Royalty payment receipts

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This discussion explores whether royalty payments received by a landowner for mineral extraction should be classified as business income or professional fees for tax purposes. While TDS was deducted under Section 194J as professional fees, the consensus is that royalty for land use is not a professional service. Therefore, it should generally be assessed as business income under PGBP, as Section 44ADA primarily applies to specified professions carried out by individuals.

PS LIMAYE OFFICE

PS LIMAYE OFFICE (Querist)
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19 July 2023 Whether royalty received by me as a landowner for extarction of minerals is income from business or profession?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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19 July 2023 It can be assessed as income from Business u/h. PGBP.

PS LIMAYE OFFICE

PS LIMAYE OFFICE (Querist)
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19 July 2023 TDS has been deducted u/s 194 JB as professional fees @ 10% of gross receipts by the lessee. So, would it be regarded as professional receipts and then provisions of section 44ADA would become applicable.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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19 July 2023 Services covered for TDS deduction under Section 194J are professional services, technical services, royalty, remuneration paid to directors etc.
Royalty payments can refer to license fees for using another person's intellectual property or a brand name.
Here the service provided is not royalty fees for any intellectual property, but right to use the land for extraction, which is not a professional service.
Till an option is not available for all the different kind of royalties, TDS is to be deducted on higher side. But that inversely doesn't mean all the royalties must be professional services.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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19 July 2023 Broadly speaking Sec. 44ADA is applicable only over professional individuals carrying on specified professions as mentioned in sec. 44AA(1) IT act.
Even Such professional activities carried on by Trust, BOI, HUF, companies (e.g Hospitals) are being tax deducted u/s. 194J IT act, but while filing ITR of HUF it is not allowed to adopt sec. 44ADA. Means for all such entities they are business activities.
So, any other activity not performed by professional individuals is always a BUSINESS.

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