Circular No.4 /2015
Circular 4/2015 was issued by the Central Board of Direct Taxes on 26 March 2015. Its subject is Circular No.4 /2015.
This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.
Takes up how far Explanation 5 to section 9(1)(i) reaches. Section 9(1)(i) deems income accruing through a business connection in India, from property, an asset or a source of income in India, or through the transfer of a capital asset situate in India, to accrue or arise in India, and Explanation 5, inserted by the Finance Act, 2012, deems a share or interest in a company or entity registered outside India to be and always to have been situate in India where it derives its value substantially, directly or indirectly, from assets located in India. Representations put to the Board that the Explanation was meant to clarify the taxation of income arising on transfer of a capital asset situate in India, and expressed apprehension about its being applied to transactions involving no transfer, direct or indirect, of Indian assets — the example given being dividend declared by a foreign company outside India, which on such a reading could be taxed here, producing unintended double taxation contrary to accepted source rules and to the object of the 2012 amendment.
A number of representations were received by the Board on the apprehended extended application of Explanation 5 to transactions that involve no transfer of Indian assets.
| Under the 1961 Act | Now |
|---|---|
| s.9 | s.9 |
CIRCULAR No.4 /2015
Govemment of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes
North Block, New Delhi
Dated 26th March, 201 5
Subject: Clarification regarding Explanation 5 to clause (i) of sub-section (l) of section
9 of Income-tax Act, l96l ('Act') - regarding
Section 9 of the Income-tax Act provides for incomes which are deemed to accrue or
arise in India. Clause (i) ofsub-section (1) ofthe said section reads as under:-
"9. (1) The following incomes shall be deemed to accrue or arise in India:-
(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, or through
the transfer of a capital asset situate in India."
2. The Finance Act,2012 inserted Explanation 5 to clause (i) of sub-section (1) of
section 9. The said explanation reads as under:-
" Explanation 5.-For the removal of doubts, it is hereby clarified that an asset or a
capital asset being any share or interest in a company or entity registered or
incorporated outside India shall be deemed to be and shall always be deemed to have
been situated in India, if the share or interest derives, directly or indirectly, its value
substantially from the assets located in India"
3. A number of representations have been received by the Board stating that the purpose
of introduction of Explanation 5 was to clarify the legislative intent regarding the taxation of
income accruing or arising through transfer of a capital asset situate in India. Apprehensions
have been expressed about the applicability of the Explanation to the transactions not
resulting in any transfer, directly or indirectly of assets situated in India. It has been pointed
out that such an extended application of the provisions of the Explanation may result in
taxation of dividend income declared by a foreign company outside India. This may cause
unintended double taxation and would be contrary to the generally accepted principles of
source rule as well as the object and purpose of the amendment made by the Finance Act
2012.
4. The matler has been examined in the Board. The Explanatory Memorandum to the
Finance Bill 2012 explains the purpose of the amendment to secrion 9 (l)(i) in the fo owing
words:-
On a notice treating an offshore payment or a foreign dividend as income deemed to accrue in India under section 9(1)(i), and in withholding disputes on payments between two non-residents.
It mentions. Circular No. 4/2015
Source: the Income Tax Department’s own published text — its page for this instrument.
