No income deemed to accrue or arise in India to a foreign mining company through or from the activities which are confined to display of uncut and unassorted diamonds in a Special Notified Zone [Explanation 1 to section 9(1)(i)] :
Effective from: A.Y. 2016-17
(i) Scope of total income of a non-resident
The scope of total income of a non-resident is provided under section 5(2). It includes all income which accrues or arises in India or which is deemed to accrue or arise in India or is received or is deemed to be received in India.
(ii) Income accruing through business connection: Deemed to accrue or arise in India
Section 9 provides circumstances under which income is deemed to accrue or arise in India. As per section 9(1)(i), all income accruing, whether directly or indirectly, through or from a business connection in India is deemed to accrue or arise in India.
(iii) Possible creation of business connection on account of display of rough diamonds by foreign mining companies (FMCs) to India : A matter of concern for FMCs
In order to ease shifting of operations by FMCs to India and to allow the trading of rough diamonds in India by the leading diamond mining companies of the world, a “Special Notified Zone” (SNZ) has been created. Since the activity of mere display of rough diamonds even with no actual sale taking place in India may lead to creation of business connection in India of the FMC, the probable tax consequence has been a matter of concern for the mining companies contemplating to undertake these activities in India.
(iv) No income shall be deemed to accrue or arise in India from activities confined to display of rough diamonds in SNZs: Insertion of new clause (e) in Explanation 1 to section 9(1)(i)
In order to facilitate the FMCs to undertake activity of display of uncut diamond (without any sorting or sale) in the SNZ, clause (e) has been inserted in Explanation 1 to section 9(1)(i) to provide that in the case of a foreign company engaged in the business of mining of diamonds, no income shall be deemed to accrue or arise in India to it through or from the activities which are confined to display of uncut and unassorted diamonds in any special zone notified by the Central Government in the Official Gazette in this behalf.