Tax for royalty by foreign firm
Ivin Gancius
(Querist) 13 March 2010
This query is : Resolved
If a foreign Co., be it a US Co., licenses a patent and trademark to an India-based company, and the India-based licensee pays US company royalties out of India, what tax, if any, does the US Company need to pay in India?
A V Vishal
(Expert) 13 March 2010
Section 9 pertains to the income deemed to arise or accrues in India. A non resident's income which is deemed to accrue or arise in India is taxable in India .But one of the important factor for such taxability in case of non resident was to see if the non resident had business connection in India or any fixed base or any residence in India.
Finance Act 2007 inserted an Explanation to section 9 of the I T Act which has abolished such requirement for the purpose of clauses (v) ,(vi) & (vii) of subsection 1 of section 9. The said Explanation states that income shall be included in total income of the non resident even if non resident has no residence or place of business or business connection in India. Income referred in clause (v),(vi) and vii) of subsection 1 of section 9 are
Clause (v) is regarding income by way of interest.
Clause (vi) is regarding income by way of royalty.
Clause (vii) is income by way of fees for technical services.
The definition of Royalty
Royalty is defined in Explanation 2 of the clause (vii) in following words
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 patent, 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 ;
(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 (iv), (iva) and] (v).
In your case, therefore you will have to check the facts of your case , any payment made to is falling under the definition of Royalty, If yes, you will have to do TDS , if not, you are not supposed to deduct the tax , as the income of the non resident agent is not taxable in India.
Raj Kumar Makkad
(Expert) 13 March 2010
Nothing to add in the detailed reply of vishal.
Ivin Gancius
(Querist) 13 March 2010
Thank you MR AV VISHAL
The reply was perfect.
Thank you MR RAJ KUMAR MAKKAD also for stepping in to help.
Great being at the Lawyer's club!
