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Unit 2: Residential Status and Taxation

Lump sum royalty payments made by a resident for the transfer of all or any rights Notes
including the granting of a license in respect of computer software supplied by a
non-resident manufacturer along with computer hardware under any scheme approved
by the Government under the Policy on Computer Software Export, Software Development
and Training, 1986 shall not be deemed to accrue or arise in India.

Did u know? Computer software means any computer programme recorded on any disc,
tape, perforated media or other information storage device and includes any such
programme or any customised electronic data.
The term ‘royalty’ means consideration also 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 license, 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;

(v) the use or right to use any industrial, commercial or scientific equipment but not
including the amounts referred to in section 441313;
(vi) the transfer of all or any rights including the granting of license, 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;

(vii) the rendering of any service in connection with the activities listed above.
The definition of ‘royalty’ for this purpose is wide enough to cover both industrial royalties
as well as copyright royalties. The deduction specially excludes income which should be
charge-able to tax under the head ‘capital gains’.
Consideration for use or right to use of computer software is royalty within the meaning
of section 9(1)(vi).
As per section 9(1) (vi), any income payable by way of royalty in respect of any right,
property or information is deemed to accrue or arise in India. The term “royalty” means
consideration for transfer of all or any right in respect of certain rights, property or
information. There have been conflicting court rulings on the interpretation of the
definition of royalty, on account of which there was a need to resolve the following
issues–

Does consideration for use of computer software constitute royalty?
(i) Is it necessary that the right, property or information has to be used directly by the
payer?

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