Choice of place where income is to be received :

The scope of liability to tax of the non-resident should be clearly identified in the foreign collaboration agreement in every case as part of the process of tax planning by foreign collaborators. Under section 5(2) of the Income-tax Act, 1961, a non-resident is chargeable to tax in respect of income on two grounds, namely (i) receipt of income, whether actual or deemed, by or on behalf of the assessee; and (ii) accrual of such income, whether actual or deemed, in India to the assessee. The efforts at tax planning should, in every case, ensure that wherever practicable, the income of a non-resident which accrues or arises outside India and is not deemed to accrue or arise in India, is not first received in India. This is because of the fact that the mere receipt of income by or on behalf of the non-resident in India would attract liability to tax regardless of the question whether the income is due to be received in India or not and also whether it is received in cash or in kind. When once it is established that income has been received as such, outside India, the mere remittance thereof to India would not attract any tax in India for the simple reason that the same income cannot be received more than once as was held by the Supreme Court in the case of Banaras State Bank Ltd. v. CIT (1970) 75 ITR 167 (SC).