Section 9(1)(vi) — Income Deemed to Accrue or Arise in India (Royalties)

Section 9(1)(vi) of the Income-tax Act, 1961, deals with the taxation of royalties deemed to accrue or arise in India. This section is significant as it extends the tax net to include income from royalties paid to non-residents, provided certain conditions are met. The statutory test involves determining whether the payment is for the use or right to use any patent, invention, model, design, secret formula, or process, trademark, or similar property. The burden of proof typically lies with the taxpayer to demonstrate that the income does not fall within the ambit of this section. In practice, this section is crucial for cross-border transactions involving intellectual property, as it ensures that India can tax royalties paid by Indian residents or by foreign entities with a business connection in India. This provision helps prevent tax avoidance by ensuring that income from intangible assets used in India is appropriately taxed.

Common Litigation Flashpoints

1. Characterization of payment as royalty or business income
2. Applicability of Double Taxation Avoidance Agreements (DTAAs)
3. Determination of source of income
4. Interpretation of 'use or right to use' clause

Judgments on Section 9(1)(vi) — Income Deemed to Accrue or Arise in India (Royalties)

• Reliance Jio Infocomm USA Inc. vs Deputy Commissioner of Income Tax — ITAT,
  Payments for standard telecommunication services without transfer of rights do not constitute 'Royalty' under the India-US DTAA.
• Vodafone International Holdings B.V. vs Union of India & Anr. — SC,
  Section 9 of the Income Tax Act does not cover indirect transfers of capital assets situated in India.
• The Authority for Advance Rulings (Income Tax) and Others vs Tiger Global International II Holdings — SC,
  The DTAA between India and Mauritius allows capital gains to be taxed only in Mauritius, provided the entity holds a valid TRC.
• Hyatt International Southwest Asia Ltd. vs Additional Director of Income Tax — SC,
  A Permanent Establishment exists if the enterprise has a fixed place of business at its disposal through which it carries on its business activities.
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax — HC,
  The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.
• Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax & Anr. — SC,
  Payments for software do not constitute 'royalty' under Section 9(1)(vi) of the Income Tax Act, and thus, no tax is deductible at source under Section 195.