Limited database access is not royalty or fee for technical services without copyright transfer or make available of know-how.

Limited user access to a database for internal business use, together with related IT support, was held not to constitute royalty because no copyright rights or commercial exploitation rights in the underlying intellectual property were transferred. The receipt also did not amount to fee for technical services, as the arrangement did not make available technical knowledge, skill, know-how or processes under the India-Sweden tax treaty. Applying the distinction between a copyrighted article and copyright rights, the Tribunal treated the payment as outside the royalty and FTS provisions. The addition was deleted and the assessee's appeal was allowed.

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Issues: Whether the fee received for limited user access to a database and related information technology support was taxable in India as royalty or fee for technical services under the India-Sweden tax treaty and the Income-tax Act, 1961.

Analysis: The payment arose from application development and IT support services, with only limited user access to the database for internal business use. The arrangement did not transfer any copyright rights or permit commercial exploitation of the underlying intellectual property. Applying the distinction between a copyrighted article and copyright rights, the amount could not be characterised as royalty. The services also did not satisfy the treaty requirement of making available technical knowledge, skill, know-how or processes so as to constitute fee for technical services. The Tribunal followed the binding reasoning that mere use of software or database facilities, without transfer of copyright or make available of technical knowledge, is not taxable as royalty or FTS under the treaty.

Conclusion: The receipt was not taxable in India as royalty or fee for technical services and the issue was decided in favour of the assessee.

Final Conclusion: The addition treating the amount as taxable income was deleted and the assessee's appeal was allowed.

Ratio Decidendi: Limited user access to software or database facilities, without transfer of copyright rights or making available technical knowledge, does not give rise to royalty or fee for technical services under the applicable tax treaty.

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