Telecom connectivity receipts not taxable as royalty or FTS where no technology is made available to customers.

Receipts from Indian customers for telecom connectivity services were held not taxable in India as royalty or fees for technical services under section 9 and Article 13 of the India-UK DTAA. The Tribunal treated the connectivity arrangement as a standard service facility, not the use of any copyright, patent, process, equipment, or other proprietary right. Although the services involved technical inputs and sophisticated infrastructure, the technology was not made available to the customers, so the treaty definition of fees for technical services was not met. The assessee therefore succeeded on the substantive taxability issue.

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Issues: Whether the receipts from Indian customers for telecom connectivity services were taxable in India as royalty or fees for technical services under section 9 of the Income-tax Act, 1961 and Article 13 of the India-UK DTAA.

Analysis: The Tribunal followed its decision in the assessee's own case for the immediately preceding assessment year. It held that the connectivity arrangement was a service facility and not the use of any copyright, patent, process, equipment, or other proprietary right. The payments were for routing and interconnection services rendered with technical inputs, but the technology was not made available to the customers so as to bring the receipts within the treaty definition of fees for technical services. The facility remained a standard telecom service and the character of the receipt did not change merely because the service involved sophisticated infrastructure.

Conclusion: The receipts were not taxable as royalty or fees for technical services in India, and the assessee succeeded on the substantive ground.

Ratio Decidendi: Payments for telecom connectivity services are not taxable as royalty unless they fall within the specific treaty categories of use of rights or equipment, and technical services are not taxable as fees for technical services unless the technology is made available to the recipient.

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