Asked by Someone on 7/10/2006
One of my friend is based in US having a registered Co there.He wish to plan to open a subsidiary co in India i.e Chandigarh but that may take couple of months , however he has finalised one person to work for his company in US from Chandigarh.My query is if he is not having any permanent establishment in India , can he appoint any person in India.If yes that will there be any tax liability of the company in US if the Company pays in to person resident in India as professional fess.
1. Regarding taxability of the Employee recruited in India.
2. Regarding the taxibility of income by the company registered in USA on account business dealings performed by the EMPLOYEE for the company .
Regarding the first issue, yes the salary will be taxable in India since it is Earned in India by a Resident Indian. Remember for Resident Indian, his global income is taxable.
As far as second issue is concerned , although you have not given much details and I assume that purpose of recruiting employee in Chandigarh is to do new business, then the sale or income which is generated by the employee for the US based company shall be taxed in the hands of Employee in status of Representative Assessee as defined under Section 163 of the I T Act .
Read below to understand completely :
Whether the sale or business done by the Non Resident taxable in India ?
Yes , Section 5 of the I T Act says :
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Section 9 of the I T Act defines deeming provision ,as follows :
The following incomes shall be deemed to accrue or arise in India :
(i) all income accruing or arising, whether directly or indirectly, through or from any
business connection in India, or through or from any property in India, or through or
from any asset or source of income in India, or through the transfer of a capital asset
situate in India.
Explanation 2 is relevant in your case which says :
” it is hereby declared that business connection shall include any business activitycarried
out through a person who, acting on behalf of the non-resident,
(a) has and habitually exercises in India, an authority to conclude contracts on behalf of
the non-resident, unless his activities are limited to the purchase of goods or
merchandise for the non-resident; or
(b) 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
on-resident; or
(c) habitually secures orders in India, mainly or wholly for the non-resident or for that
non-resident and other non-residents controlling, controlled by, or subject to the same
common control, as that non-resident:
Thus , there is no doubt , if the us based company , earns any income through the
effort of the EMPLOYEE recruited by it , income of the said company shall be
taxable.
How will it be taxed?
Section 160 and 163 are relevant to decide that. According to those sections , that employee
who has been authorised by the US based company to do business shall be taken as agent of the
company thereby , he shall be assessed in Representative Assessee .
Section 160 (1)(i) says “ representative assessee means
(i) in respect of the income of a non-resident specified in sub-section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163;
163. (1) For the purposes of this Act, agent, in relation to a non-resident, includes any person in India (a) who is employed by or on behalf of the non-resident; or
In nut shell ,
The recruited employee will be taxed and he will also taxed in Representative assessee capacity for any income accruing or arising to US based company
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