Special provisions for computing income by way of royalties, etc., in the case of foreign companies
Section 44D of the Income-tax Act, 1961 deals with special provisions for computing income by way of royalties, etc., in the case of foreign companies. Notwithstanding anything to the contrary contained in sections 28 to 44C, in the case of an assessee, being a foreign company,— (a) the deductions admissible under the said sections in computing the income by way of royalty or fees for technical services received from Government or an Indian concern The Act came into force on 01 Apr 1962. Repealed by the Income-tax Act, 2025 with effect from 1 April 2026, but conduct before that date is still charged, tried and appealed under it.
Notwithstanding anything to the contrary contained in sections 28 to 44C, in the case of an assessee, being a foreign company,—
(a) the deductions admissible under the said sections in computing the income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern before the 1st day of April, 1976, shall not exceed in the aggregate twenty per cent of the gross amount of such royalty or fees as reduced by so much of the gross amount of such royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property;
(b) no deduction in respect of any expenditure or allowance shall be allowed under any of the said sections in computing the income by way of royalty or fees for technical services received from Government or an Indian concern in pursuance of an agreement made by the foreign company with Government or with the Indian concern after the 31st day of March, 1976 but before the 1st day of April, 2003;
(c) [***] (d) [***] Explanation.—For the purposes of this section,—
(a) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;
(b) "foreign company" shall have the same meaning as in section 80B;
(c) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9;
(d) royalty received from Government or an Indian concern in pursuance of an agreement made by a foreign company with Government or with the Indian concern after the 31st day of March, 1976, shall be deemed to have been received in pursuance of an agreement made before the 1st day of April, 1976, if such agreement is deemed, for the purposes of the proviso to clause (vi) of sub-section (1) of section 9, to have been made before the 1st day of April, 1976.
Special provision for computing income by way of royal ties, etc., in case of non-residents.
Section 44D, The Income-tax Act, 1961 (Act 43 of 1961).
Now in the Income-tax Act
No provision of the Income-tax Act is textually close to this one. No counterpart in the new Act
Measured by comparing the text of the two provisions, not taken from an official correspondence table — there is no machine-readable one. See both texts side by side before relying on it.
Both regimes are live. The repealed enactment still governs what happened while it was in force. We never redirect one to the other.
Cross-references
Extracted from the operative text of the enactments themselves. Every destination below exists in our corpus.
This section refers to
Referred to by 6
- Finance Act s. 19 Amendment of section 44D
- Finance Act s. 17 Amendment of section 44D
- Finance Act s. 27 Amendment of section 44D
- Finance Act s. 28 Insertion of new section 44DA
- s. 44BB Special provision for computing profits and gains in connection with the business of exploration, etc., of mineral oils
- s. 58 Amounts not deductible
Related judgements & precedents
These are some judgments that construed this section, and hold precedence value. They hold authority on how to read, interpret and use this section.
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Ongc Rep. M/s Stone & Associate, USA vs Commissioner of Income Tax
Court's Decision & Legal Precedent
In determining whether payments to non-resident assessees and foreign companies for services in connection with prospecting, extraction or production of mineral oil are chargeable to tax under Section 44BB or Section 44D of the Income Tax Act, 1961, the crucial test is the pith and substance of the agreement. If the services rendered are directly and inextricably linked with prospecting, extraction or production of mineral oil (which constitute mining operations under the Oil Fields (Regulation and Development) Act, 1948 read with Petroleum and Natural Gas Rules, 1959), such payments fall under the presumptive taxation regime of Section 44BB providing for 10 percent presumptive profit, not under Section 44D limiting deductions for fees for technical services. The existence of ancillary services or training components does not change the classification if the dominant purpose and nature of the agreement concerns mining operations. The CBDT Circular No. 1862 dated 22.10.1990 correctly articulates this principle and is binding on tax authorities.
On this section: Special provisions for computing income of foreign companies by way of royalties or fees for technical services; court held that while this section provides deduction limitations, it is not applicable when services constitute mining operations integral to prospecting/extraction
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Ongc Rep. M/s Pete Slagel Drilling Engg. C vs Commissioner of Income Tax
Court's Decision & Legal Precedent
Payments made by ONGC to non-resident assessees or foreign companies for services in connection with prospecting, extraction or production of mineral oil, where such services are directly associated with or inextricably connected with mining operations (such as drilling, well repair, production enhancement, supervisory management of drilling operations, and training for such operations), are chargeable to tax under Section 44BB (presumptive taxation at 10% of amounts) and not under Section 44D (special provisions for fees for technical services), because the Explanation 2 to Section 9(1)(vii) explicitly excludes consideration for mining or like project from the definition of 'fees for technical services.' The appropriate test is the 'pith and substance' of the agreement—whether the dominant purpose and works contemplated are directly linked with mining operations. CBDT Circular No. 1862 dated 22.10.1990, clarifying that prospecting and extraction of mineral oil are mining operations under the Oil Fields (Regulation and Development) Act, 1948 and relevant rules, is binding on assessing authorities. Regarding surtax exemption under the Companies (Profits) Surtax Act, 1964, exemption notification GSR 307(E) dated 31.03.1983 applies only to foreign companies with whom Central Government has agreements for direct association or participation in prospecting or extraction of mineral oils, not to foreign companies providing services or facilities in connection with such business, as evidenced by the conscious choice of the Central Government to limit the exemption to one category despite having statutory power to grant it to both.
On this section: Special provision for computing income by way of royalties or fees for technical services received by foreign companies. Court clarified this applies only to pure technical service fees, not services directly involved in mining operations.
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Ongc Rep. Assese. of Abs M. S. Pacific vs Commr. of Income Tax
Court's Decision & Legal Precedent
When services rendered under an agreement with a non-resident assessee or foreign company are directly associated with or inextricably connected with prospecting, extraction or production of mineral oil, such payments are assessable under Section 44BB of the Income Tax Act (which provides for presumptive 10% profit calculation) and not under Section 44D (which applies to fees for technical services). The test is one of pith and substance of the agreement - if the dominant purpose is for prospecting, extraction or production of mineral oils (which constitute mining operations as per the Attorney General's Opinion and CBDT Circular 1862), the payments qualify as income from mining operations business under Section 44BB. Additionally, exemption from surtax under notification GSR 307(E) of 31-03-1983 is available only to foreign companies with whom Central Government has agreements for direct association or participation in mineral oil business under Section 24AA(2)(a), and not to foreign companies merely providing services under Section 24AA(2)(b).
On this section: Special provision for computing income by way of royalties and fees for technical services from foreign companies. Court held that this section does not apply to payments for services directly and inextricably linked with mining operations for mineral oil
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Ongc Rep. M/s Hydro Search Asso. Ltd. , U. K vs Commissioner of Income Tax
Court's Decision & Legal Precedent
In cases where a foreign company or non-resident assessee has entered into an agreement with ONGC for provision of services or facilities in connection with prospecting, extraction or production of mineral oils, the applicable test is the pith and substance of the agreement - namely whether the works contemplated or services to be rendered are directly and inextricably linked with prospecting, extraction or production of mineral oil. If the dominant purpose of the agreement is for prospecting, extraction or production of mineral oils (even if there are ancillary works), the payments constitute mining operations chargeable to tax under Section 44BB (10% presumptive profit basis) rather than Section 44D (restricted deduction for fees for technical services). Services such as drilling, seismic surveys, equipment repair, training, and technical consultancy related to oil and gas operations fall within this definition of mining operations.
On this section: Special provision for computing income by way of royalties and fees for technical services for foreign companies; restricts deductions to 20% or no deductions depending on agreement date
The holding above is the ratio decidendi as extracted from the judgment by eCourts India, reproduced unaltered — it is a rendering of the court's reasoning, not a substitute for its words. Read the order itself before relying on it.
Questions about Section 44D
What have the courts held on Section 44D of the Income-tax Act?
Ongc Rep. M/s Stone & Associate, USA vs Commissioner of Income Tax (01 Jul 2015) is the leading judgment on this section among those set out below: Special provisions for computing income of foreign companies by way of royalties or fees for technical services; court held that while this section provides deduction limitations, it is not applicable when services constitute mining operations integral to prospecting/extraction. Another 3 judgments on this section are set out below, all of them from the Supreme Court.
How do I find court cases under Section 44D of the Income-tax Act?
In judgments and charge sheets this section is written several ways, and each form finds a different set of orders. These search the full text of every order eCourtsIndia holds, best matches first: Income Tax Act 44D, section 44D Income Tax Act, section 44D of the Income-tax Act. Each opens the full list of orders on eCourtsIndia, where it can be narrowed by court, year and outcome. 4 reported judgments on this section are set out on this page, beginning with Ongc Rep. M/s Stone & Associate, USA vs Commissioner of Income Tax (01 Jul 2015).
What should I read with Section 44D of the Income-tax Act, and has it changed?
Its own text turns on section 9 (Income deemed to accrue or arise in India), section 28 (Profits and gains of business or profession), section 44C (Deduction of head office expenditure in the case of non-residents), section 80B (Definitions), so none of them can safely be read on its own. 6 other provisions in this corpus refer back to it.
When did Section 44D of the Income-tax Act come into force?
Section 44D of the Income-tax Act, cited as Income Tax Act 44D, came into force on 01 Apr 1962, having been enacted on 13 Sep 1961. It is no longer in force.
Other sections of this Act
- 10. Incomes not included in total income30885 words
- 2. Definitions11419 words
- 80HHF. Deduction in respect of profits and gains from export or transfer of film software, etc7148 words
- 80-IB. Deduction in respect of profits and gains from certain industrial undertakings other than infrastructure development undertakings5474 words
- 155. Other amendments5451 words
- 139. Return of income5400 words
Source and method. Compiled from the enactments of Parliament and of the State legislatures as published on India Code, and republished together with commentary and other original matter under section 52(1)(q)(ii) of the Copyright Act, 1957. Structured, cross-referenced and maintained by eCourtsIndia. Recovered from the consolidated text published by the Income Tax Department, as amended by the Finance Act, 2026. India Code holds no record of this Act in any form. This page is not a substitute for legal advice.