So far Perry4Law
and Perry4Law’s
Techno Legal Base (PTLB) have discussed the legal issues
pertaining to transfer
pricing laws in India. In this post we would discuss a related
concept that results in tax evasion by transferring income to non
residents.
Section 93 of the Income Tax Act, 1961 deals with
the provision pertaining to avoidance of income-tax by transactions
resulting by transfer of income to non residents. This way income tax
liability is reduced that is otherwise payable.
Section 93 (1) of the Act provides that where there
is a transfer of assets by virtue or in consequence whereof, either
alone or in conjunction with associated operations, any income
becomes payable to a non-resident, the following provisions shall
apply-
(a) Where any person has, by means of any such
transfer, either alone or in conjunction with associated operations,
acquired any rights by virtue of which he has, within the meaning of
this section, power to enjoy, whether forthwith or in the future, any
income of a nonresident person which, if it were income of the
first-mentioned person, would be chargeable to income-tax, that
income shall, whether it would or would not have been chargeable to
income-tax apart from the provisions of this section, be deemed to be
income of the first mentioned person for all the purposes of this
Act;
(b) Where, whether before or after any such
transfer, any such first mentioned person receives or is entitled to
receive any capital sum the payment whereof is in any way connected
with the transfer or any associated operations, then any income
which, by virtue or in consequence of the transfer, either alone or
in conjunction with associated operations, has become the income of a
non-resident shall, whether it would or would not have been
chargeable to income-tax apart from the provisions of this section,
be deemed to be the income of the first mentioned person for all the
purposes of this Act.
Explanation.-The provisions of this sub-section
shall apply also in relation to transfers of assets and associated
operations carried out before the commencement of this Act.
Section 93 (2) of the Act provides that where any
person has been charged to income-tax on any income deemed to be his
under the provisions of this section and that income is subsequently
received by him, whether as income or in any other form, it shall not
again be deemed to form part of his income for the purposes of this
Act.
Section 93 (3) of the Act provides that the
provisions of this section shall not apply if the first-mentioned
person in sub-section (1) shows to the satisfaction of the
[Assessing] Officer that-
(a) Neither the transfer nor any associated
operation had for its purpose or for one of its purposes the
avoidance of liability to taxation; or
(b) The transfer and all associated operations were
bona fide commercial transactions and were not designed for the
purpose of avoiding liability to taxation.
Explanation.-For the purposes of this section,
(a) References to assets representing any assets,
income or accumulations of income include references to shares in or
obligation of any company to which, or obligation of any other person
to whom, those assets, that income or those accumulations are or have
been transferred;
(b) Any body corporate incorporated outside India
shall be treated as if it were a non-resident;
(c) A person shall be deemed to have power to enjoy
the income of a nonresident if-
(i) The income is in fact so dealt with by any
person as to be calculated at some point of time and, whether in the
form of income or not, to enure for the benefit of the
first-mentioned person in sub-section (1), or
(ii) The receipt or accrual of the income operates
to increase the value to such first-mentioned person of any assets
held by him or for his benefit, or
(iii) Such first-mentioned person receives or is
entitled to receive at any time any benefit provided or to be
provided out of that income or out of moneys which are or will be
available for the purpose by reason of the effect or successive
effects of the associated operations on that income and assets which
represent that income, or
(iv) Such first-mentioned person has power by means
of the exercise of any power of appointment or power of revocation or
otherwise to obtain for himself, whether with or without the consent
of any other person, the beneficial enjoyment of the income, or
(v) Such first-mentioned person is able, in any
manner whatsoever and whether directly or indirectly, to control the
application of the income;
(d) In determining whether a person has power to
enjoy income, regard shall be had to the substantial result and
effect of the transfer and any associated operations, and all
benefits which may at any time accrue to such person as a result of
the transfer and any associated operations shall be taken into
account irrespective of the nature or form of the benefits.
Section 93 (4) of the Act provides that-
(a) “Assets” includes property or rights of any
kind and “transfer” in relation to rights includes the creation
of those rights;
(b) “Associated operation”, in relation to any
transfer, means an operation of any kind effected by any person in
relation to-
(i) Any of the assets transferred, or
(ii) Any assets representing, whether directly or
indirectly, any of the assets transferred, or
(iii) The income arising from any such assets, or
(iv) Any assets representing, whether directly or
indirectly, the accumulations of income arising from any such assets;
(c) “Benefit” includes a payment of any kind;
(d) “Capital sum” means—
(i) Any sum paid or payable by way of a loan or
repayment of a loan; and
(ii) Any other sum paid or payable otherwise than as
income, being a sum which is not paid or payable for full
consideration in money or money’s worth.
