Rule 9 — Determination of income in case of non-residents.
Rule 9 is a fallback machinery for one situation only: the Assessing Officer is of opinion that the actual amount of the income accruing or arising to a non-resident person — whether directly or indirectly — through or from any asset or source of income in India, any property in India, or any business connection in India, cannot be definitely ascertained. Only when that opinion is formed does the rule open.
Where it does, the amount of such income for the purposes of assessment to income-tax may be calculated by any of the three routes in clauses (i) to (iii). Clause (i) allows a calculation at such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable. Clause (ii) allows an apportionment: the income is taken as the amount bearing the same proportion to the total profits and gains of the business of such person — those profits and gains being computed in accordance with the provisions of the Act — as the receipts so accruing or arising bear to the total receipts of the business. Clause (iii) is residual: in such other manner as the Assessing Officer may deem suitable.
The rule states no percentage, no ratio and no ceiling. It supplies the method and leaves the number to the officer's judgment of reasonableness in the case before him.
The Act charges a non-resident on income accruing or arising in India through an asset, property or business connection, but says nothing about what to do when the accounts do not separate that income out. A global enterprise with an Indian business connection often has no books that isolate the Indian slice. The rule gives the Assessing Officer a lawful basis for estimating it rather than leaving the charge unworkable, and confines the estimate to three named approaches.
The gateway is the whole point: the rule is not an alternative method the officer may prefer, it is available only on an opinion that the actual amount cannot be definitely ascertained. Where the books do isolate the Indian income, the ordinary computation stands and rule 9 has nothing to operate on. Read clause (ii) carefully — the total profits and gains of the business are themselves to be computed in accordance with the provisions of the Act before the receipts ratio is applied to them, so the apportionment runs on Act-computed profits, not on the foreign financial statements as drawn. And note that all three clauses are permissive as to which is used: the rule says the income "may be calculated" by one of them, without ranking them.
A foreign company sells equipment into India through an Indian business connection and its consolidated accounts do not separate the Indian result. The Assessing Officer forms the opinion that the actual Indian income cannot be definitely ascertained and turns to clause (ii): the company's total profits and gains of the business, computed in accordance with the Act, are Rs 40 crore, its total business receipts are Rs 400 crore, and the receipts accruing or arising through the Indian business connection are Rs 20 crore. The income attributed is Rs 40 crore multiplied by 20/400, that is Rs 2 crore. Had the officer chosen clause (i) instead, he would have had to record what percentage of the Rs 20 crore turnover he considered reasonable, because the rule states no percentage of its own.
A reader meets it in an assessment order on a non-resident, where the officer records that the Indian income cannot be definitely ascertained and then states which of the three clauses he has adopted and on what figures.
cannot be definitely ascertained, the amount of such income for the purposes of assessment to income-tax may be calculated
at such percentage of the turnover so accruing or arising as the Assessing Officer may consider to be reasonable