Amendment of section 115JB.
53. In section 115JB of the Income-tax Act,-
(I) after sub-section (2),-
(a) in Explanation 1, with effect from the 1st day of April, 2017,-
(i) after clause (fc), the following clause shall be inserted, namely:-
“(fd) the amount or amounts of expenditure relatable to income by way of royalty in respect of patent chargeable to tax under section 115BBF; or”;
(ii) in the long line,-
(A) in clause (iif), for the words “may be;” occurring at the end, the words “may be; or” shall be substituted;
(B) after clause (iif), the following clause shall be inserted, namely:-
“(iig) the amount of income by way of royalty in respect of patent chargeable to tax under section 115BBF;”;
(b) Explanation 4 shall be renumbered as Explanation 5 thereof and before Explanation 5 as so renumbered, the following Explanation shall be inserted and shall be deemed to have been inserted with effect from the 1st day of April, 2001, namely:-
“Explanation 4.-For the removal of doubts, it is hereby clarified that the provisions of this section shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if-
(i) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in sub-section (1) of section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or
(ii) the assessee is a resident of a country with which India does not have an agreement of the nature referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies.”;
(II) after sub-section (6), the following sub-section shall be inserted with effect from the 1st day of April, 2017, namely:-
‘(7) Notwithstanding anything contained in sub-section (1), where the assessee referred to therein, is a unit located in an International Financial Services Center and derives its income solely in convertible foreign exchange, the provisions of sub-section (1) shall have the effect as if for the words “eighteen and one-half per cent.” wherever occurring in that sub-section, the words “nine per cent.” had been substituted.
Explanation.-For the purposes of this sub-section,-
(a) “International Financial Services Centre” shall have the same meaning as assigned to it in clause (q) of section 2 of the Special Economic Zones Act, 2005 (28 of 2005);
(b) “unit” means a unit established in an International Financial Services Centre, on or after the 1st day of April, 2016;
(c) “convertible foreign exchange” means a foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999) and the rules made thereunder.’.
Notes on Clauses:
Clause 53 of the Bill seeks to amend section 115JB of the Income-tax Act relating to special provision for payment of tax by certain companies.
Item (a) of sub-clause (I) of the said clause seeks to insert a new clause (fd) in Explanation 1 to sub-section (1) of the aforesaid section so as to provide that the book profit shall be increased by an amount or amounts of expenditure relatable to income, by way of royalty in respect of patent chargeable to tax in accordance with the provisions of section 115BBF.
It is further proposed to insert a new clause (iig) in the long line to the said Explanation 1 so as to provide that the amount of income, by way of royalty in respect of patent chargeable to tax in accordance with the provisions of section 115BBF, shall be reduced from the book profit, if any such amount is credited to the profit or loss account.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
Item (b) of sub-clause (i) of the said clause seeks to insert an Explanation so as to provide that the provisions of the said section, shall not be applicable and shall be deemed never to have been applicable to an assessee, being a foreign company, if––
(i) the assessee is a resident of a country or a specified territory with which India has an agreement referred to in subsection (1) of section 90 or the Central Government has adopted any agreement under sub-section (1) of section 90A and the assessee does not have a permanent establishment in India in accordance with the provisions of such agreement; or
(ii) the assessee is a resident of a country with which India does not have an agreement referred to in clause (i) and the assessee is not required to seek registration under any law for the time being in force relating to companies.
This amendment will take effect retrospectively from 1st April, 2001 and will, accordingly, apply in relation to the assessment year 2001-2002 and subsequent years.
Sub-clause (II) of the said clause seeks to insert a new subsection (7) in the said section so as to provide that in case of a company, being a unit of an International Financial Services Centre and deriving its income solely in convertible foreign exchange, the rate of tax under section 115JB shall be nine per cent. and also to define certain expressions used therein.
This amendment will take effect from 1st April, 2017 and will, accordingly, apply in relation to the assessment year 2017-2018 and subsequent years.
