QUESTIONS & ANSWERS
Liability of residents, NRs and NRIs
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The income that is deemed to accrue in India under Sec. 5 of the Code covers both residents and non-residents.
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When is liability for income inferred under the Direct Taxes Code?
Sec. 3 of the Direct Taxes Code is substantially the same as Sec. 5 of the 1961 Act. A resident is liable on his global income. It is further added in the Code redundantly that income accrued and received by a resident or on his behalf outside India will also be liable to tax. A non-resident would also continue to be assessable on income, which accrues in India or deemed to accrue in India.
He is also made liable for income received in India by him or on his behalf though such income not earned in India cannot be assessed, if he were a resident of a country with which India has Double Tax Avoidance Agreement (DTAA), since receipt basis is not recognised in any agreement. Taxation of this category of income based solely on receipt should be dispensed with. A new clause added in Sec. 3(3) in respect of a resident outside India (NRI) would render him liable on income, which accrues or is received by him or on his behalf outside India, regardless of the fact, whether any tax paid on such amount outside India or it is not payable because of the relief granted under the Double Tax Avoidance Agreement.
This provision is clumsily worded and is apparently meant to nullify the decision in UOI v Azadi Bachao Andolan (2003) 263 ITR 706 (SC), which had preferred the ruling of the Authority for Advance Ruling in Mohsinally Alimohammed Rafik In re (1995) 213 ITR 317 (AAR) in preference to the ruling in Cyril Eugene Pereira In re (1999) 239 ITR 650 (AAR). The decision of the Supreme Court was that where a non-resident Indian was not liable to tax in India in respect of income from a source of income in India under the Agreement, he cannot be brought to tax in India merely because he was found not taxable in the country of his residence.
The income that is deemed to accrue in India under Sec. 5 of the Code covers both residents and non-residents. It is mere rephrasing of Sec. 9 of 1961 Act covering non-residents. In the case of a resident, the listed items are what are Indian income so that they need not have been treated as “deemed income”.
S. RAJARATNAM
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