Royalty treatment of market data payments depends on specialised knowledge, with inadequate facts requiring remand for reconsideration.

A payment for supplied market data is royalty only if the information carries specialised technical, industrial, commercial, scientific knowledge, experience, or skill under Explanation 2 to section 9(1)(vi) and the applicable treaty. The Court held that not every item of commercial information becomes royalty merely because it relates to business activity. However, the Tribunal had not been given the underlying data compilation, so its finding that the payment was not royalty lacked an adequate factual foundation. The Tribunal's order was set aside and the matter was remitted for fresh decision after production of the relevant material.

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Issues: Whether the remittance of US $25,000 for supplied market data and related material constituted royalty so as to attract deduction of tax at source under section 195 of the Income-tax Act, 1961, and whether the Tribunal's finding that the payment was not royalty could be sustained on the material available.

Analysis: The Court examined the statutory definition of royalty under Explanation 2 to section 9(1)(vi) of the Income-tax Act, 1961, together with article 12 of the applicable treaty. It held that not every item of information concerning commercial activity automatically becomes royalty and that the concept requires some special feature, expertise, skill, or know-how. At the same time, the Court found that the compilation of data had not been produced before the Tribunal, and therefore the Tribunal lacked adequate material to conclude that the supply was merely ordinary market information. In these circumstances, the factual foundation for the Tribunal's decision was insufficient for a final adjudication.

Conclusion: The Tribunal's order was set aside and the matter was remitted to the Tribunal for fresh decision after production of the relevant data and material.

Ratio Decidendi: A payment can be treated as royalty only if the information supplied carries the requisite character of specialised technical, industrial, commercial, scientific knowledge, experience, or skill; absent a proper factual record, a finding that the payment is not royalty cannot be finally sustained and the matter may be remanded for reconsideration.

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