Section 163

Section 163 — the law in short

What the courts have decided on section 163, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Vodafone International Holdings BV v Union of India Supreme CourtHelps taxpayerValidity unconfirmed
  I am buying the shares of a foreign holding company from another non-resident, and that company's subsidiaries hold shares in an Indian company — must I withhold tax under section 195?
  No, on the law as it stood. The Supreme Court held on 20 January 2012 that what was sold was a single share in a Cayman Islands company, which is property situated outside India, in an outright sale between two non-residents on a principal to principal basis. Shares are a bundle of rights and a transfer lock, stock and barrel cannot be broken into components — control premium, non-compete, brand licence, call options — and taxed piecemeal, particularly where the parties fixed one lump sum of US$11.08 billion with no split. The Revenue established no connection with section 9(1)(i), so section 195 did not apply.
• Barendra Prasad Ray v ITO Supreme CourtHelps department
  A foreign professional worked on our matter in India but we neither briefed him nor paid him. Can we be treated as his agent and made liable for his tax?
  Yes, on these facts. The Supreme Court held that 'business connection' in section 9(1) is not confined to trade or manufacture and takes in a professional connection. Business means an activity carried on continuously and systematically by applying labour or skill to earn income, and professions are generally regarded as businesses. The connection between the Calcutta solicitors and the English barrister was real and intimate, not casual: he argued their case with their consent, alongside their Indian counsel, and could not have earned the fees without associating himself with them. The order treating them as his agent under section 163(1) stood.
• CIT v Toshoku Ltd Supreme CourtHelps taxpayer
  I credited commission in my books to a foreign selling agent who works entirely outside India, and remitted it later. Is that commission taxable in India in his hands?
  No. The Supreme Court held that a credit entry in the exporter's own books is not receipt by the non-resident: a credit balance without more is only a debt, and a book entry in the debtor's own books is not payment discharging it, so the amounts were neither received nor deemed received in India. Nor did the commission accrue or arise here. Under the Explanation to section 9(1)(i), where all the operations of a business are not carried out in India only the part of the income reasonably attributable to Indian operations is deemed to accrue here - and these agents carried out no operations in India at all.
• CIT v R.D. Aggarwal & Co Supreme CourtHelps taxpayer
  I canvass orders in India for foreign suppliers and pass them on for acceptance abroad. Does that give the foreign supplier a business connection here, so that I can be taxed as its agent?
  No, on these facts. The Supreme Court held there was no business connection between the Amritsar firm and the two non-resident yarn exporters. The contracts of sale were made outside India, the price was received outside India and delivery was given outside India. Nothing - procuring raw materials, manufacture, sale or delivery against price - happened here. The firm merely procured orders which were offers it had no authority to accept, and which the non-residents were free to reject. Business connection postulates a real and intimate relation between the trading activity outside India and trading activity within it, contributing to the non-resident's income.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.