When is Income from Royalties or Technical Fee of Foreign Companies Exempt?

Its exempt when Central Government exempts such income u/s 10(6C). Section 10 of the Income Tax Act, 1961 lists down the incomes that are not to be included in the total income while computing the total income of any person. Further Clause 6C gives Central Government the power to notify in the Official Gazette to exclude the income arising to foreign company by way of royalty or fees for technical services received. The exemption shall be provided only if the agreement is related to projects related to Security of India and is entered into with the Government for providing services in or outside India.
For example , the Central Government vide Notification NO. 34/2011 [F. NO. 200/71/2006-ITA.I(PT.)], Dated 16-6-2011 specified that income arising to M/s. Rolls Royce Defense Services Inc. to an extent of Rs. 35.43 crores is not to be included in computing the total income of the company.
Below is the notification:
SECTION 10(6C) OF THE INCOME-TAX ACT, 1961 – FEES FOR TECHNICAL SERVICES TO FOREIGN COMPANIES – NOTIFIED FOREIGN COMPANY – ROLLS ROYCE DEFENSE SERVICES INC.

NOTIFICATION NO. 34/2011 [F. NO. 200/71/2006-ITA.I(PT.)], DATED 16-6-2011
In exercise of the powers conferred by clause (6C) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies that any income arising to M/s. Rolls Royce Defense Services Inc., with principal place of business at 2001, South Tibbs Avenue, Indianapolis, Indiana 46206, USA for maintenance of aero engines (IAE 3007 AIE Engines) fitted in Embraer Aircraft, by way of royalty or fees for technical services received in pursuance of the agreement videContract No. Air HQ/8836/RR/Eng B between M/s. Rolls Royce Defence Services Inc. and Ministry of Defence signed on the 12th December, 2005 to an extent of Rs. 35.43 crores shall not be included in computing the total income of said company under the said Act.