Need Tally
for Clients?

Contact Us! Here

  Tally Auditor

License (Renewal)
  Tally Gold

License Renewal

  Tally Silver

License Renewal
  Tally Silver

New Licence
  Tally Gold

New Licence
 
Tally On Cloud Tally on Cloud: Ready for the Daily Backup Requirement
Keep your Tally books accessible from anywhere while supporting your Rule 46(8) obligations. With daily backups configured on servers physically located in India, Tally on Cloud helps you maintain the backup arrangement required for electronic books of account under the Income-tax Rules, 2026. Move your Tally to the cloud with confidence.
Open DEMAT Account with in 24 Hrs and start investing now!
« Top Headlines »
Open DEMAT Account in 24 hrs
 Mock Test Papers Series - I & II for Students appearing in CA Foundation January 2027 Examination.
 Income Tax Rules 2026: CBDT Introduces Revised Form 161 for Penalty Waiver, Clarifies Misreporting Categories and Taxpayer Relief
 ITR Filing and Income Tax Audit Deadline Extended: 5 Critical Things Taxpayers Must Know
 Filing Belated ITR for AY 2026-27? Know Which Losses You Can Carry Forward and Which You May Lose
 CBDT Extends Tax Audit Report Deadline to October 21, ITR Filing Last Date to November 21 for AY 2026-27
 CBDT Extends AY 2026-27 ITR Filing Deadline for Tax-Audit Cases: New Dates and Key Compliance Details
 Foreign Assets Missing From Your ITR? Income Tax Department Opens One-Time Disclosure Window
 Tax Audit Deadline September 30: Why AIS, TDS and GST Figures May Not Match Your ITR and What Taxpayers Should Do
 Tax audit deadline September 30: Common mistakes taxpayers should avoid
 Your ITR says ‘verified’, but the refund hasn’t arrived? 5 reasons why your money could be stuck
 Missed the ITR Deadline but TDS Refund Is Due? Here’s How You Can Still Claim Your Money

Budget 2007-08 a blow to non-residents
March, 26th 2007

Under the existing provisions, non-residents' income from interests, royalties or fees for technical services is taxable in India; but, there must be sufficient territorial nexus between such income and the territory of India. 
 
The judicial opinion has been, that despite the fiction in the IT Act, for any such deemed income to be taxable in India, there must be sufficient territorial nexus between such income and the territorial limits. 
 
It has been held that, where any sum is payable to a non-resident by a resident, the deeming sweep of the said section cannot bring to tax any income of a non-resident received outside India from Indian concerns for services rendered abroad. In regard to fees for technical services, it has been specifically held that for the fees to be taxable in India, the services have not only to be utilised in a business in India, but also have to be rendered in India. 
 
The Finance Bill, 2007 proposes to insert an Explanation in Section 9 providing as under: 
 
"For the removal of doubts, it is hereby declared that for the purposes of this section, where income is deemed to accrue or arise in India under Clauses (v), (vi) and (vii) of Sub-Section 1, such income shall be included in the total income of the non-resident whether or not the non-resident has a residence or place of business or business connection in India" 
 
After the amendment, income by way of interest, royalties or fees for technical services shall be taxable in India regardless of whether the non-resident has a residence or place of business or business connection in India. 
 
The above amendment will take effect retrospectively from 6 June 1976, that is, from the very inception when the provisions were introduced under the Income-Tax Act 
 
In the context of the aforesaid proposed amendment, it will be recalled that the Indian judiciary has been warning the Government of India not to infringe the internationally accepted principle of territorial nexus. In the case of Electronics Corporation of India versus CIT, 183 ITR 43 (SC), the Supreme Court observed: "But the question is whether a nexus with something in India is necessary. 
 
It seems to us that, unless such nexus exists, Parliament will have no competence to make the law. It will be noted that Article 245(1) empowers Parliament to enact laws for the whole or any part of the territory of India. 
 
The provocation for the law must be found within India itself. Such a law may have extra-territorial operation in order to subserve the object and the object must be related to something in India. It is inconceivable that a law should be made by Parliament in India which has no relationship with anything in India. 
 
The only question then is, whether the ingredients, in terms of the impugned provision, indicate a nexus. The question is one of substantial importance, specially as it concerns collaboration agreements with foreign companies and other such arrangements for the better development of industry and commerce in India. In view of the great public importance of the question, we think it desirable to refer these cases to a Constitution Bench, and we do so order." 
 
Further, in a recent case of Ishikawajima Harima Heavy Industries, 288 ITR 408, the Supreme Court has held that: 
 
"Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle... it must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax." 
 
The proposed amendment is clearly an effort to nullify the judicial pronouncements, which by itself is questionable. This amendment will directly hit a large number of foreign enterprises doing business in India.

H P Aggarwal

Home | About Us | Terms and Conditions | Contact Us
Copyright 2026 CAinINDIA All Right Reserved.
Designed and Developed by Ritz Consulting