Is Royalty Received By Norway Registered Company Taxable In India?

June 23, 2007 by taxworry · Leave a Comment

We are a software company(Registered as private limited company in India) and 99% of the shares are held by our Parent company registered in Norway. We are engaged in software development and the parent company wants us to pay Royalty on Sales @ 30%

Question 1: Whether the royalty paid to our parent company is taxable in India in the hands of the parent company?
Question 2: If so whether tax is payable on the gross amount or not and at what rate (as per DTA no rate is specified)?
Question 3: Whether withholding tax is applicable?

Your Email : subbaiyapb@gmail.com

The royalty payments are made by the Indian resident company to its parent Non Resident company. In that case, only point to see if the payments made by Indian company to Norway registered company is taxable income in India or not. The charging section for Non Resident is section 5(2) of the I T Act which is given as under:

“ the total income³³ of any previous year of a person who is a non-resident includes all income from whatever source derived which

(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year

Deemed to accrue or arise in India is given in section 9 of the I T Act .There is specific provision related to Royalty in section 9(vi)(b) of the I T Act. The said provision states

(vi) income by way of royalty payable by

(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

Thus ,it is clear that royalty payments by a person resident in India is deemed to accrue or arise in India if does not fall within exception provided in the said provision .Hence royalty to be paid by you to parent company is chargeable to income tax in India.

Withholding Tax @ what Rate

The Double Taxation Avoidance Agreement with Norway provides that the payment of royalty can be taxed in both India and Norway as per the respective tax laws. The tax rates in case of royalty income received by a foreign company are given in section 115A(1)(b) of the I T Act and also the First Schedule of the Finance Act. According , to this , the royalty payments are taxable 20% if the agreement to transfer the right was done between 1/6/1997 to 1/6/2005 and @ 10% if the agreement was signed after 1/6/2005.

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