Section 9A of the Income Tax Act, 1961, deals with the activities that do not constitute business connection in India. Business connection in India implies for foreign parties to enter into operational and commercial activities in India. This section has been formulated to provide relief to the non-residents who derive income in India and thereby avoiding double taxation of their income. The provisions of this Section are in line with the tax laws prevailing in the countries of the non-residents.
As per Section 9A, any activities which do not create a business connection in India include those related to the rendering of professional services, such as the rendering of services of a doctor, lawyer, engineer, architect etc. It also includes services provided in the course of consultancy or any service that is rendered in India in connection with the operations outside India. Additionally, activities carried out in India in connection with the promotion of sale of goods abroad, advertisement or scientific research relating to the advancement of any business outside India or any other auxiliary or incidental activities do not constitute business connection in India.
Further, the provision of Section 9A is applicable to the income derived from the activities of insurance companies operating outside India. It also exempts the income derived from sale of commodities or merchandise acquired from outside India, from the purview of business connection in India. The Act also exempts the taxpayer from Business Connection in India for the services or activities mentioned in the Explanation to Section 9A.
It is important to note that activities performed as agents of non-resident taxpayer shall not be considered as business connection if such activities are related to the sale of goods or providing services outside India or if it is linked with the execution of the orders of non-residents in India. Further, it was held in an Indian case that the ‘time gap’, between the conclusion of the contract and the performance of the contract did not make the contract a business connection.
The activities of the non-residents shall constitute business connection in India if they maintain any office/ business in India. Further, it shall constitute business connection if there is a sale or purchase of goods or services in India or the parties involved undertake any contractual relationship or investment. Additionally, activities of the non-residents coupled with the flow of remittance from or to India shall constitute business connection in India.
It is important to note that term ‘person’ has been used in broader sense in the Income Tax Act, 1961. The definition of the term ‘person’ includes individual, Hindu undivided family, any company and Association of persons, or a body of individuals. The term also includes any local authorities, a cooperative society and any artificial judicial person created under any law. Such broad definition enables the non-residents not to consider their activities in India as business connection.
To sum up, Section 9A of the Income Tax Act, 1961 deals with the activities which do not constitute business connection in India. The Section provides relief to the non-residents by exempting them from double taxation of their income and thereby helping them to grow their businesses. The scope of Section 9A is also applicable to the activities of insurance companies and merchants, as well as to the activities related to the sale of goods or services outside India. The Act is applicable to all the persons, that is, individuals, companies, associations and any artificial judicial person created under any law.
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