Treaty override limits royalty and technical-service taxation; non-resident SAP access and related services were not taxable in India.

Limited access to an SAP system hosted outside India, without transfer of control, possession, ownership or copyright, was treated as use of a copyrighted article rather than royalty; domestic amendments expanding royalty could not override the unchanged India-Malaysia DTAA, so the receipt was taxable only as business profits and not in India in the absence of a permanent establishment. Related service receipts were also not taxable in India because the treaty had no separate fees-for-technical-services article and section 9(1)(vii) could not be imported through Article 3(2); the non-resident was entitled to the more beneficial treaty position under section 90(2). Interest under section 234B was not leviable on a non-resident where tax was deductible at source, and section 234D applied only to excess refund, not to section 244A interest.

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Issues: (i) Whether consideration received for access to the SAP system was taxable as royalty under the Income-tax Act, 1961 and the India-Malaysia DTAA; (ii) whether consideration received for related services was taxable as fees for technical services, or as business profits in the absence of a fees-for-technical-services article; (iii) whether interest under sections 234B and 234D was leviable in the assessee's case.

Issue (i): Whether consideration received for access to the SAP system was taxable as royalty under the Income-tax Act, 1961 and the India-Malaysia DTAA.

Analysis: The payment was for limited access to an SAP system hosted outside India, with no transfer of control, possession, ownership, or copyright in the system. The Court distinguished use of a copyrighted article from transfer of copyright rights, and held that the assessee had only enabled CPI to access data and generate reports from a system maintained abroad. The equipment-royalty and process-royalty theories were rejected, and amendments enlarging the domestic definition of royalty were held not to be read into the treaty without a corresponding treaty amendment.

Conclusion: The receipt was not royalty and was taxable, if at all, only as business profits; since the assessee had no permanent establishment in India, it was not taxable in India.

Issue (ii): Whether consideration received for related services was taxable as fees for technical services, or as business profits in the absence of a fees-for-technical-services article.

Analysis: The treaty applicable to the year did not contain a separate fees-for-technical-services article. The Court held that section 9(1)(vii) could not be imported into the treaty through Article 3(2) where the treaty itself was silent on the subject. The service element therefore had to be tested under the business profits article, and the assessee's absence of a permanent establishment in India prevented taxation in India. The assessee was also entitled to choose the more beneficial treaty position under section 90(2).

Conclusion: The service receipts were not taxable in India.

Issue (iii): Whether interest under sections 234B and 234D was leviable in the assessee's case.

Analysis: As the assessee was a non-resident and tax was deductible at source from the payer, the assessee could not be fastened with liability for advance-tax default for section 234B purposes. For section 234D, interest could be charged only on the excess refund and not on interest granted under section 244A.

Conclusion: Interest under section 234B was not leviable, and interest under section 234D was to be computed only on the principal refund and not on section 244A interest.

Final Conclusion: The assessee succeeded on the substantive taxability issues, while the ancillary interest issue was allowed only to the limited extent indicated above; the department's appeal failed.

Ratio Decidendi: Domestic amendments enlarging the scope of royalty or technical services cannot be read into an unchanged treaty, and a non-resident's limited access to an overseas system without transfer of copyright or control is not royalty but business profit taxable only if attributable to a permanent establishment.

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