From the Archives
Income – Deemed to Accrue or Arise in India
The scope and ambit of ‘business connection’ in case of a non-resident – The following are illustrative instances of a non-resident having business connection in India:
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Maintaining a branch office in India for the purchase or sale of goods or transacting other business
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Appointing an agent in India for the systematic and regular purchase of raw materials or other commodities, or for sale of the non-resident’s goods, or for other business purposes
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Erecting a factory in India, where the raw produce purchased locally is worked into a form suitable for export abroad.
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Forming a local subsidiary company to sell the products of the non-resident parent company
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Having financial association between a resident and a non-resident company
Relevant clarifications regarding applicability of provisions of section 9 in certain specified situations:
1. Non-resident exporters selling goods from abroad to Indian importer – No liability will arise on accrual basis to the non-resident on the profits made by him where the transactions of sale between the two parties are on a principal-to-principal basis.
If the non-resident makes over the shipping documents to a bank in his own country which discounts the documents and sends them for collection to the bankers in India, who present the sight or usance draft to the resident importer and deliver the documents to him against payment or acceptance by the latter, the non-resident will not be liable to tax on the profit arising out of the sales on receipt basis.
2. Sale of plant and machinery to an Indian importer on installment basis – Where the transaction of sale and purchase is on a principal-to-principal basis and the exporter and the importer have no other business connection, the fact that the exporter allows the importer to pay for the plant and machinery installments will not, be itself, render the exporter liable to tax on the ground that the income is deemed to arise to him in India.
3. Foreign agents of Indian exporters – Where a foreign agent of Indian exporter operates in his own country and his commission is usually remitted directly to him and is, therefore, not received by him or on his behalf in India. Such an agent is not liable to income tax in India on the commission.
Service tax leviable on excise element of the job work done on finished product
Notification No. 8/2005-Service Tax
New Delhi, dated 1st March 2005
G.S.R. (E)- In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service of production of goods on behalf of the client referred in sub-clause (v) of clause (19) of section 65 of the said Finance Act, from the whole of service tax leviable thereon under section 66 of the said Finance Act:
Provided that the said exemption shall apply only in cases where such goods are produced using raw materials or semi-finished goods supplied by the client and goods so produced are returned back to the said client for use in or in relation to manufacture of any other goods falling under the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), as amended by the Central Excise Tariff (Amendment) Act, 2004 (5 of 2005), on which appropriate duty of excise is payable.
Explanation.- For the purposes of this notification,-
(i) the expression "production of goods" means working upon raw materials or semi-finished goods so as to complete part or whole of production, subject to the condition that such production does not amount to "manufacture" within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944);
(ii) "appropriate duty of excise" shall not include ‘Nil’ rate of duty or duty of excise wholly exempt.
[F. No. 334/1/2005-TRU]
V. Sivasubramanian, Deputy Secretary to the Government of India
