S. 9(i)(viib): Export sales is not a “source of income outside India”

CIT v Havells India Ltd (Del HC) [ITA No. 55/2012 & ITA No. 57/2012]

The assessee, an Indian company, paid Rs. 14.71 lakhs to a US company for ‘KEMA’ certification which was necessary to enable it to sell its products in the European markets. The assessee claimed that though the said amount was ‘fees for technical services’ u/s 9(1)(vii), it was paid “for the purpose of earning income from a source outside India” (i.e. the exports) and so it was not taxable in India u/s 9(1)(vii)(b). The AO & CIT (A) rejected the claim though the Tribunal upheld it. On appeal by the department, HELD reversing the Tribunal: 

Reliance was placed on the following decisions wherein it was observed that:

  • ’Source is not a legal concept but one which a practical man would regard as a real source of income’ – Rhodesia Metals Ltd. v CIT [(1941) 9 ITR 45], Rani Amrit Kaur v CIT [(1946) 14 ITR 561]
  • Source is a spring or fount from which a clearly defined channel of income flows. It is a distinct and separate origin of income, capable of consideration as such in isolation from other sources of income, and which by the manner of dealing adopted by the taxpayer can be treated so – Seth Shiv Prasad v CIT [(1972) 84 ITR 15]; CIT v. Lady Kanchanbai, [(1970) 77 ITR 123 (SC)]

Source of income from certification services was the export activity of the Taxpayer. There is a difference between
source of income and situs of a source of income. The main question, in the present case, is whether export sales
proceeds constituted a source inside or outside India.

In the present case, the source of income from certification services was the export activity of the Taxpayer which was undertaken and fulfilled in India. A distinction needs to be made between the source of the income and the source of the receipt of the monies. An importer of a taxpayer’s product cannot be regarded as a source of income. The importer is only the source of the monies received.

The export contracts are concluded in India and goods are exported in pursuance to such contracts. The source
of income is created at the moment when the export contracts are concluded in India. Hence, income component of the export receipts is located only in India. Mere fact that the export proceeds emanated from persons situated outside India does not constitute such persons to be the source of such income. (Aktiengesellschaft 262 ITR 513 (Mad) not followed).


This ruling of the Delhi High Court has duly considered two contradictory rulings of the Madras High Court on similar issues. This ruling emphasizes that the source of income would be the place where the activity giving rise to such income is fulfilled and where the legal contract for such activity is concluded.

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