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Income Tax Laws – I

Notes (ii) Is it necessary that the right, property or information has to be located in India or
control or possession of it has to be with the payer?
(iii) What is the meaning of the term “process”?

In order to resolve the above issues arising on account of conflicting judicial decisions and
to clarify the true legislative intent, Explanations 4, 5 & 6 have been inserted with
retrospective effect from 1 June, 1976.
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Explanation 4 clarifies that the consideration for use or right to use of computer software
is royalty by clarifying that, transfer of all or any rights in respect of any right, property
or information includes and has always included transfer of all or any right for use or
right to use a computer software (including granting of a licence) irrespective of the
medium through which such right is transferred.
Consequently, the provisions of tax deduction at source under section 194J and section 195
would be attracted in respect of consideration for use or right to use computer software
since the same falls within the definition of royalty.

Notes The Central Government has, vide Notification No.21/2012 dated 13.6.2012 to be
effective from 1st July, 2012, exempted certain software payments from the applicability
of tax deduction under section 194J. Accordingly, where payment is made by the transferee
for acquisition of software from a resident-transferor, the provisions of section 194J would
not be attracted if:

1. the software is acquired in a subsequent transfer without any modification by the
transferor;
2. tax has been deducted either under section 194J or under section 195 on payment for
any previous transfer of such software; and
3. the transferee obtains a declaration from the transferor that tax has been so deducted
along with the PAN of the transferor.
Explanation 5 clarifies that royalty includes and has always included consideration in
respect of any right, property or information, whether or not,

(a) the possession or control of such right, property or information is with the payer;
(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.
Explanation 6 clarifies that the term “process” includes and shall be deemed to have
always included transmission by satellite (including up-linking, amplification, conversion
for down-linking of any signal), cable, and optic fibre or by any other similar technology,
whether or not such process is secret.
8. Fees for technical services: Any fees for technical services will be deemed to accrue or arise
in India if they are payable by -
(i) the Government.
(ii) a person who is resident in India, except in cases where the fees are payable in
respect of technical services utilised in a business or profession carried on by such
person outside India or for the purpose of making or earning any income from any
source outside India.

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