2

Residence and Scope of Total Income

UNIT 1 : RESIDENTIAL STATUS AND SCOPE OF TOTAL INCOME
Learning objectives
After studying this unit, you would be able to understand

the relevance and significance of residential status in determining total income of a person

the types of residential status

the rules for determining residential status for different categories of persons

the scope of income includible in total income for each residential status

1.1 Residential Status [Section 6]

The incidence of tax on any assessee depends upon his residential status under the Act.
Therefore, after determining whether a particular amount is capital or revenue in nature, if the
receipt is of a revenue nature and chargeable to tax, it has to be seen whether the assessee is
liable to tax in respect of that income. The taxability of a particular receipt would thus depend
upon not only the nature of the income and the place of its accrual or receipt but also upon the
assessees residential status.
For all purposes of income-tax, taxpayers are classified into three broad categories on the
basis of their residential status. viz
(1)

Resident and ordinarily resident

(2)

Resident but not ordinarily resident

(3)

Non-resident

The residential status of an assessee must be ascertained with reference to each previous
year. A person who is resident and ordinarily resident in one year may become non-resident or
resident but not ordinarily resident in another year or vice versa. The provisions for
determining the residential status of assessees are:
(1) Residential status of Individuals: Under section 6(1), an individual is said to be
resident in India in any previous year, if he satisfies any one of the following conditions:

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

(i)

2.2

He has been in India during the previous year for a total period of 182 days or more, or

(ii) He has been in India during the 4 years immediately preceding the previous year for a
total period of 365 days or more and has been in India for at least 60 days in the previous
year.
If the individual satisfies any one of the conditions mentioned above, he is a resident. If both
the above conditions are not satisfied, the individual is a non-resident.
Note:
(a) The term stay in India includes stay in the territorial waters of India (i.e. 12 nautical
miles into the sea from the Indian coastline). Even the stay in a ship or boat moored in
the territorial waters of India would be sufficient to make the individual resident in India.
(b) It is not necessary that the period of stay must be continuous or active nor is it essential
that the stay should be at the usual place of residence, business or employment of the
individual.
(c) For the purpose of counting the number of days stayed in India, both the date of
departure as well as the date of arrival are considered to be in India.
(d) The residence of an individual for income-tax purpose has nothing to do with citizenship,
place of birth or domicile. An individual can, therefore, be resident in more countries than
one even though he can have only one domicile.
Exceptions:
The following categories of individuals will be treated as residents only if the period of their
stay during the relevant previous year amounts to 182 days. In other words even if such
persons were in India for 365 days during the 4 preceding years and 60 days in the relevant
previous year, they will not be treated as resident.
(1) Indian citizens, who leave India in any previous year as a member of the crew of an
Indian ship or for purposes of employment outside India, or
(2) Indian citizen or person of Indian origin* 1 engaged outside India in an employment or a
business or profession or in any other vocation, who comes on a visit to India in any
previous year
Thus, under section 6(1), the conditions to be satisfied by an individual to be a resident in India are
provided. The residential status is determined on the basis of the number of days of his stay in
India during a previous year.
However, in case of foreign bound ships where the destination of the voyage is outside
India, there is uncertainty regarding the manner and the basis of determining the period of
stay in India for an Indian citizen, being a crew member.
1

A person is said to be of Indian origin if he or either of his parents or ei ther of his grandparents were born in

undivided India.

The Institute of Chartered Accountants of India

2.3

Income-tax

To remove this uncertainty, Explanation 2 has been inserted to section 6(1) to provide that
in the case of an Individual, being a citizen of India and a member of the crew of a foreign
bound ship leaving India, the period or periods of stay in India shall, in respect of such
voyage, be determined in the prescribed manner and subject to the prescribed conditions.
Accordingly, the CBDT has vide, Notification No.70/2015 dated 17.8.2015, inserted Rule
126 in the Income-tax Rules, 1962 to compute the period of stay in such cases.
According to Rule 126, for the purposes of section 6(1), in case of an individual, being a
citizen of India and a member of the crew of a ship, the period or periods of stay in India
shall, in respect of an eligible voyage, not include the following period:
Period to be excluded
Period commencing from
the date entered into the Continuous
Discharge Certificate in respect of
joining the ship by the said individual for
the eligible voyage

Period ending on
and

the date entered into the Continuous

Discharge Certificate in respect of
signing off by that individual from the
ship in respect of such voyage.

Meaning of certain terms:

Terms

Meaning

(a)

Continuous
Discharge
Certificate

This term has the meaning assigned to it in the Merchant Shipping

(Continuous Discharge Certificate-cum Seafarers Identity Document)
Rules, 2001 made under the Merchant Shipping Act, 1958.

(b)

Eligible
voyage

A voyage undertaken by a ship engaged in the carriage of passengers or

freight in international traffic where
(i)

for the voyage having originated from any port in India, has as its
destination any port outside India; and

(ii)

for the voyage having originated from any port outside India, has as
its destination any port in India..

Not-ordinarily resident - Only individuals and HUF can be resident but not ordinarily resident
in India. All other classes of assessees can be either a resident or non -resident. A notordinarily resident person is one who satisfies any one of the conditions specified under
section 6(6).
(i)

If such individual has been non-resident in India in any 9 out of the 10 previous years
preceding the relevant previous year, or

(ii)

If such individual has during the 7 previous years preceding the relevant previous year
been in India for a period of 729 days or less.

Note: In simpler terms, an individual is said to be a resident and ordinarily resident if he

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.4

satisfies both the following conditions:

(i) He is a resident in any 2 out of the last 10 years preceding the relevant previous year,
and
(ii) His total stay in India in the last 7 years preceding the relevant previous year is 7 30 days
or more.
If the individual satisfies both the conditions mentioned above, he is a resident and ordinarily
resident but if only one or none of the conditions are satisfied, the individual is a resident but
not ordinarily resident.
Illustration 1
Steve Waugh, the Australian cricketer comes to India for 100 days every year. Find out his
residential status for the A.Y. 2016-17.
Solution
For the purpose of his residential status in India for A.Y. 2016-17, the relevant previous year is 2015-16.
Step 1: The total stay of Steve Waugh in the last 4 years preceding the previous year is 400
days (i.e.,100 4) and his stay in the previous year is 100 days. Therefore, since he has
satisfied the second condition in section 6(1), he is a resident.
Step 2: Since his total stay in India in the last 7 years preceding the previous year is 700 days
(i.e., 100 7), he does not satisfy the minimum requirement of 730 days in 7 years. Any one
of the conditions not being satisfied, the individual is resident but not ordinarily resident.
Therefore, the residential status of Steve Waugh for the assessment year 2016-17 is resident
but not ordinarily resident.
Illustration 2
Mr. B, a Canadian citizen, comes to India for the first time during the P.Y.2011-12. During the
financial years 2011-12, 2012-13, 2013-14, 2014-15 and 2015-16, he was in India for 55 days,
60 days, 90 days, 150 days and 70 days, respectively. Determine his residential status for the
A.Y.2016-17.
Solution
During the previous year 2015-16, Mr. B was in India for 70 days and during the 4 years preceding
the previous year 2015-16, he was in India for 355 days (i.e. 55 + 60 + 90 + 150 days).
Thus, he does not satisfy section 6(1). Therefore, he is a non-resident for the previous year
2015-16.
Illustration 3
Mr. C, a Japanese citizen left India after a stay of 10 years on 1.06.2013. During the financial
year 2014-15, he comes to India for 46 days. Later, he returns to India for 1 year on
10.10.2015. Determine his residential status for the A.Y. 2016-17.

The Institute of Chartered Accountants of India

2.5

Income-tax

Solution
During the previous year 2015-16, Mr. C was in India for 174 days (i.e. 22 + 30 + 31+ 31+ 29
+ 31 days). His stay in the last 4 years is:
2014-15

46

2013-14

62

2012-13

365

(since he left India on 1.6.2013 after 10 years)

2011-12

365

(since he left India on 1.6.2013 after 10 years)

(i.e. 30 + 31 + 1)

838
Mr. C is a resident since his stay in the previous year 2015-16 is 174 days and in the last 4
years is more than 365 days.
For the purpose of being ordinarily resident, it is evident from the above calculations, that
(i)

his stay in the last 7 years is more than 729 days and

(ii) since he was in India for 10 years prior to 1.6.2013, he was a resident in at least 2 out of
the last 10 years preceding the relevant previous year.
Therefore, Mr.C is a resident and ordinarily resident for the A.Y.2016-17.
Illustration 4
Mr. D, an Indian citizen, leaves India on 22.9.2015 for the first time, to work as an officer of a
company in France. Determine his residential status for the A.Y. 2016-17.
Solution
During the previous year 2015-16, Mr. D, an Indian citizen, was in India for 175 days (i.e., 30+
31+30+31+31+22 days). He does not satisfy the minimum criteria of 182 days. Also, since he
is an Indian citizen leaving India for the purposes of employment, the second condition under
section 6(1) is not applicable to him.
Therefore, Mr. D is a non-resident for the A.Y.2016-17.
(2) Residential status of HUF: A HUF would be resident in India if the control and
management of its affairs is situated wholly or partly in India. If the control and management of
the affairs is situated wholly outside India it would become a non-resident.
The expression control and management referred to under section 6 refers to the central
control and management and not to the carrying on of day-to-day business by servants,
employees or agents. The business may be done from outside India and yet its control and
management may be wholly within India. Therefore, control and management of a business is
said to be situated at a place where the head and brain of the adventure is situated. The place
of control may be different from the usual place of running the business and sometimes even
the registered office of the assessee. This is because the control and management of a

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.6

business need not necessarily be done from the place of business or from the registered office
of the assessee. But control and management do imply the functioning of the controlling and
directing power at a particular place with some degree of permanence.
If the HUF is resident, then the status of the Karta determines whether it is resident and
ordinarily resident or resident but not ordinarily resident. If the karta is resident and ordinarily
resident, then the HUF is resident and ordinarily resident and if the karta is resident but not
ordinarily resident, then HUF is resident but not ordinarily resident.
Illustration 5
The business of a HUF is transacted from Australia and all the policy decisions are taken
there. Mr. E, the karta of the HUF, who was born in Kolkata, visits India during the P.Y. 201516 after 15 years. He comes to India on 1.4.2015 and leaves for Australia on 1.12.2015.
Determine the residential status of Mr.E and the HUF for A.Y. 2016-17.
Solution
(a) During the P.Y.2015-16, Mr. E has stayed in India for 245 days (i.e. 30+31+30+31+31+
30+31+30+1 days). Therefore, he is a resident. However, since he has come to India
after 15 years, he cannot satisfy any of the conditions for being ordinarily resident.
Therefore, the residential status of Mr. E for the P.Y.2015-16 is resident but not ordinarily
resident.
(b) Since the business of the HUF is transacted from Australia and nothing is mentioned
regarding its control and management, it is assumed that the control and management is
also wholly outside India. Therefore, the HUF is a non-resident for the P.Y.2015-16.
(3) Residential status of firms and association of persons: A firm and an AOP would be
resident in India if the control and management of its affairs is situated wholly or partly in
India. Where the control and management of the affairs is situated wholly outside India, the
firm would become a non-resident.
(4) Residential status of companies: A company would be resident in India in any
previous year, if(i)

it is an Indian company; or

(ii) its place of effective management, in that year, is in India.

Explanation to section 6(3) defines place of effective management to mean a place
where key management and commercial decisions that are necessary for the conduct of
the business of an entity as a whole are, in substance made.

The Institute of Chartered Accountants of India

2.7

Income-tax

Determination of residential status of a company

Is the company an
Indian company?

No

Yes

Whether POEM of the

No
company is in India in
the relevant P.Y

The company is a
non-resident for the
relevant P.Y.

Yes

The company is a
resident in India for
the relevant P.Y.

A set of principles to be followed in determination of POEM would be issued for the

guidance of the taxpayers as well as, tax administration.
(5)
Residential status of local authorities and artificial juridical persons: Local
authorities and artificial juridical persons would be resident in India if the control and
management of its affairs is situated wholly or partly in India. Where the control and
management of the affairs is situated wholly outside India, they would become non-residents.

1.2 Scope of Total Income

Section 5 provides the scope of total income in terms of the residential status of the asses see
because the incidence of tax on any person depends upon his residential status. The scope of
total income of an assessee depends upon the following three important considerations:
(i)

the residential status of the assessee (as discussed earlier);

(ii)

the place of accrual or receipt of income, whether actual or deemed; and

(iii) the point of time at which the income had accrued to or was received by or on behalf of
the assessee.
The ambit of total income of the three classes of assessees would be as follows:
(1) Resident and ordinarily resident - The total income of a resident assessee would,
under section 5(1), consist of:
(i)

income received or deemed to be received in India during the previous year;

(ii) income which accrues or arises or is deemed to accrue or arise in India during the
previous year; and

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.8

(iii) income which accrues or arises outside India even if it is not received or brought into
India during the previous year.
In simpler terms, a resident and ordinarily resident has to pay tax on the total income accrued
or deemed to accrue, received or deemed to be received in or outside India.
(2) Resident but not ordinarily resident Under section 5(1), the computation of total
income of resident but not ordinarily resident is the same as in the case of resident and
ordinarily resident stated above except for the fact that the income accruing or arising to him
outside India is not to be included in his total income. However, where such i ncome is derived
from a business controlled from or profession set up in India, then it must be included in his
total income even though it accrues or arises outside India.
(3) Non-resident - A non-residents total income under section 5(2) includes:
(i) income received or deemed to be received in India in the previous year; and
(ii) income which accrues or arises or is deemed to accrue or arise in India during the previous year.
Note: All assessees, whether resident or not, are chargeable to tax in respect of their income
accrued, arisen, received or deemed to accrue, arise or to be received in India whereas residents
alone are chargeable to tax in respect of income which accrues or arises outside India.
Resident And
Ordinarily
Resident
Income
received/
deemed
to
be
received/ accrued or
arisen/deemed
to
accrue or arise in or
outside India.

Resident But Not Ordinarily Resident

Non-Resident

Income which is received/deemed to be

received/accrued or arisen/deemed to
accrue or arise in India.
and
Income which accrues or arises outside
India being derived from a business
controlled from or profession set up in India.

Income received/
deemed to be
received/ accrued
or arisen/deemed
to accrue or arise
in India.

The Institute of Chartered Accountants of India

2.9

Income-tax

UNIT 2 : DEEMED RECEIPT AND ACCRUAL OF INCOME IN INDIA

Learning objectives
After studying this unit, you would be able to understand

which are the income deemed to be received in India

the meaning of income accruing or arising in India

which are the income deemed to accrue or arise in India.

The taxability of a certain item as income would depend upon the method of accounting
followed by the assessee. This is because under the cash system of accounting an income
would be taxable only when it is received by the assessee himself or on his behalf. But under
the mercantile system it would be taxable once the assessee gets the legal right to claim the
amount. However, it has been specifically provided that in the case of income from salaries,
the liability to tax arises immediately when the income is due to the assessee irrespective of
the method of accounting followed. Likewise, in the case of dividends, the income would be
included in total income of the shareholder under section 8 in the year in which the final
dividend is declared and, in the case of interim dividend, in the year in which they are made
unconditionally available to the shareholders.

2.1 Meaning of Income received or deemed to be received

All assessees are liable to tax in respect of the income received or deemed to be received by
them in India during the previous year irrespective of (i)

their residential status, and

(ii) the place of its accrual.

Income is to be included in the total income of the assessee immediately on its actual or
deemed receipt. The receipt of income refers to only the first occasion when the recipient gets
the money under his control. Therefore, when once an amount is received as income,
remittance or transmission of that amount from one place or person to another does not
constitute receipt of income in the hands of the subsequent recipient or at the place of
subsequent receipt.
Income deemed to be received Under section 7, the following shall be deemed to be
received by the assessee during the previous year irrespective of whether he had actually
received the same or not (i)

The annual accretion in the previous year to the balance to the credit of an employee
participating in a recognised provident fund (RPF). Thus, the contribution of the employer
in excess of 12% of salary or interest credited in excess of 9.5% p.a. is deemed to be
received by the assessee.

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.10

(ii) The taxable transferred balance from unrecognized to recognized provident fund (being
the employers contribution and interest thereon).
(iii) The contribution made by the Central Government or any other employer in the previous
year to the account of an employee under a pension scheme referred to under section
80CCD.

2.2 Meaning of income accruing and arising

Accrue refers to the right to receive income, whereas due refers to the right to enforce
payment of the same. For e.g. salary for work done in December will accrue throughout the
month, day to day, but will become due on the salary bill being passed on 31 st December or
1st January. Similarly, on Government securities, interest payable on specified dates arise
during the period of holding, day to day, but will become due for payment on the specified
dates. Example: Interest on Government securities is usually payable on specified dates, say
on 1st January and 1st July. In all such cases, the interest would be said to accrue from 1st
July to 31st December and on 1st January, it will fall due for payment.
It must be noted that income which has been taxed on accrual basis cannot be assessed
again on receipt basis, as it will amount to double taxation. For example, when a loan to a
director has already been treated as dividend under section 2(22)(e) and later dividend is
declared, distributed and adjusted against the loan, the same cannot be treated as dividend
income again.
With a view to removing difficulties and clarifying doubts in the taxation of income, Explanation
1 to Section 5 specifically provides that an item of income accruing or arising outside India
shall not be deemed to be received in India merely because it is taken into account in a
balance sheet prepared in India.
Further, Explanation 2 to Section 5 makes it clear that once an item of income is included in
the assessees total income and subjected to tax on the ground of its accrual/deemed accrual
or receipt, it cannot again be included in the persons total income and subjected to tax either
in the same or in a subsequent year on the ground of its receipt - whether actual or deemed.

2.3 Income deemed to accrue or arise in India [Section 9]

Certain types of income are deemed to accrue or arise in India even though they may actually
accrue or arise outside India. The categories of income which are deemed to accrue or arise
in India are:
(1) Any income accruing or arising to an assessee in any place outside India whether directly
or indirectly (a) through or from any business connection in India, (b) through or from any
property in India, (c) through or from any asset or source of income in India or (d)
through the transfer of a capital asset situated in India [Section 9(1)(i)].
(2) Income, which falls under the head Salaries, if it is earned in India. Salary payable for
service rendered in India would be treated as earned in India. Further, any income under
the head Salaries payable for rest period or leave period which is preceded and

The Institute of Chartered Accountants of India

2.11

Income-tax
succeeded by services rendered in India, and forms part of the service contract of
employment, shall be regarded as income earned in India [Section 9(1)(ii)].

(3) Income from Salaries which is payable by the Government to a citizen of India for
services rendered outside India (However, allowances and perquisites paid outside India
by the Government is exempt) [Section 9(1)(iii)].
(4) Dividend paid by a Indian company outside India [Section 9(1)(iv)].
(5) Interest [Section 9(1)(v)] (discussed in para 5 below)
(6) Royalty [Section 9(1)(vi)] (discussed in para 6 below)
(7) Fees for technical services [Section 9(1)(vii)] (discussed in para 7 below)
(1) Income not deemed to accrue or arise in India [Explanation 1 to section 9(1)(i)]
Explanation 1 to section 9(1)(i) lists out income which shall not be deemed to accrue or arise
in India. They are given below:
(i)

In the case of a business, in respect of which all the operations are not carried out
in India [Explanation 1(a) to section 9(1)(i)]: In the case of a business of which all the
operations are not carried out in India, the income of the business deemed to accrue or
arise in India shall be only such part of income as is reasonably attributable to the
operations carried out in India. Therefore, it follows that such part of income which
cannot be reasonably attributed to the operations in India, is not deemed to accrue or
arise in India.

(ii) Purchase of goods in India for export [Explanation 1(b) to section 9(1)(i)]: In the
case of a non-resident, no income shall be deemed to accrue or arise in India to him
through or from operations which are confined to the purchase of goods in India for the
purpose of export.
(iii) Collection of news and views in India for transmission out of India [Explanation
1(c) to section 9(1)(i)]: In the case of a non-resident, being a person engaged in the
business of running a news agency or of publishing newspapers, magazines or journals,
no income shall be deemed to accrue or arise in India to him through or from activities
which are confined to the collection of news and views in India for transmission out of
India.
(iv) Shooting of cinematograph films in India [Explanation 1(d) to section 9(1)(i)]: In the
case of a non-resident, no income shall be deemed to accrue or arise in India through or
from operations which are confined to the shooting of any cinematograph film in India, if
such non-resident is :
(a) an individual, who is not a citizen of India or
(b) a firm which does not have any partner who is a citizen of India or who is resident in
India ; or

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.12

(c) a company which does not have any shareholder who is a citizen of India or who is
resident in India.
(1) (a) Business Connection [Explanation 2 to section 9(1)(i)]:
(i)

Business connection shall include any business activity carried out through a pers on
acting on behalf of the non-resident.

(ii) He must have an authority which is habitually exercised to conclude contracts on behalf
of the non-resident. However, if his activities are limited to the purchase of goods or
merchandise for the non-resident, this provision will not apply.
(iii) Where he has no such authority, but habitually maintains in India a stock of goods or
merchandise from which he regularly delivers goods or merchandise on behalf of the
non-resident, a business connection is established.
(iv) Business connection is also established where he habitually secures orders in India,
mainly or wholly for the non-resident. Further, there may be situations when other nonresidents control the above-mentioned non-resident. Secondly, this non-resident may
also control other non-residents. Thirdly, all other non-residents may be subject to the
same common control, as that of the non-resident. In all the three situations, business
connection is established, where a person habitually secures orders in India, mainly or
wholly for such non-residents.
Exception: "Business connection", however, shall not be held to be established in cases
where the non-resident carries on business through a broker, general commission agent or
any other agent of an independent status, if such a person is acting in the ordinary course of
his business.
A broker, general commission agent or any other agent shall be deemed to have an
independent status where he does not work mainly or wholly for the non-resident. He will
however, not be considered to have an independent status in the three situations explained in
(iv) above, where he is employed by such a non-resident.
Where a business is carried on in India through a person referred to in (ii), (iii) or (iv)
mentioned above, only so much of income as is attributable to the operations carried out in
India shall be deemed to accrue or arise in India.
(1) (b) & (c) Income from property, asset or source of income
Any income which arises from any property (movable, immovable, tangible and intangible
property) would be deemed to accrue or arise in India eg. hire charges or rent paid outside
India for the use of the machinery or buildings situated in India, deposits with an Indian
company for which interest is received outside India etc.
(1) (d) Income through the transfer of a capital asset situated in India
Capital gains arising from the transfer of a capital asset situated in India would be deemed to
accrue or arise in India in all cases irrespective of the fact whether (i) the capital asset is

The Institute of Chartered Accountants of India

2.13

Income-tax

movable or immovable, tangible or intangible; (ii) the place of registration of the d ocument of
transfer etc., is in India or outside; and (iii) the place of payment of the consideration for the
transfer is within India or outside.
The legislative intent of section 9(1)(i) is to cover incomes, which are accruing or arising, directly
or indirectly from a source in India. The section codifies the source rule of taxation, which
signifies that where a corporate structure is created to route funds, the actual gain or income
arises only in consequence of the investment made in the activity to which such gains are
attributable and not the mode through which such gains are realized. This principle which
supports the source countrys right to tax the gains derived from offshore transactions where the
value is attributable to the underlying assets, is recognized internationally by several countries.
Accordingly, Explanation 4 clarifies that the expression through shall mean and include and
shall be deemed to have always meant and included by means of, in consequence of or by
reason of.
Further, Explanation 5, inserted by the Finance Act, 2012, clarifies that an asset or a capital asset
being any share or interest in a company or entity registered or incorporated outside India shall be
deemed to be and shall always be deemed to have been situated in India, if the share or interest
derives, directly or indirectly, its value substantially from the assets located in India.
Declaration of dividend by a foreign company outside India does not have the effect of
transfer of any underlying assets located in India. Circular No. 4/2015, dated 26-03-2015,
therefore, clarifies that the dividends declared and paid by a foreign company outside
India in respect of shares which derive their value substantially from assets situated in
India would NOT be deemed to be income accruing or arising in India by virtue of the
provisions of Explanation 5 to section 9(1)(i).
Taking into account the concerns raised by various stakeholders regarding the scope and
impact of the amendments made by Finance Act, 2012, including inter alia Explanation 5 to
section 9(1)(i), an Expert Committee under the Chairmanship of Dr. Parthasarathi Shome was
constituted by the Government. On the basis of recommendations of the Expert Committee,
the Finance Act, 2015 has inserted Explanations 6 & 7 to clarify the provisions of Explanation
5 to section 9(1)(i).
Explanation 6 provides that the share or interest in a company or entity registered or
incorporated outside India, shall be deemed to derive its value substantially from the a ssets
(whether tangible or intangible) located in India, if on the specified date, the value of Indian
assets,(a) exceeds the amount of ` 10 crore; and
(b) represents at least 50% of the value of all the assets owned by the company or entity, as the
case may be;

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.14

Meaning of certain terms:

Term

Meaning

Value of an asset

The fair market value as on the specified date, of such asset without
reduction of liabilities, if any, in respect of the asset, determined in
prescribed manner

Specified date

The date on which the accounting period of the company or, as the
case may be, the entity ends preceding the date of transfer of a share or
an interest.
However, the date of transfer shall be the specified date of valuation, in
a case where the book value of the assets of the company or entity on
the date of transfer exceeds by at least 15%, the book value of the
assets as on the last balance sheet date preceding the date of transfer.

Accounting
period

Each period of twelve months ending with 31st March.

However, where a company or an entity, referred to in Explanation 5,
regularly adopts a period of twelve months ending on a day other than
31st March for the purpose of
(a) complying with the provisions of the tax laws of the territory, of
which it is a resident, for tax purposes; or
(b) reporting to persons holding the share or interest,
then, the period of twelve months ending with the other day shall be the
accounting period of the company or, as the case may be, the entity:

First Accounting First accounting period of the company or, as the case may be, the entity
Period
shall begin from the date of its registration or incorporation and end
with the 31st March or such other day, as the case may be, following
the date of such registration or incorporation.
Later accounting Later accounting period shall be the successive periods of twelve
period
months
Accounting
If the company or the entity ceases to exist before the end of accounting
period of an period, as aforesaid, then, the accounting period shall end immediately
entity
which before the company or, as the case may be, the entity, ceases to exist.
ceases to exist
Explanation 7 to section 9(1)(i) provides that no income shall be deemed to accrue or arise to a
non-resident from transfer, outside India, of any share of, or interest in, a company or an entity,
registered or incorporated outside India, in the following cases;
(1)

Foreign company AND

or entity directly
owns the assets

the transferor (whether individually or along with its

associated enterprises), at any time in the twelve months
preceding the date of transfer, does not hold

The Institute of Chartered Accountants of India

2.15

Income-tax
situated in India

(2)

Foreign
AND
company
or
entity indirectly
owns the assets
situated in India

the right of management or control in relation to foreign

company or entity; or

the voting power or share capital or interest exceeding

5% of the total voting power or total share capital or total
interest, as the case may be, of the foreign company or
entity; or

the transferor (whether individually or along with its

associated enterprises), at any time in the twelve months
preceding the date of transfer, does not hold

the right of management or control in relation to foreign

company or entity; or

any right in, or in relation to, foreign company or entity

which would entitle him to the right of management or
control in the company or entity that directly owns the
assets situated in India; or

such percentage of voting power or share capital or

interest in foreign company or entity which results in
holding of (either individually or along with associated
enterprises) a voting power or share capital or interest
exceeding 5% of the total voting power or total share
capital or total interest, as the case may be, of the
company or entity that directly owns the assets situated
in India;

In effect, the exemption shall be available to the transferor of a share of, or interest in, a
foreign entity if he along with its associated enterprises, (a) neither holds the right of control or management,
(b) nor holds voting power or share capital or interest exceeding 5% of the total voting power
or total share capital,
in the foreign company or entity directly holding the Indian assets (direct holding company).
In case the transfer is of shares or interest in a foreign entity which does not hold the Indian
assets directly then the exemption shall be available to the transferor if he along with its
associated enterprises,(a) neither holds the right of management or control in relation to such company or the
entity,
(b) nor holds any rights in such company which would entitle it to either exercise control or
management of the direct holding company or entity or entitle it to voting power exceeding 5%
in the direct holding company or entity.

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.16

Further, where all the assets owned, directly or indirectly, by a company or, as the case may
be, an entity registered or incorporated outside India, are not located in India, the income of
the non-resident transferor, from transfer outside India of a share of, or interest in the foreign
company or entity, deemed to accrue or arise in India under this clause, shall be only such
part of the income as is reasonably attributable to assets located in India and determined in
the prescribed manner.
Associated enterprise, in relation to another enterprise, means an enterprise
(a) which participates, directly or indirectly, or through one or more intermediaries, in the
management or control or capital of the other enterprise; or
(b) in respect of which one or more persons who participate, directly or indirectly, or through
one or more intermediaries, in its management or control or capital, are the same persons who
participate, directly or indirectly, or through one or more intermediaries, in the management or
control or capital of the other enterprise.
(2) & (3) Income from salaries: Under section 9(1)(ii) income which falls under the head
salaries, would be deemed to accrue or arise in India, if it is in respect of services rende red
in India.
Exception under section 9(2): Pension payable outside India by the Government to its
officials and judges who permanently reside outside India shall not be deemed to accrue or
arise in India. It may however, be noted here that the salary of an employee in the United
Nations Organisation (UNO) or in its constituent bodies is exempt under United Nations
(Privilege and Immunity) Act.
(4) Income from dividends: All dividends paid by an Indian company must be deemed to
accrue or arise in India. Under section 10(34), income from dividends referred to in section
115-O are exempt from tax in the hands of the shareholder. It may be noted that dividend
distribution tax under section 115-O does not apply to deemed dividend under section
2(22)(e), which is chargeable in the previous year in which such dividend is distributed or paid.
(5) Interest: Under section 9(1)(v), an interest is deemed to accrue or arise in India if it is
payable by (i)

the Central Government or any State Government.

(ii) a person resident in India (except where it is payable in respect of any money borrowed
and used for the purposes of a business or profession carried on by him outside India or
for the purposes of making or earning any income from any source outside India)
(iii) a non-resident when it is payable in respect of any debt incurred or moneys borrowed
and used for the purpose of a business or profession carried on in India by him. Interest
on money borrowed by the non-resident for any purpose other than a business or
profession, will not be deemed to accrue or arise in India. Thus, if a non-resident A
borrows money from a non-resident B and invests the same in shares of an Indian
company, interest payable by A to B will not be deemed to accrue or arise in India.

The Institute of Chartered Accountants of India

2.17

Income-tax

Taxability of interest payable by the Permanent Establishment of a non-resident

engaged in banking business to the head office
In order to provide clarity and certainty, on the issue of taxability of interest payable by the PE
of a non-resident engaged in banking business to the head office, an Explanation has been
inserted in section 9(1)(v). Accordingly, in the case of a non-resident, being a person
engaged in the business of banking, any interest payable by the PE in India of such nonresident to the head office or any PE or any other part of such non-resident outside India,
shall be deemed to accrue or arise in India.
Such interest shall be chargeable to tax in addition to any income attributable to the PE in
India.
Further, the PE in India shall be deemed to be a person separate and independent of the non resident person of which it is a PE and the provisions of the Act relating to computation of total
income, determination of tax and collection and recovery would apply accordingly.
Also, the PE in India has to deduct tax at source on any interest payable to either the head
office or any other branch or PE, etc. of the non-resident outside India. Non-deduction would
result in disallowance of interest claimed as expenditure by the PE and may also attract levy
of interest and penalty in accordance with relevant provisions of the Act.
Permanent establishment includes a fixed place of business through which the business of
the enterprise is wholly or partly carried on.
(6) Royalty: Royalty will be deemed to accrue or arise in India when it is payable by (i)

the Government; or

(ii) a person who is a resident in India except in cases where it is payable for the transfer of
any right or the use of any property or information or for the utilization of services for the
purposes of a business or profession carried on by such person outside India or for the
purposes of making or earning any income from any source outside India; or
(iii) a non-resident only when the royalty is payable in respect of any right, property or
information used or services utilised for purposes of a business or profession carried on
in India or for the purposes of making or earning any income from any source in India.
Lumpsum royalty payments made by a resident for the transfer of all or any rights (including
the granting of a licence) in respect of computer software supplied by a non -resident
manufacturer along with computer hardware under any scheme approved by the Government
under the Policy on Computer Software Export, Software Development and Training, 1986
shall not be deemed to accrue or arise in India.
Computer software means any computer programme recorded on any disc, tape, perforated
media or other information storage device and includes any such programme or any
customised electronic data.

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.18

The term royalty means consideration (including any lumpsum consideration but excluding
any consideration which would be the income of the recipient chargeable under the head
Capital gains) for:
(i)

the transfer of all or any rights (including the granting of licence) in respect of a patent,
invention, model, design, secret formula or process or trade mark or similar property;

(ii) the imparting of any information concerning the working of, or the use of, a patent,
invention, model, design, secret formula or process or trade mark or similar property;
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark
or similar property;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific
knowledge, experience or skill;
(v) the use or right to use any industrial, commercial or scientific equipment but not including
the amounts referred to in section 44BB;
(vi) the transfer of all or any rights (including the granting of licence) in respect of any
copyright, literary, artistic or scientific work including films or video tapes for use in
connection with television or tapes for use in connection with radio broad casting, but not
including consideration for the sale, distribution or exhibition of cinematographic films;
(vii) the rendering of any service in connection with the activities listed above.
The definition of royalty for this purpose is wide enough to cover both industrial royalties as
well as copyright royalties. The deduction specially excludes income which should be charge able to tax under the head capital gains.
Consideration for use or right to use of computer software is royalty within the meaning
of section 9(1)(vi)
As per section 9(1)(vi), any income payable by way of royalty in respect of any right, property or
information is deemed to accrue or arise in India. The term royalty means consideration for
transfer of all or any right in respect of certain rights, property or information. There have been
conflicting court rulings on the interpretation of the definition of royalty, on account of which there
was a need to resolve the following issues
(i)

Does consideration for use of computer software constitute royalty?

(ii) Is it necessary that the right, property or information has to be used directly by the
payer?
(iii) Is it necessary that the right, property or information has to be located in India or control
or possession of it has to be with the payer?
(iv) What is the meaning of the term process?
In order to resolve the above issues arising on account of conflicting judicial decisions and to
clarify the true legislative intent, Explanations 4, 5 & 6 have been inserted with retrospective
effect from 1st June, 1976.

The Institute of Chartered Accountants of India

2.19

Income-tax

Explanation 4 clarifies that the consideration for use or right to use of computer software is
royalty by clarifying that, transfer of all or any rights in respect of any right, property or
information includes and has always included transfer of all or any right for use or right to use
a computer software (including granting of a licence) irrespective of the medium through which
such right is transferred.
Consequently, the provisions of tax deduction at source under section 194J and section 195
would be attracted in respect of consideration for use or right to use computer software since
the same falls within the definition of royalty.
Note - The Central Government has, vide Notification No.21/2012 dated 13.6.2012 to be
effective from 1st July, 2012, exempted certain software payments from the applicability of tax
deduction under section 194J. Accordingly, where payment is made by the transferee for
acquisition of software from a resident-transferor, the provisions of section 194J would not be
attracted if (1) the software is acquired in a subsequent transfer without any modification by the
transferor;
(2) tax has been deducted either under section 194J or under section 195 on payment for
any previous transfer of such software; and
(3) the transferee obtains a declaration from the transferor that tax has been so deducted
along with the PAN of the transferor.
Explanation 5 clarifies that royalty includes and has always included consideration in respect
of any right, property or information, whether or not,
(a) the possession or control of such right, property or information is with the payer;
(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.
Explanation 6 clarifies that the term process includes and shall be deemed to have always
included transmission by satellite (including up-linking, amplification, conversion for downlinking of any signal), cable, optic fibre or by any other similar technology, whether or not such
process is secret.
(7) Fees for technical services: Any fees for technical services will be deemed to accrue or
arise in India if they are payable by (i)

the Government.

(ii) a person who is resident in India, except in cases where the fees are payable in respect
of technical services utilised in a business or profession carried on by such person
outside India or for the purpose of making or earning any income from any source
outside India.
(iii) a person who is a non-resident, only where the fees are payable in respect of services
utilised in a business or profession carried on by the non-resident in India or where such

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.20

services are utilised for the purpose of making or earning any income from any source in
India.
Fees for technical services means any consideration (including any lumpsum consideration)
for the rendering of any managerial, technical or consultancy services (including providing the
services of technical or other personnel). However, it does not include consideration for any
construction, assembly, mining or like project undertaken by the recipient or consideration
which would be income of the recipient chargeable under the head Salaries.
Income deemed to accrue or arise in India to a non-resident by way of interest, royalty
and fee for technical services to be taxed irrespective of territorial nexus ( Explanation
to section 9)
Income by way of interest, royalty or fee for technical services which is deemed to ac crue or
arise in India by virtue of clauses (v), (vi) and (vii) of section 9(1), shall be included in the total
income of the non-resident, whether or not
(i)

the non-resident has a residence or place of business or business connection in India; or

(ii) the non-resident has rendered services in India.

In effect, the income by way of fee for technical services, interest or royalty, from services
utilized in India would be deemed to accrue or arise in India in case of a non -resident and be
included in his total income, whether or not such services were rendered in India.
Illustration 6
Compute the total income in the hands of an individual, being a resident and ordinarily
resident, resident but not ordinarily resident, and non-resident for the A.Y. 2016-17 Particulars

Amount (`)

Interest on UK Development Bonds, 50% of interest received in India

10,000

Income from a business in Chennai (50% is received in India)

Profits on sale of shares of an Indian company received in London

20,000
20,000

Dividend from British company received in London

5,000

Profits on sale of plant at Germany 50% of profits are received in India

40,000

Income earned from business in Germany which is controlled from Delhi

(` 40,000 is received in India)
Profits from a business in Delhi but managed entirely from London

70,000

Income from house property in London deposited in a Indian Bank at

London, brought to India (Computed)

50,000

Interest on debentures in an Indian company received in London.

12,000

Fees for technical services rendered in India but received in London

Profits from a business in Bombay managed from London

The Institute of Chartered Accountants of India

15,000

8,000
26,000

2.21

Income-tax

Pension for services rendered in India but received in Burma

4,000

Income from property situated in Pakistan received there

16,000

Past foreign untaxed income brought to India during the previous year

5,000

Income from agricultural land in Nepal received there and then brought to
India
Income from profession in Kenya which was set up in India, received there
but spent in India

18,000

Gift received on the occasion of his wedding

20,000

Interest on savings bank deposit in State Bank of India

12,000

Income from a business in Russia, controlled from Russia

20,000

Dividend from Reliance Petroleum Limited, an Indian Company

Agricultural income from a land in Rajasthan

5,000
15,000

5,000

Solution:
Computation of total income for the A.Y. 2016-17
Particulars

Resident
and
ordinarily
resident

Resident
but not
ordinarily
resident

Nonresident
`

Interest on UK Development Bonds, 50% of interest

received in India
Income from a business in Chennai (50% is
received in India)

10,000

5,000

5,000

20,000

20,000

20,000

Profits on sale of shares of an Indian company

received in London (assuming that they are in the
nature of short-term capital gains)

20,000

20,000

20,000

5,000

Profits on sale of plant at Germany, 50% of profits

are received in India

40,000

20,000

20,000

Income earned from business in Germany which is

controlled from Delhi, out of which ` 40,000 is
received in India

70,000

70,000

40,000

Profits from a business in Delhi but managed

entirely from London

15,000

15,000

15,000

Dividend from British company received in London

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.22

Income from property in London deposited in a

Bank at London, later on remitted to India

50,000

Interest on debentures in an Indian company

received in London.

12,000

12,000

12,000

Fees for technical services rendered in India but

received in London

8,000

8,000

8,000

Profits from a business in Bombay managed from

London

26,000

26,000

26,000

Pension for services rendered in India but received

in Burma

4,000

4,000

4,000

Income from property situated in Pakistan received

there
Past foreign untaxed income brought to India during
the previous year

16,000

Income from agricultural land in Nepal received

there and then brought to India

18,000

Income from profession in Kenya which was set up

in India, received there but spent in India
Gift received on the occasion of his wedding [not
taxable]

5,000

5,000

Interest on savings bank deposit in State Bank of

India

12,000

12,000

12,000

Income from a business in Russia, controlled from

Russia

20,000

Dividend from Reliance Petroleum Limited, an

Indian Company [Exempt under section 10(34)]

Agricultural income from a land in Rajasthan

[Exempt under section 10(1)]

3,51,000

2,17,000

1,82,000

10,000

10,000

10,000

3,41,000

2,07,000

1,72,000

Gross Total Income

Less: Deduction under section 80TTA
[Interest on savings bank account subject to a
maximum of ` 10,000]
Total Income

The Institute of Chartered Accountants of India

2.23

Income-tax

2.4 Presence of eligible fund manager in India not to constitute

business connection in India of such eligible investment fund on
behalf of which he undertakes fund management activity [Section 9A]
(1) Under section 9(1)(i), income would be deemed to accrue or arise in India in the hands of
non-resident, if it arises from a business connection in India. Consequently, income
attributable to the activities constituting business connection in India would be taxable in
India.
(2) As per Double Taxation Avoidance Agreements (DTAAs), the source country assumes
taxation rights on certain incomes, if the non-resident has a Permanent Establishment
(PE) in that country.
(3) Under section 6, the residential status of a person other than individual is determined
based upon the location of its control and management. As per the existing provisions
of law, in case of off-shore funds, the presence of a fund manager in India may create
sufficient nexus of the off-shore fund with India and may constitute a business connection
in India inspite of the fund manager being an independent person.
Likewise, if the fund manager located in India undertakes fund management activity in
respect of investments outside India for an off-shore fund, the profits made by the fund
from such investments may be liable to tax in India due to the location of fund manager in
India and attribution of such profits to the activity of the fund manager undertaken on
behalf of the off-shore fund.
(4) Further, presence of the fund manager under certain circumstances may lead to the off
shore fund being held to be resident in India on the basis of its control and management
being in India.
(5) On account of the fund management activity undertaken in, and from India constituting a
business connection
(a) the fees received by the fund manager for fund management activity gets taxed in
India; and
(b) income of off-shore fund from investments made in countries outside India may also
get taxed in India.
Due to the above tax consequences in respect of income from the investments of
offshore funds made in other jurisdictions, many fund managers who are of Indian origin,
are managing the investment of offshore funds in other countries without locating in
India.
(6) With a view to facilitate location of fund managers of off-shore funds in India,
section 9A has been inserted to provide for a specific regime in the Act in line with global
best practices with the aim that, subject to fulfillment of certain conditions by the fund and
the fund manager,-

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.24

(a) the tax liability in respect of income arising to the Fund from investment in India
would be neutral to the fact as to whether the investment is made directly by the
fund or through engagement of Fund manager located in India; and
(b) that income of the fund from the investments outside India would not be taxable in
India solely on the basis that the Fund management activity in respect of such
investments have been undertaken through a fund manager located in India.
(7) Fund Management Activity through an eligible fund manager not to constitute
business connection: In the case of an eligible investment fund, the fund management
activity carried out through an eligible fund manager acting on behalf of such fund shall
not constitute business connection in India of the said fund, subject to fulfillment of
certain conditions.
(8) Location of Fund Manager in India not to affect residential status of an eligible
investment fund: An eligible investment fund shall not be said to be resident in India
merely because the eligible fund manager undertaking fund management activities on its
behalf is located in India.
(9) Conditions to be fulfilled by an Eligible Investment Fund: The eligible investment
fund means a fund established or incorporated or registered outside India, which collects
funds from its members for investing it for their benefit. Further, it should fulfill the
following conditions:
(a) the fund should not be a person resident in India;
(b) the fund should be a resident of a country or a specified territory with which an
agreement referred to in section 90(1) or section 90A(1) has been entered into;
(c) the aggregate participation or investment in the fund, directly or indirectly, by
persons being resident in India should not exceed 5% of the corpus of the fund;
(d) the fund and its activities should be subject to applicable investor protection
regulations in the country or specified territory where it is established or
incorporated or is a resident;
(e) the fund should have a minimum of 25 members who are, directly or indirectly, not
connected persons;
(f)

any member of the fund along with connected persons shall not have any
participation interest, directly or indirectly, in the fund exceeding 10%;

(g) the aggregate participation interest, directly or indirectly, of ten or less members
along with their connected persons in the fund, shall be less than 50%;
(h) the investment by the fund in any entity shall not exceed 20% of the corpus of the
fund;
(i)

no investment shall be made by the fund in its associate entity;

The Institute of Chartered Accountants of India

2.25

Income-tax
(j)

the monthly average of the corpus of the fund shall not be less than

` 100 crore. If the fund has been established or incorporated in the previous year,
the corpus of fund shall not be less than ` 100 crore rupees at the end of such
previous year;
(k) the fund shall not carry on or control and manage, directly or indirectly, any
business in India or from India;
(l)

the fund should neither be engaged in any activity which constitutes a business
connection in India nor should have any person acting on its behalf whose activities
constitute a business connection in India other than the activities undertaken by the
eligible fund manager on its behalf.

(m) the remuneration paid by the fund to an eligible fund manager in respect of fund
management activity undertaken on its behalf should not be less than the arms
length price of such activity.
(10) Certain conditions not to apply to investment fund set up by the Government or the
Central Bank of a foreign State or a Sovereign Fund
The following conditions would, however, not be applicable in case of an investment fund
set up by the Government or the Central Bank of a foreign State or a sovereign fund or
such other fund notified by the Central Government:
(i)

the fund should have a minimum of 25 members who are, directly or indirectly, not
connected persons;

(ii) any member of the fund along with connected persons shall not have any
participation interest, directly or indirectly, in the fund exceeding 10%;
(iii) the aggregate participation interest, directly or indirectly, of ten or less members
along with their connected persons in the fund, shall be less than 50%.
(11) Eligible Fund Manager [Section 9A(4)]: The eligible fund manager, in respect of an
eligible investment fund, means any person who is engaged in the activity of fund
management and fulfills the following conditions:
(a) the person should not be an employee of the eligible investment fund or a
connected person of the fund;
(b) the person should be registered as a fund manager or investment advisor in
accordance with the specified regulations;
(c) the person should be acting in the ordinary course of his business as a fund
manager;
(d) the person along with his connected persons shall not be entitled, directly or
indirectly, to more than 20% of the profits accruing or arising to the eligible
investment fund from the transactions carried out by the fund through such fund
manager.

The Institute of Chartered Accountants of India

Residence and Scope of Total Income

2.26

(12) Furnishing of Statement in prescribed form [Section 9A(5)]: Every eligible investment
fund shall, in respect of its activities in a financial year, furnish within 90 days from the
end of the financial year, a statement in the prescribed form to the prescribed income -tax
authority. The statement should contain information relating to
(1) the fulfillment of the above conditions; and
(2) such other relevant information or document which may be prescribed.
(13) Non-applicability of special taxation regime under section 9A: This special taxation
regime would not have any impact on taxability of any income of the eligible investment
fund which would have been chargeable to tax irrespective of whether the activity of the
eligible fund manager constituted business connection in India of such fund or not.
Further, the said regime shall not have any effect on the scope of total income or
determination of total income in the case of the eligible fund manager.
(14) CBDT to prescribe guidelines for the manner of application of the provisions of this
section.
(15)

Meaning of certain terms:

Term

Meaning

Associate

An entity in which a director or a trustee or a partner or a member or a

fund manager of the investment fund or a director or a trustee or a
partner or a member of the fund manager of such fund, holds, either
individually or collectively, share or interest, being more than 15% of its
share capital or interest, as the case may be.

Corpus

The total amount of funds raised for the purpose of investment by the
eligible investment fund as on a particular date.

Connected
person

Any person who is connected directly or indirectly to another person

and includes,
(a) any relative of the person, if such person is an individual;
(b) any director of the company or any relative of such director, if the
person is a company;
(c) any partner or member of a firm or association of persons or body
of individuals or any relative of such partner or member, if the
person is a firm or association of persons or body of individuals;
(d) any member of the Hindu undivided family or any relative of such
member, if the person is a Hindu undivided family;
(e) any individual who has a substantial interest in the business of
the person or any relative of such individual;
(f)

a company, firm or an association of persons or a body of

The Institute of Chartered Accountants of India

2.27

Income-tax
individuals, whether incorporated or not, or a Hindu undivided
family having a substantial interest in the business of the person
or any director, partner, or member of the company, firm or
association of persons or body of individuals or family, or any
relative of such director, partner or member;
(g) a company, firm or association of persons or body of individuals,
whether incorporated or not, or a Hindu undivided family, whose
director, partner, or member has a substantial interest in the
business of the person, or family or any relative of such director,
partner or member;
(h) any other person who carries on a business, if (i)

the person being an individual, or any relative of such

person, has a substantial interest in the business of that
other person; or
(ii) the person being a company, firm, association of persons,
body of individuals, whether incorporated or not, or a Hindu
undivided family, or any director, partner or member of such
company, firm or association of persons or body of
individuals or family, or any relative of such director, partner
or member, has a substantial interest in the business of that
other person;
Entity

An entity in which an eligible investment fund makes an investment.

Specified
regulations

The Securities and Exchange Board of India (Portfolio Managers)

Regulations, 1993; or

The Securities and Exchange Board of India (Investment

Advisers) Regulations, 2013; or

Such other regulations made under the Securities and Exchange

Board of India Act, 1992 which may be notified by the Central
Government.

The Institute of Chartered Accountants of India