Royalty

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The 2020 budget has updated the definition of royalty to include income from the sale, distribution, or exhibition of cinematographic films. This change potentially affects both Section 9, which defines royalty income accruing in India, and Section 194J, concerning Tax Deducted at Source (TDS) on royalties. Experts are discussing whether this expanded definition will apply to both sections, given they share the same definition of royalty.

Shakthi

Shakthi

(Querist)

24 February 2020 Dear Experts

There is a change in the royalty definition in the budget 2020 which includes now the sale of cinematagrophic films also. So will this apply to Section 9 , the intended section only or will it apply to Section 194J (tds section also,as they both have the same definition)

Amol S Joglekar

Amol S Joglekar (Expert)

24 February 2020 Source TAXGURU:
Section 9(1)(vi) deems certain income by way of royalty to accrue or arise in India. Explanation 2 of said clause defines the term “royalty” to, interalia, mean 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.
Due to exclusion of consideration for the sale, distribution or exhibition of cinematographic films from the definition of royalty, such royalty is not taxable in India even if the DTAA gives India the right to tax such royalty. Such a situation is discriminatory against Indian residents, since India is foregoing its right to tax royalty in case of a non-resident from another country without that other country offering similar concession to Indian resident. Hence, it is proposed to amend the definition of royalty so as not to exclude consideration for the sale, distribution or exhibition of cinematographic films from its meaning.
Further, CBDT has been empowered u/s 295 to make rules to provide for the manner in which and the procedure by which the income shall be arrived at in the case of,-
(i) operations carried out in India by a non-resident; and
(ii) transaction or activities of a non-resident

Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)

24 February 2020 Applies to section 194J since meaning of royalty as per clause v of explanation 2 to section 9(1)(vi) is same for section 194J as well.

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