Amended and updated notes on section 93 of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to avoidance of income-tax by transactions resulting in transfer of income to non-residents.
Chapter X (Sections 92 to 94B) of the Income Tax Act 1961 deals with the provisions related to special provisions relating to avoidance of tax. Section 93 of IT Act 1961-2023 provides for avoidance of income-tax by transactions resulting in transfer of income to non-residents.
Recently, we have discussed in detail section 92F (Definitions of certain terms relevant to computation of arm’s length price, etc.) of IT Act 1961. Today, we learn the provisions of section 93 of Income-tax Act 1961. The amended provision of section 93 is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 93 of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962, regulations, notifications, circulars, orders and Press Release by CBDT, Income Tax Department and the Ministry of Law and Justice, Government of India.
Section-93: Avoidance of income-tax by transactions resulting in transfer of income to non-residents
Section 93(1) of Income Tax Act
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 non-resident 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 Income Tax Act
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 Income Tax Act
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 non-resident 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 Income Tax Act
(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.