Business Daily from THE HINDU group of publications
Friday, Sep 01, 2006
Business Daily from THE HINDU group of publications Friday, Sep 01, 2006 |
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Opinion
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Letters `Source rule principle'
This is with reference to "Taxing non-residents: The source rule principle" (Business Line, August 19): The author feels the ruling of the AAR in Rajiv Malhotra's case (284 ITR 564) is "incorrect". According to the AAR, the commission received by the French company was taxable under Section 5(2)(b), read with Section 9(1)(i) of the Act. The AAR emphasised that the agent's services in France, by soliciting participants there, was wholly irrelevant for determining the situs of his income. The crucial factor was that the source of income was in India. The grounds given in the article for considering the decision of AAR "incorrect" are that the French agent had no permanent establishment in India on the facts before the AAR. Hence, under Article 7, the business profits of the French agent from the activities undertaken in France could be taxed in that country, not in India. The view seems to be based on a wrong appreciation of the legal position. The amendment to Section 9(1) of the I-T Act, 1961, made by Section 5 of the Finance Act, 2003, seems to have been lost sight of. It provides that all income accruing or arising, directly or indirectly, from any business connection in India would be liable to tax in India on the `source principle'. As `business connection' was not defined in the Act, it was clarified by the Finance Act, 2003 to include a person acting on behalf of the non-resident who has and habitually exercises in India an authority to conclude contracts on behalf of the non-resident. Considering this amendment, the AAR's decision seems correct. T.N. Pandey
Letters to the editor and contributions can be sent by e-mail to: bleditor@thehindu.co.in
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