-clauses (i) to (v);

 

(vii)      Income by way of fees for technical services payable by—

(a)        The Government; or

(b)        a person who is a resident, except where the fees are payable in respect of services utilised in a business or profes­sion carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or

            (c)        a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profes­sion carried on by such person in India or for the purposes of making or earning any income from any source in India;

           

            41[R19] [Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.]

                       

            41[R20] [Explanation 1 : For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Govern­ment before that date.]

            Explanation 42[R21] [2]: For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.]

 

(2)        Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India.

 [R1]See also Circular No. 447, dated 22-1-1986, Circular No. 142, dated 1-8-1974, Letter No.75/19/191/62-ITJ, dated 24-8-1966 and Instruction No. 747 [F.No. 288/29/74-IT (A-II], (rele­vant extracts), dated 30-8-1974.

 [R2]Substituted for “subject to the provisions of, this Act” by the Direct Tax laws (Amendment) Act, 1987, w.e.f. 1-4-1989.

 [R3]“Or previous years, as the case may be,” omitted, ibid.

 [R4]See also Circular No. 369, dated 17-9-1983 and Letter F.No. 36/16/65-IT (A-I), dated 25-4-1966.

 [R5]Omitted by the Finance Act, 1982, w.e.f. 1-4-1983.

 [R6]Substituted by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1-4-1990. Original Explanation was inserted by the Finance Act, 1978, w.e.f. 1-4-1979 and later as amended by the Finance Act, 1982, w.e.f. 1-4-1983, it read as under:

‘Explanation: In the case of an individual, being a citizen of India,—

(a) who leaves India in any previous year for the purposes of employment outside India, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occurring therein, the words “one hundred and eighty-two days” had been substituted;

(b) who, being outside India, comes on a visit to India in any previous year, the provisions of sub-clause (c) shall apply in relation to that year as if for the words “sixty days”, occur­ring therein, the words “ninety days” had been substituted.’

 [R7]Inserted by the Finance Act, 1990, w.e.f. 1-4-1990.

 [R8]Substituted for “For the purposes of inclusion in the total income of an assessee, any dividend” by the Finance Act, 1965, w.e.f. 1-4-1965.

 [R9]Inserted, ibid.

 [R10]See also Circular No. 23, dated 23-7-1969, Circular No. 163, dated 29-5-1975, Circular No. 35(XXXIII-7) of 1956, dated 3-9-1956, Circular No. 4, dated 20-2-1969 and Circular No. 382, dated 4-5-1984.

 [R11]See rule 10.

 [R12]“Or through or from any money lent at interest t and brought into India in cash or in kind” omitted by the Finance Act, 1976, w.e.f. 1-6-1976.

 [R13]Proviso omitted by the Finance Act, 1964, w.e.f. 1-4-1964.

 [R14]Inserted by the Finance Act, 1983, with retrospective effect from 1-4-1962.

 [R15]Inserted by the Taxation Laws (Amendment) Act, 1984, with retrospective effect from 1-4-1982.

 [R16]Inserted by the Finance Act, 1983, with retrospective effect from 1-4-1979.

 [R17]Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w.e.f. 1-6-1976.

 [R18]Substituted for “Income-tax” by the Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1-4-1988.

 [R19]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.

 [R20]Inserted by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1977.

 [R21]Inserted, ibid.