Treaty royalty test for service receipts turns on whether know-how or knowledge was actually transferred, not mere consultancy support.

Receipts under a master service agreement were analysed under the India-Thailand DTAA to determine whether they constituted royalty under Article 12(3) or business income under Article 7 in the absence of a permanent establishment. The key test was whether the services merely used the service provider's own expertise in advisory or consultancy support, or instead involved imparting know-how, experience, skill or other information amounting to a transfer of knowledge. The tax authorities had not examined the nature of the services on that basis, so the matter was remanded for application of the correct treaty test; if no such transfer existed, the receipts could not be taxed as royalty.

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Issues: Whether the receipts from services rendered under the master service agreement were taxable as royalty under Article 12(3) of the India-Thailand DTAA or were to be tested as business income under Article 7 in the absence of a permanent establishment.

Analysis: The decisive question was whether the services involved merely the use of the assessee's own expertise in rendering advisory or consultancy support, or whether they involved imparting of know-how, experience, skill or other information so as to fall within the treaty meaning of royalty. The distinction turns on whether there is transfer or alienation of knowledge to the recipient, because a contract for services remains different from a contract for supply of know-how. On the record, the nature of the individual services had not been examined by the tax authorities from that angle.

Conclusion: The matter was remanded to the Assessing Officer to determine, on the correct legal test, whether the services involved imparting of know-how or transfer of knowledge, experience or skill. If they did not, the receipts could not be taxed as royalty; the issue was thus decided partly in favour of the assessee.

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