Royalty for equipment use requires positive access or control; data processing support without such rights is not royalty.

Receipt for data processing support through disc space and embedded software was examined under the India-Singapore DTAA and section 9(1)(vi) to determine whether it constituted royalty for use of equipment. The applicable test was whether the payer had positive use of, access to, control over, or the right to operate the equipment, rather than merely benefiting from a service facility. On the stated facts, the customer had no physical access to the hardware and no control over it, and only transmitted raw data for processing. The payment was therefore treated as not taxable as royalty.

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Issues: Whether the amount received for data processing support by use of disc space and embedded software in the assessee's hardware was taxable as royalty under the India-Singapore DTAA and section 9(1)(vi) of the Income-tax Act, 1961.

Analysis: The assessee's receipt was examined in the light of the treaty definition of royalty, which covers consideration for the use or right to use industrial, commercial or scientific equipment. The decisive test applied was whether the customer had positive use of, access to, control over, or the right to operate the equipment, as distinct from merely taking advantage of a facility provided by the other party. On the facts, the customer had no physical access to the computer hardware and no control over it; it could only transmit raw data for processing. The facts being identical to the assessee's earlier year, the earlier view that such payment did not constitute royalty was followed.

Conclusion: The receipt was not taxable as royalty.

Ratio Decidendi: A payment is not royalty for use of equipment unless the payer has positive use, access, or control over the equipment; mere use of a service facility or processing system does not amount to use or right to use equipment.

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