Integrated software supply, not royalty; post-sale support lacked make-available technical services, while non-resident interest relief and TDS credit followed.

Receipts from supply of hardware with embedded software and viewing cards/set-top boxes were treated as consideration for an integrated product, not as royalty, because no copyright rights were transferred and treaty protection prevailed over the later domestic amendment. Ancillary support, training and maintenance receipts were not fees for technical services, as the services did not make available technical knowledge or know-how to customers. Reimbursement receipts were remanded for fresh factual examination because the existence of a pure cost-to-cost pass-through and any service element had not been properly established. Interest under section 234B was held not leviable on the non-resident assessee, and eligible TDS credit was directed to be granted in accordance with law.

---

---

Issues: (i) whether receipts from supply of hardware with embedded software and viewing cards/set-top boxes constituted royalty under the Income-tax Act, 1961 and the India-UK DTAA; (ii) whether ancillary support, training and maintenance receipts constituted fees for technical services; (iii) whether reimbursements of expenses and fixed asset costs received from an Indian group entity were taxable as income; (iv) whether interest under section 234B was leviable on a non-resident assessee; and (v) whether TDS credit had to be granted in accordance with law.

Issue (i): whether receipts from supply of hardware with embedded software and viewing cards/set-top boxes constituted royalty under the Income-tax Act, 1961 and the India-UK DTAA.

Analysis: The agreements showed supply of an integrated product in which software was embedded in hardware and the customer received only a non-exclusive, non-transferable right to use the copyrighted product. No proprietary interest in copyright was transferred, and the transaction was to be tested on its real nature as a supply of goods/integrated equipment rather than as a transfer of copyright rights. The later amendment to section 9(1)(vi) could not enlarge the treaty definition, and the treaty position remained more beneficial to the assessee.

Conclusion: The receipts were not royalty and were not taxable on that basis.

Issue (ii): whether ancillary support, training and maintenance receipts constituted fees for technical services.

Analysis: The support and maintenance services were post-sale or incidental services connected with the supply of the integrated product. The record did not show that any technical knowledge, skill, experience, know-how or process was made available to the Indian customers within the meaning of the treaty. Mere installation, operation support, user guidance or routine after-sales assistance did not satisfy the treaty standard for technical services.

Conclusion: The receipts did not constitute fees for technical services and could not be taxed as such.

Issue (iii): whether reimbursements of expenses and fixed asset costs received from an Indian group entity were taxable as income.

Analysis: The claim was that the amounts were pure cost-to-cost reimbursements without mark-up. The authorities had not first established a one-to-one tally issue or any profit element, and the inference that the payments represented business support services was not supported by a clear factual finding. Since taxability under the treaty as technical services also depended on the make available condition, the matter required fresh factual examination of the actual reimbursements and supporting documents.

Conclusion: The issue was remanded to the Assessing Officer for fresh consideration.

Issue (iv): whether interest under section 234B was leviable on a non-resident assessee.

Analysis: The assessee was a non-resident and the income in question was subject to tax deduction at source. In such a case, advance tax liability did not arise in the manner assumed by the Revenue.

Conclusion: Interest under section 234B was not leviable.

Issue (v): whether TDS credit had to be granted in accordance with law.

Analysis: The assessee's claim for TDS credit was required to be examined and allowed on the basis of the records and law applicable.

Conclusion: The Assessing Officer was directed to grant eligible TDS credit.

Final Conclusion: The principal additions treating the hardware and embedded software receipts as royalty or technical service fees were deleted, the reimbursement issue was sent back for fresh examination, and the assessee obtained relief on interest and TDS credit issues.

Ratio Decidendi: A payment for an integrated product with embedded software is not royalty unless copyright rights are transferred, and treaty-based fees for technical services require satisfaction of the make available condition; pure reimbursements without profit element are not taxable absent a proved service component.

---