Section 59
Section 59: computation of royalty and fees for technical services in the hands of non-residents
Section 59 deals with a non-resident (other than a company) or a foreign company that earns royalty or fees for technical services from the Government or an Indian concern, where that income is actually connected to a permanent establishment or fixed place of profession the non-resident maintains in India. In that situation, the income is computed as ordinary business or professional income rather than under the special royalty/FTS deeming rules, but with restrictions on what expenses can be deducted.
This explanation is AI-assisted and pending review by our CA/CS team. It is general information, not professional advice - always cross-check against the bare law text above or talk to our tax team for guidance specific to your situation.
When this section applies
Section 59(1) applies where income in the nature of royalty or fees for technical services is received by a "specified assessee" during a tax year, and all of the following conditions are met:
- The income is received from the Government or an Indian concern.
- It is received under an agreement made by the specified assessee with the Government or the Indian concern.
- The specified assessee carries on business in India through a permanent establishment, or performs professional services from a fixed place of profession, situated in India.
- The right, property or contract in respect of which the royalty or fees for technical services are paid is effectively connected with that permanent establishment or fixed place of profession.
How the income is computed and what cannot be deducted
Where these conditions are satisfied, the income is computed under the head "Profits and gains of business or profession." However, Section 59(2) blocks two categories of deduction against this income:
- Any expenditure or allowance that is not wholly and exclusively incurred for the business of the permanent establishment or fixed place of profession in India.
- Amounts paid by the permanent establishment to its head office or to any of its other offices, other than towards reimbursement of actual expenses.
Books of account and audit requirement
Section 59(4) requires the specified assessee to keep and maintain books of account and other documents as required under Section 62, get the accounts audited on or before the specified date under Section 63 by an accountant, and furnish the audit report in the prescribed form, duly signed and verified by the accountant.
Section 59(3) clarifies that the presumptive computation for the shipping business of non-residents under Section 61(2) (Table Sl. No. 5) does not apply to income covered by this section.
Frequently asked questions
Who does Section 59 apply to?
A "specified assessee" - defined as a non-resident (not being a company) or a foreign company - who earns royalty or fees for technical services from the Government or an Indian concern, connected to a permanent establishment or fixed place of profession in India.
Can the non-resident deduct head-office payments against this income?
Only payments that are reimbursement of actual expenses to the head office or other offices are allowed; any other payment to the head office, and any expenditure not wholly and exclusively for the Indian permanent establishment, is disallowed under Section 59(2).
Is a tax audit compulsory under Section 59?
Yes - Section 59(4) requires the specified assessee to maintain books under Section 62 and get the accounts audited under Section 63, with the report furnished by the specified date.
Related sections
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