Section 44DA of ITA, 1961 : Section 44Da: Special Provision For Computing Income By Way Of Royalties, Etc, In The Case Of Non- Residents

Explanation using Example

Imagine a Canadian software development company, MapleTech Inc., which enters into an agreement with an Indian government agency on April 10, 2005, to provide a specialized software solution. MapleTech Inc. sets up an office in Bangalore, India, which qualifies as a permanent establishment under Indian tax law. The software developed is used by the Indian government, and in return, MapleTech Inc. receives fees for technical services.

In this scenario, the income received by MapleTech Inc. from the Indian government as fees for technical services is connected to its permanent establishment in Bangalore. According to Section 44DA of the Income-tax Act, 1961, MapleTech Inc. must compute this income under the head "Profits and gains of business or profession" following the Act's provisions.

Furthermore, MapleTech Inc. cannot deduct any expenses that are not wholly and exclusively for the business of its Bangalore office. Also, any payments made by the Bangalore office to MapleTech Inc.'s head office in Canada, which are not reimbursements for actual expenses, are not deductible.

Additionally, MapleTech Inc. is required to maintain books of account for the Bangalore office and get them audited by a qualified accountant. The audit report must be furnished along with the income tax return in India.

This example illustrates how Section 44DA mandates a foreign company with a permanent establishment in India to compute income from royalties or fees for technical services and comply with specific tax provisions.