Diamond grading receipts are not royalty or technical services where no know-how is made available to the customer.

Consideration for diamond grading and certification reports was not royalty or fees for technical services because the report was only a factual statement based on the provider's own expertise and did not involve use of, or transfer of, industrial, commercial or scientific experience. The service also did not make available technical knowledge, skill, know-how or processes to the recipient. Applying strict construction to taxing entries, the receipts fell outside Article 12 of the India-Singapore DTAA and section 9(1)(vi) of the Income-tax Act, so tax deduction at source was not justified and refusal of the section 197 certificate was without jurisdiction.

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Issues: Whether the consideration received for diamond grading and certification reports was royalty or fees for technical services under Article 12 of the DTAA between India and Singapore and section 9(1)(vi) of the Income-tax Act, 1961, so as to justify deduction of tax at source and refusal of a certificate under section 197(1).

Analysis: The grading report was held to be only a statement of fact based on GIA's application of its own experience and expertise to the diamonds submitted by clients. The payment was not for the use of, or the right to use, any industrial, commercial or scientific experience, nor did it involve imparting or transferring such experience to the customers. The service did not make available technical knowledge, skill, know-how or processes to enable the recipient to apply them independently. Since taxing entries must be construed strictly, the receipts could not be brought within the treaty definition of royalty or the domestic definition in section 9(1)(vi).

Conclusion: The consideration was not royalty or fees for technical services, and the refusal to grant the certificate was without jurisdiction; the assessee was entitled to the certificate sought.

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