Royalty treatment of subscription revenue for access to a dealing-matching system upheld under the India-UK DTAA.

Subscription revenue for access to a dealing-matching system was characterised as royalty under the India-UK DTAA and section 9(1)(vi) because subscribers received integrated access to the system, software, equipment and connectivity, including the ability to view, manipulate, create and redistribute data within contractual limits. The payment was treated as consideration for the use of, or right to use, commercial equipment, software and information, bringing it within the treaty royalty definition. Once characterised as royalty, the alternative arguments on fee for technical services and permanent establishment were treated as academic, and the revenue was held taxable as royalty.

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Issues: Whether the subscription revenue received from Indian subscribers for the dealing-matching system was taxable as royalty under the India-UK DTAA and section 9(1)(vi) of the Income-tax Act, 1961.

Analysis: The service was held to be an integrated commercial arrangement under which the subscribers were given access to the assessee's system, software, equipment and connectivity through the subscriber-side installation and the Geneva server. The contractual terms permitted the subscribers to view, manipulate, create and redistribute data within limits and to use the licensed software installed at the site. On this basis, the payment was found to be for the use of, or right to use, commercial equipment, software and information, and therefore fell within the treaty definition of royalty. Once the receipt was characterized as royalty, the other contentions regarding fee for technical services and permanent establishment were treated as academic.

Conclusion: The subscription revenue was held to be taxable as royalty and the assessee's appeal was dismissed.

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