Law:

Section:

Section 9 of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India - Assessment year 2007-08 - Assessee-company was engaged in business of development and export of software - During relevant assessment year, it had paid commission to its British parent/holding company ETUK on sales and amounts realized on export contracts procured by ETUK for assessee - Assessing Officer held that commission income earned by ETUK had accrued in India or was deemed to accrue in India and, therefore, assessee was liable to deduct tax at source therefrom and as there was failure, said expenditure should be disallowed under section 40(a)(ia) - Whether when ETUK was not rendering any service or performing any activity in India itself, commission income could be said to have accrued, arisen to or received by ETUK in India merely because it was recorded in books of assessee in India or was paid by assessee situated in India - Held, no - Whether for applying section 9 Assessing Officer was required to examine whether said commission income was accruing or arising directly or indirectly from any business connection in India - Held, yes - Whether since facts found by Assessing Officer did not make out a case of business connection as stipulated in section 9(1)(i), commission income could not be said to have accrued to ETUK in India and, therefore, assessee was not liable to deduct tax at source from payment of commission to ETUK - Held, yes [In favour of assessee] Circulars and Notifications : CBDT Circular No. 23, dated 23-7-1969 and Circular No. 786, dated 7-2-2000 FACTS The assessee-company was engaged in business of development and export of software. During the relevant assessment year, it had paid commission to its British parent/holding company ETUK, on the sales and amounts realized on export contracts procured by ETUK for the assessee. The Assessing Officer held that the commission income earned by ETUK had accrued in India or was deemed to accrue in India and, therefore, the assessee was liable to deduct tax at source therefrom and as there was failure, the said expenditure should be disallowed under section 40(a)( ia). On appeal, the Commissioner (Appeals),…

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