Section 59 — Computation of royalty and fee for technical services in hands of non-residents. Successor to s.44DA of the 1961 Act.
Section 59 is in Chapter IV — Computation of Total Income, which runs from section 13 to section 95.
Sub-section (1) routes royalty and fees for technical services received by a specified assessee into "Profits and gains of business or profession", but only where four conditions all hold: the income is received from the Government or an Indian concern; it is in pursuance of an agreement made by the specified assessee with that Government or concern; the specified assessee carries on business in India through a permanent establishment or performs professional services from a fixed place of profession in India; and the right, property or contract for which the royalty or fee is paid is effectively connected with that permanent establishment or fixed place.
Sub-section (2) bars two deductions against income so computed: expenditure or allowance not wholly and exclusively incurred for the business of the Indian permanent establishment or fixed place, and any amount paid by the permanent establishment to its head office or other offices otherwise than towards reimbursement of actual expenses.
Sub-section (3) disapplies section 61 so far as it relates to the business referred to in section 61(2) (Table: Sl. No. 5) for income covered here. Sub-section (4) imposes compliance in its own right — books under section 62, audit by an accountant on or before the specified date referred to in section 63, and the audit report in the prescribed form, duly signed and verified. Sub-section (5) defines "specified assessee" as a non-resident not being a company, or a foreign company.
Where a non-resident's royalty or fee income is genuinely attributable to an Indian permanent establishment, it is treated and computed as business income. The two disallowances are the price of that treatment: they stop the Indian branch's profit being reduced by head office charges and by a share of global overheads never incurred for the Indian operation. Sub-section (3) shuts the presumptive door so the same income cannot be offered on a deemed basis instead.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Deadline for auditing the accounts and furnishing the report | On or before the specified date referred to in section 63 | Applies to every specified assessee whose income is computed under this section; the section states no date of its own | Sub-section (4) |
The section gives a net computation and charges a fixed price for it: no head office charge that is not reimbursement of actual expenses, and no expenditure that is not wholly and exclusively for the Indian permanent establishment or fixed place. Because sub-section (3) shuts out the presumptive route in section 61(2) (Table: Sl. No. 5) for this income, that price cannot be avoided by switching basis. Sub-section (4) then imposes books, audit and an accountant's report on the section 63 timetable in its own right, independently of any turnover test in that section.
A foreign company with an Indian permanent establishment receives Rs 12 crore of fees for technical services from an Indian concern under an agreement with it, the contract being effectively connected with that permanent establishment. The receipt is computed under "Profits and gains of business or profession". In that computation a Rs 90 lakh charge remitted to head office, not being reimbursement of actual expenses, is disallowed by sub-section (2)(b), and an allocation of global overheads not wholly and exclusively for the Indian permanent establishment is disallowed by sub-section (2)(a).
In the return and accountant's audit report of a non-resident or foreign company with an Indian permanent establishment, and in scrutiny where a head office charge or overhead allocation is disallowed. The audit obligation in sub-section (4) is what most often brings the section to a taxpayer's attention.
the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed place of profession
amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to its head office or to any of its other offices
"specified assessee" means a non-resident (not being a company) or a foreign company
See the full 1961 to 2025 concordance.
All of them are in the Rules 2026 index.
See the notifications index.