Web hosting payments to a non-resident were not royalty, so no tax deduction at source was required.

Payments for web hosting, security, backup, maintenance and support to a non-resident were treated as service fees, not royalty, because the provider retained control of the servers and equipment outside India and the payer had no physical access or operational control. On that basis, the arrangement was not for the use or right to use industrial, commercial or scientific equipment, so the payment did not fall within section 9(1)(vi) of the Income-tax Act or Article 12 of the DTAA. As the sum was not chargeable to tax in India in the non-resident's hands, no obligation to deduct tax at source arose under section 195.

---

---

Issues: Whether payments made for web hosting services to a non-resident provider constituted royalty for use or right to use industrial, commercial or scientific equipment, and whether the payer was therefore liable to deduct tax at source and be treated as an assessee in default.

Analysis: The payments were made under a service arrangement for hosting, security, backup, maintenance and uninterrupted support. The relevant equipment and servers remained under the control of the non-resident provider and were situated outside India. The payer had no physical access or operational control over the equipment and merely availed services. On these facts, the arrangement was not for hiring or using equipment, but for receiving hosting services. The payment therefore did not fall within the scope of royalty under section 9(1)(vi) of the Income-tax Act, 1961 or Article 12 of the DTAA. As the sum was not chargeable to tax in India in the hands of the non-resident, no obligation to deduct tax at source arose under section 195.

Conclusion: The payments were not royalty and the payer was not liable to deduct tax at source or to be treated as an assessee in default.

---