15 December 2012
Section 9(1)(vi) in The Income- Tax Act, 1995 (vi) income by way of royalty payable by- (a) the Government; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non- resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, de sign, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976 , and the agreement is approved by the Central Government: 1. Inserted by the Finance Act, 1983, w. r. e. f. 1- 4- 1979. 2. Clauses (v), (vi) and (vii) inserted by the Finance Act, 1976, w. e. f. 1- 6- 1976. 1[ Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a nonresident manufacturer along with a computer or computer- based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.] Explanation 1-For the purposes of the 2[ first] proviso, an agreement made on or after the 1st day of April, 1976 , shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub- section (1) or sub- section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977 , or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the 3[ Assessing] Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976 . 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-
Royalty- Sec. 9(1)(vi) Explanation 4 is being retrospectively inserted, w.e.f 1 st,June, 1976 to extend the meaning of ‘Royalty’ to include ‘all or any right for use or right to use a computer software’ irrespective of the medium through which such right is transferred. Therefore, income from sale of a copyrighted object (such as a CD containing software) and not just on assignment of license in a copyrighted article, would be taxed as royalty. Therefore, there will be income in the nature of royalty arising in the hands of the persons selling a CD of computer software, persons selling shrink-wrap software, subscription to online database etc.. This retrospective amendment is being made as a response to various cases lost by the Department recently on this point such as Sonata Information Technology Ltd., Dun & Bradstreet Espana S.A. v ITAT etc. The new ‘Explanation 5’ will widen the scope of the term ‘royalty’ with retrospective effect, to include consideration in respect of any right, property or information regardless of whether or not the taxpayer holds possession or control of such right or uses such right directly or the location of such right is in India.
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