Explanation 5 to Section 9(1)(vi) has been introduced by Finance Act, 2012 w.e.f. 1st June 1976 to clarify that royalty includes and has always included consideration in respect of any right, property or information, whether or not the right, property or information is used directly by the payer or is located in India or is in the control or possession of the payer.
It appears that this amendment may also cover within its domain payment for telecom services (including basic / mobile telephony, internet charges, roaming charges, interconnect charges, etc.); e-commerce transactions like access of data bases, cloud computing; etc. which may not be the real intention. Even internationally, a large variety of above referred transactions are not covered within the ambit of “royalty”.
In view of the reasoning given, it is suggested that the Government should clarify by way of insertion of a proviso or issue of a Circular that Explanation 5 as mentioned would not be applicable to any payments for telecom services; e-commerce transactions; etc.