23 April 2009
Is withholding tax payable where a payment is made to overseas vendor for import of designs and drawings as imports under classification 4911 99 20 of customs act
24 April 2009
The classification 4911 99 20 of customs act refers the item of import as “the plan and drawing of architectural engineering, Industrial, commercial, topographical or similar purpose reproduced with the aid of computer or any other device.”
The explanation 2 to section 9(1) (vi) defines the term royalty as following - Explanation 2: For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patient, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; 1 (iva) the use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB” (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses(i) to 2 [(iv), (iva) and ] (v). From the perusal of the definition of royalty as provided in section 9 the classification 4911 99 20 of customs Act is covered under the iii or iv proviso of the explanation and accordingly any payment made for the use or right to use any items as per classification mentioned in this query will be treated as “Royalty” within the meaning of section 9 of IT Act.
Section 9 deals with the incomes of the non residents which are deemed to accrue and arise in India irrespective of the wherever arising
Section 195 of the Act casts an obligation on an resident tax payer making payment to a non resident in respect of an income taxable in India to withhold tax at the rates applicable.
Since as per section 9 the income of a resident by way of royalty will be deemed to accrue and arise in India, the income will be taxable in India.
Section 115 A of Income Tax Act provide a concessional rate of tax @ 10% on non resident earning income by way of royalty in India pursuant to a contract entered on or after 1st June 2005. Need not mention that the rate of tax also needs to be enhanced by the amount of applicable surcharge and the cess.
However As per section 90 of IT Act one can take the benefit of provision of Double taxation Avoidance Agreements ( DTAA) on the payment of royalty if the recipient of the royalty income is a resident of a country with whom India has a DTAA. Currently India has DTAA’s with more then 75 Countries.
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