The income of Non-resident from fees for technical services or from royalty is chargeable to tax as per section – 9(1)(vi) and (vii). In case the non-resident has permanent establishment in India the income shall be computed in accordance to the provisions of the Section – 44DA.

However, when the services were provided or the royalty was receivable in respect of a project which was otherwise eligible u/s. 44BB of the Act [extraction or production of mineral oil], the question was whether the said payment would be governed by section 44DA or section 44BB. It may be mentioned that section 44BB of the Act taxes only 10 % of the gross receipt to tax.

The Advance Ruling Authority in matter of Geofizyka Torun Sp. Zo. O. in Re [AAR no. 813 of 2009] and Seabird Exploration FZ LLC [AAR No. 815 of 2009] and also in other cases has given the ruling that since Sec – 44BB is more specific provision it should prevail over section 44DA for the purpose of computation of such Income.

The Finance Bill, 2010 with the intent of clarifying the issue, proposes to amend the provisions of both the sections in such a way that when a non-resident has income from Fees for technical services or Royalties and has a PE in India his income shall be computed with respect to the royalty and fees for technical services in accordance with Section – 44DA only.

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June 2021