Meaning
Legal mechanism in the Indian Income Tax Act establishes the basis for taxing income that is deemed to accrue or arise within the national territory. Legal jurisdiction over non residents is claimed for income generated through a business connection or an asset located in the country. This section 9(1)(i) is the foundation for taxing the indirect transfer of shares where the underlying value is derived from local assets.
It ensures that the state captures its share of the profit even if the sale happens between two foreign entities.
Indirect Transfer
Capital gains are taxable if the shares of a foreign company derive substantial value from assets situated in India. Under section 9(1)(i), a transaction between a buyer in London and a seller in New York is taxable if the target company owns a factory in Mumbai. The law looks through the corporate layers to the physical location of the economic value.
Withholding Obligation
Regardless of their residency, the duty to deduct tax at source applies to the purchaser. Failure to comply with the requirements of section 9(1)(i) makes the buyer a representative assessee, liable for the unpaid tax of the seller. This has led to high profile legal battles between multinational corporations and the Indian revenue department.
Exemption Standard
Exemption standard for section 9(1)(i) often excludes small shareholders.
