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Issues: (i) Whether the consideration received for strategic consulting services constituted royalty under Article 12(3) of the India-Switzerland DTAA; (ii) Whether the same consideration constituted fees for included services under Article 12(4)(b)(ii) of the India-Switzerland DTAA.
Issue (i): Whether the consideration received for strategic consulting services constituted royalty under Article 12(3) of the India-Switzerland DTAA.
Analysis: Royalty under Article 12(3) covers payment for use of, or right to use, specified intellectual property and for information concerning industrial, commercial or scientific experience. The decisive element is imparting of know-how, not merely the use of expertise by the consultant while rendering advisory services. Strategic consulting services, even if they draw upon technical skill and commercial experience, do not amount to transfer of such experience unless the recipient is enabled to use the know-how on its own account.
Conclusion: The receipts were not royalty and the issue is decided in favour of the assessee.
Issue (ii): Whether the same consideration constituted fees for included services under Article 12(4)(b)(ii) of the India-Switzerland DTAA.
Analysis: Fees for included services require technical or consultancy services that make available technical knowledge, experience, skill, know-how or processes to the recipient. The services here showed only strategic consulting and coordination; nothing was made available to the recipient for future independent use. The consultant retained the relevant experience and the recipient was not equipped to apply the technology or skill on its own after the engagement ended.
Conclusion: The receipts were not fees for included services and the issue is decided in favour of the assessee.
Final Conclusion: The receipts from strategic consulting were held not to fall within either royalty or fees for included services, and the revenue appeals were dismissed.
Ratio Decidendi: For treaty purposes, consultancy income is taxable as royalty or fees for included services only where the payer is actually granted know-how or where technical knowledge is made available for independent future use; mere performance of advisory services by the consultant does not satisfy either test.
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