Situs of ‘income’, and not source of ‘receipts’, determines taxability under section 9(1)(vi) of the Act – Delhi bench of the Tribunal

In brief

The Delhi bench of the Income-tax Appellate Tribunal (Tribunal)¹, in its ruling, emphasised that the determining factor for the exemption of royalty income from tax under section 9(1)(vi)(b) of the Income-tax Act, 1961 (the Act) is the situs of ‘income’ rather than the situs of ‘receipts’. This distinction is crucial when assessing whether royalty income on export sales qualifies for exemption. The Tribunal further clarified that the place where the contract is concluded is one of the critical factors, if not the deciding factor, in establishing the situs of income. Consequently, the Tribunal remanded the issue of taxability of royalty income on export sales back to the Tax Officer (TO), directing an examination of whether the contracts were signed inside or outside India.