Word “royalty” - Definition / Legal Terminology - Income Tax

Meaning of word royalty .. ..........Royalty is generally understood as compensation paid for rights and privileges enjoyed by the grantee. It has its genesis in the agreement entered into between the grantor and grantee. In Inderjeet Singh Sial v. Karam Chand Thapar, (1995) 6 SCC 166 this Court observed that royalty is equivalent to the expression jura regalia or jura regia . Jura regalia is defined as royal prerogatives or rights. Ramanatha Aiyar, Advanced Law Lexicon (Volume 3) 2789 For centuries, gold and silver mines (also called as royal metals) in the United Kingdom were treated as belonging to the Crown. Royal metals could be mined only after payments in the form of royalties were made to the Crown. The use of the word royalty underwent change in the United Kingdom with the decentralization of the sovereignty which was absorbed by the landowners. J U Nef, The Rise of the British Coal Industry (Routledge, 1966) Land ownership was concentrated in the hands of landowners, who conceded the right to work mines to lessees in return for consideration which took the form of dead-rent and royalties. Royal Commission on Mining Royalties, Final Report of the Royal Commission Appointed to Inquire into the Subject of Mining Royalties (1893) 4 . Royalties: Tax or Compensation? In its judgment, the Court concluded that royalties are not taxes. Rather, they are a form of compensation or consideration for the extraction of minerals, which are owned by the State. The Court drew a parallel between royalties and the economic theory of economic rent , where the owner of a scarce resource in this case, the State is entitled to a share of the profits derived from its exploitation. This perspective highlights that royalties are a payment for the right to extract and utilize the State s natural resources, rather than a levy aimed at raising general revenue. (MINERAL AREA DEVELOPMENT AUTHORITY- 2024 (7) TMI 1390 - SUPREME COURT (LB)