Royalty characterization of database access payments triggered tax deduction at source and liability for non-deduction.

Amounts paid to a non-resident for access to a database were treated as royalty because the arrangement granted a licence to access and use the database, amounting to a transfer of the right to use copyright. The Karnataka HC followed its reasoning in connected matters and rejected the characterisation of the payment as a mere subscription-like arrangement. Once classified as royalty, the payment was treated as income chargeable to tax in India, triggering the assessee's statutory duty to deduct tax at source. Consequential liability under sections 201 and 201(1A) followed for failure to deduct.

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Issues: Whether the amounts paid by the assessee to the non-resident for access to the database constituted royalty and, if so, whether tax was deductible at source under the Income-tax Act, 1961.

Analysis: The payment was held to be for a licence to access and use the database maintained by the non-resident, which amounted to a transfer of the right to use copyright. The Court followed its reasoning in the connected matters and treated the access right as falling within royalty rather than as a mere subscription-like arrangement. Once the payment was characterised as royalty, it became income chargeable to tax in India, and the assessee was under a statutory obligation to deduct tax at source. Consequential liability under section 201 and interest under section 201(1A) followed.

Conclusion: The amount paid to the non-resident was royalty, tax was deductible at source, and the assessee was liable under sections 201 and 201(1A).

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