“Section 9(1)(ii)”
The decision most relied on for Section 9(1)(ii) is Sonia Bhatia v. State of U.P (2 SCC 585), cited in 190 judgments on BharatTax.
Leading authorities on Section 9(1)(ii)
An Explanation to a statutory provision can either clarify an existing ambiguity in the main provision or add to and widen its scope.
An Explanation to Section 9(1)(ii) of the Income Tax Act that widens the scope of the provision, rather than merely clarifying it, cannot be applied retrospectively to assessment periods prior to its effective date. Assessments must be made according to the law in force at the relevant time.
An expenditure is classified as either capital or revenue; the 'enduring benefit' test is a key criterion for this distinction, and income tax law does not generally recognize deferred revenue expenditure unless specifically provided.
The law applicable for an assessment year is that in force during that year, and an Explanation introduced with effect from a particular date does not retrospectively affect earlier assessment years unless expressly provided.
Pure reimbursement of expenditure does not constitute income in the nature of royalty or fees for technical services, therefore eliminating the obligation to deduct tax at source.
This case establishes that a statutory amendment, specifically Section 9(1)(ii) relating to income deemed to accrue or arise in India (salary for services/leave), applies prospectively from its effective date, such as April 1, 2000.
The Explanation to Section 9(1)(ii), introduced in 1983, widens the scope of the section and is not merely declaratory. It operates prospectively from April 1, 1979, and cannot be applied to periods prior to that date.
Salary received by a non-resident for services rendered outside India accrues outside India and is not taxable in India. Only salary earned for work performed in India is regarded as income arising in India and is taxable.
