Interest Income Deemed to Accrue or Arise in India

-

Under section 9(1)(v), interest income is deemed to accrue or arise in India in the following circumstances:

(a) Interest payable by the Government; or

(b) Interest payable by a resident except:

(i) interest payable by a resident, in respect of a any money borrowed and used for the purpose of business or profession carried on by such person outside India or

(ii) interest payable by a resident in respect of any debt incurred or any money borrowed and used for the purpose of making or earning any income from any source outside India.

It may be noted that where money borrowed by a resident for the purpose of a business or profession carried on by him outside India are actually used for any other purpose, interest payable thereon will be deemed to accrue or arise in India. (Refer circular no. 202 of July 5, 1976)

Similarly, interest payable on money borrowed by a resident for the purpose of making or earning any income from any source outside India will be deemed to accrue or arise in India if the moneys are actually used for any purpose in India (Refer circular no. 202 of July 5, 2000)

(c) Interest payable by a person who is non-resident, if it is in respect of any debt incurred or money borrowed and used for purposes of a business or profession carried out by such person in India

It may be noted that interest payable by a non resident in respect of any debt incurred, or moneys borrowed and used for the purposes of making or earning any income from any source, other than a business or profession carried on by such person in India, will not be deemed to accrue or arise in India, (Refer. Circular no. 202 of July 5, 1976).

It may be noted that in the case of a non-resident, being a person engaged in the business of banking, any interest payable by the permanent establishment in India of such non-resident to the head office or any permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India and shall be chargeable to tax in addition to any income attributable to the permanent establishment in India and the permanent establishment in India shall be deemed to be a person separate and independent of the non-resident person of which it is a permanent establishment and the provisions of the Act relating to computation of total income, determination of tax and collection and recovery shall apply accordingly;

Important Judicial Precedents & Board Circulars

In J. K. Synthetics Ltd. v. ACIT [1990] 185 ITR 540 (Delhi HCs)], the interest payable by the petitioner to its foreign supplier of raw materials had been held to be covered by the deeming provision of section 9(1)(v).

Comments

Post a Comment

Popular posts from this blog

TDS Rates [Assessment year 2022-23]

-
Rates for tax deduction at source *   [For Assessment year 2022-23] Particulars TDS Rates (in %) 1. In the case of a person other than a company   1.1 where the person is resident in India-   Section 192 :  Payment of salary Normal Slab Rate Section 192A :  Payment of accumulated balance of provident fund which is taxable in the hands of an employee. 10 Section 193 :  Interest on securities   a) any debentures or securities for money issued by or on behalf of any local authority or a corporation established by a Central, State or Provincial Act; 10 b) any debentures issued by a company where such debentures are listed on a recognised stock exchange in accordance with the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and any rules made thereunder; ...
Read more

Important Definitions Under OECD TP Guidelines 2022

-
Advance pricing arrangement (APA) An arrangement that determines, in advance of controlled transactions, an appropriate set of criteria (e.g. method, comparables and appropriate adjustments thereto, critical assumptions as to future events) for the determination of the transfer pricing for those transactions over a fixed period of time. An advance pricing arrangement may be unilateral involving one tax administration and a taxpayer or multilateral involving the agreement of two or more tax administrations. Arm’s length principle The international standard that OECD member countries have agreed should be used for determining transfer prices for tax purposes. It is set forth in Article 9 of the OECD Model Tax Convention as follows: where “conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, have accrued to on...
Read more

Scope of Total Income

-
The term “total income” has been defined in section 2 (45) of the Income-tax Act, 1961 (“the Act”) as, “the total amount of income referred to in section 5, computed in the manner laid down in the Act”. Therefore, while computing the total income, one has to have regard to the scope of income as specified in section 5 of the Act and then compute the income in the manner laid down in the Act. Section 5 prescribes scope of taxable total income for residents, not ordinarily residents and non-residents. Since the scope of taxable income and the tax liability varies with the residential status of the assessee it is important to determine the residential status of the assessee. The residential status has to be determined in accordance with section 6 of the Act. Scope of Total Income – Residents – Section 5 (1) Persons who are ‘Resident” are charged to tax on – (a) income received or deemed to be received in India in the accounting year, by or on behalf of such person, the date or place of it...
Read more