Section 44D of the Income Tax Act, 1961

Section 44D of the Income Tax Act, 1961 provides for special provisions for computing income by way of royalties, etc., in the case of foreign companies. As per this section regardless of anything to the contrary in sections 28 to 44C, when an assessee is a foreign company, the deductions allowed under these sections in calculating income received in the form of royalties or fees for technical services from the government or an Indian concern pursuant to an agreement made by the foreign company with either before April 1, 1976 shall not, in the aggregate, be more than 20% of the gross amount of such royalty or fees, reduced by the portion of the gross amount of such royalty that is lump sum payment for the transfer of, or the imparting of information regarding, any data, documentation, drawing, or specification relating to any patent, invention, model, design, secret formula or process, trade mark, or similar property outside of India.

The section also provides that in computing the income by way of royalties or fees for technical services received from Government or an Indian concern pursuant to an agreement made by the foreign company with either after March 31, 1976, but before April 1, 2003, no deduction in respect of any expenditure or allowance shall be allowed under any of these sections.

For better understanding the following terms are explained in Section 44D:

1. The meaning of “fees for technical services” in Explanation 2 to Clause (vii) of section 9 (1) shall apply.
2. The meaning of “foreign company” is the same as in section 80B.
3. The meaning of “royalty” in Explanation 2 to Clause (vi) of section 9 (1) shall apply.
4. Royalty received from the government or an Indian concern pursuant to an agreement made by a foreign company with either of them after March 31, 1976, shall be deemed to have been received pursuant to an agreement made before April 1, 1976, if such agreement is deemed to have been made before April 1, 1976, for the purposes of the proviso to clause (vi) of section 9 (1).