Meaning of term "source outside india"
This query is : Resolved
07 March 2012
Dear Sir,
I am referring Sec 9 "Income deemed to accrue or arise in India".
Under Royalty/Technical Services Fees paid by a resident to non-resident.
The payment will not attract TDS if it is related to a business/profession/any other source carried on by the payer outside India.
I have confusion with regard to the phrase SOURCE OUTSIDE INDIA.
If there is a resident company is trying to fetch foreign sales and in the connection, it tries to participate in exhibition, paying fees to professional abroad etc, what will be the tax implications to the receiver.
The Indian company may earn some sales abroad by these exercises so will that be considered as "Business inside India source or Source Outside India"
Regards,
Bhargav
I am referring Sec 9 "Income deemed to accrue or arise in India".
Under Royalty/Technical Services Fees paid by a resident to non-resident.
The payment will not attract TDS if it is related to a business/profession/any other source carried on by the payer outside India.
I have confusion with regard to the phrase SOURCE OUTSIDE INDIA.
If there is a resident company is trying to fetch foreign sales and in the connection, it tries to participate in exhibition, paying fees to professional abroad etc, what will be the tax implications to the receiver.
The Indian company may earn some sales abroad by these exercises so will that be considered as "Business inside India source or Source Outside India"
Regards,
Bhargav
08 March 2012
Income of a non-resident shall be deemed to accrue or arise in India u/s 9 (1) (v)/(vi)/(vii)and shall be included in the total income of the non-resident, whether or not,—
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.
As a result in my view Tds shall apply under I T Act. However DTAA may be referred
for any beneficial rates.
(i) the non-resident has a residence or place of business or business connection in India; or
(ii) the non-resident has rendered services in India.
As a result in my view Tds shall apply under I T Act. However DTAA may be referred
for any beneficial rates.
10 March 2012
(vii) income by way of fees for technical services payable87 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 :
What is the relevancy of the words in CAPITALS on this case???
Arihanthji, you please share your input in the same.. I am confused as the services will be utilised outside india.
Regards,
Bhargav
(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 :
What is the relevancy of the words in CAPITALS on this case???
Arihanthji, you please share your input in the same.. I am confused as the services will be utilised outside india.
Regards,
Bhargav
10 March 2012
It excludes income earned abroad. However the more recent explanation added to sec 9 shall be valid in case of conflict.
10 March 2012
Will you elaborate your views?
Message likes :
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03 August 2024
The term "source outside India" in the context of Section 9 of the Income Tax Act deals with the jurisdictional scope of income taxation in India, particularly for royalty and technical services fees. Let’s break down its implications and relevance.
### **Meaning of "Source Outside India"**
**Source Outside India** generally refers to:
- The origin of income or activity that is situated outside India.
- Any business or profession carried out entirely outside India.
- Activities, services, or transactions that are performed, utilized, or conducted outside India.
### **Relevance to Section 9**
Section 9 of the Income Tax Act deals with the income that is deemed to accrue or arise in India. Here’s a breakdown of the relevant points:
1. **Royalty and Technical Services Fees**:
- **Section 9(1)(vi)** and **Section 9(1)(vii)** provide that royalty and technical service fees received by a non-resident are deemed to accrue or arise in India if the services are utilized in a business or profession carried out in India or for earning any income from a source in India.
2. **Exception for Source Outside India**:
- As per the explanation, if the services are utilized in a business or profession carried on outside India or for earning income from a source outside India, the income would not be deemed to accrue or arise in India.
### **Scenario Analysis**
**Scenario: Indian Company Participating in Foreign Exhibitions**
If an Indian company participates in foreign exhibitions, pays fees to professionals abroad, and seeks to generate foreign sales:
1. **Nature of Fees Paid**:
- If the fees paid to foreign professionals are related to services utilized in connection with generating foreign sales, then the business or profession is effectively being carried out outside India.
2. **Tax Implications**:
- According to **Section 9(1)(vii)**:
- If the fees are for services utilized in a business or profession carried out outside India or for earning income from a source outside India, then it is excluded from being deemed as income arising in India.
- This implies that if the Indian company is using the services to generate income abroad (i.e., outside India), and the services are utilized outside India, then this income should generally not attract Indian TDS obligations under the royalty/technical services provisions.
### **Key Points to Consider**
- **Utilization and Purpose**:
- The critical point is the utilization of the services. If the services are utilized exclusively outside India and are connected to earning income from a source outside India, then it aligns with the exceptions provided.
- **Business Activities and Income Generation**:
- While the Indian company may earn sales abroad due to these activities, the business itself is considered to be carried out outside India in this context.
- **Relevance of Recent Explanations**:
- The latest amendments or explanations provided in legal updates might alter interpretations. It is crucial to review the most recent changes or clarifications in the Income Tax Act or consult with a tax professional.
### **Conclusion**
In your example:
- If the Indian company is paying fees to foreign professionals for services used to generate foreign sales, then the income related to those fees, based on the services utilized outside India, should generally be considered as not arising in India.
- The key factors are the location of service utilization and the source of the income. If everything happens outside India, it should be exempt from TDS under Indian tax provisions as per the explanations provided in Section 9.
For any specific case, it's advisable to consult with a tax advisor to ensure compliance and accurate application of the law based on the most current legal provisions.
### **Meaning of "Source Outside India"**
**Source Outside India** generally refers to:
- The origin of income or activity that is situated outside India.
- Any business or profession carried out entirely outside India.
- Activities, services, or transactions that are performed, utilized, or conducted outside India.
### **Relevance to Section 9**
Section 9 of the Income Tax Act deals with the income that is deemed to accrue or arise in India. Here’s a breakdown of the relevant points:
1. **Royalty and Technical Services Fees**:
- **Section 9(1)(vi)** and **Section 9(1)(vii)** provide that royalty and technical service fees received by a non-resident are deemed to accrue or arise in India if the services are utilized in a business or profession carried out in India or for earning any income from a source in India.
2. **Exception for Source Outside India**:
- As per the explanation, if the services are utilized in a business or profession carried on outside India or for earning income from a source outside India, the income would not be deemed to accrue or arise in India.
### **Scenario Analysis**
**Scenario: Indian Company Participating in Foreign Exhibitions**
If an Indian company participates in foreign exhibitions, pays fees to professionals abroad, and seeks to generate foreign sales:
1. **Nature of Fees Paid**:
- If the fees paid to foreign professionals are related to services utilized in connection with generating foreign sales, then the business or profession is effectively being carried out outside India.
2. **Tax Implications**:
- According to **Section 9(1)(vii)**:
- If the fees are for services utilized in a business or profession carried out outside India or for earning income from a source outside India, then it is excluded from being deemed as income arising in India.
- This implies that if the Indian company is using the services to generate income abroad (i.e., outside India), and the services are utilized outside India, then this income should generally not attract Indian TDS obligations under the royalty/technical services provisions.
### **Key Points to Consider**
- **Utilization and Purpose**:
- The critical point is the utilization of the services. If the services are utilized exclusively outside India and are connected to earning income from a source outside India, then it aligns with the exceptions provided.
- **Business Activities and Income Generation**:
- While the Indian company may earn sales abroad due to these activities, the business itself is considered to be carried out outside India in this context.
- **Relevance of Recent Explanations**:
- The latest amendments or explanations provided in legal updates might alter interpretations. It is crucial to review the most recent changes or clarifications in the Income Tax Act or consult with a tax professional.
### **Conclusion**
In your example:
- If the Indian company is paying fees to foreign professionals for services used to generate foreign sales, then the income related to those fees, based on the services utilized outside India, should generally be considered as not arising in India.
- The key factors are the location of service utilization and the source of the income. If everything happens outside India, it should be exempt from TDS under Indian tax provisions as per the explanations provided in Section 9.
For any specific case, it's advisable to consult with a tax advisor to ensure compliance and accurate application of the law based on the most current legal provisions.
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