Law: Income Tax Act, 1961

Section: 9

(a) Income-tax----Non-resident---Income deemed to accrue or arise in India---Royalty Meaning of "royalty "---Assessee engaged in manufacture of porcelain articles---Lump sum payment to non-resident for construction/installation of kiln---Not income by way of royalty within the meaning of S.9(1)(vi)--¬Indian Income Tax Act, 1961, S.9. (b) Words and phrases--- ------Royalty"---Meaning. A plain reading of section 9(1)(vi)(b) of the Income Tax Act, 1961, shows that any amount paid by a person who is a resident by way of royalty will fall within the phrase "income deemed to accrue or arise in India". The expression "royalty" is defined in Explanation 2 of the clause. The Explanation defines "royalty" to mean consideration including any lump sum consideration paid for imparting 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 and also the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill. A lump sum consideration paid which is in the nature of income chargeable under the head "Capital gains", is excluded from the meaning of royalty. The assessee entered into agreements with a German company which provided for three types of works. Under one of the agreements titled "Kerabedarfs _ Order No.32911 " which was the second type of works, consideration was paid for construction/installation of a kiln. The amount paid under that memorandum by the Indian company to the non-resident company as payment for technical drawings towards engineering for the kiln was treated by the Income-tax Officer as royalty within the meaning of Explanation (ii) to section 9(1)(vi) of the Income-tax Act, treating it as taxable remuneration in the hands of the non-resident company. The Tribunal, however, held that the payment did not constitute royalty. On a reference: Held, that the Tribunal on construing the relevant, portion of the agreement recorded the finding that this was a case of a foreign company undertaking to supply, erect and commission a kiln in India, the only service rendered in India being that of supervision…

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