Connectivity service receipts are not royalty or fees for technical services unless IP, equipment use, or make-available conditions are met.

Receipts from Indian customers for virtual voice network connectivity were treated as non-taxable business income under the India-UK treaty because the UK resident had no permanent establishment in India. The payments were held not to be royalty, as they were for a connectivity service and not for the use of, or right to use, any copyright, patent, trademark, design, process, equipment or similar property. They also did not qualify as fees for technical services because the service did not make available technical knowledge, skill, know-how or processes to the customers.

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Issues: Whether receipts from Indian customers for virtual voice network connectivity were taxable in India as royalty or fees for technical services under the India-UK treaty and the Income-tax Act, or constituted non-taxable business income in the absence of a permanent establishment in India.

Analysis: The assessee, a UK resident, was entitled to treaty protection. Since there was no permanent establishment in India, business profits could not be taxed under the treaty. Taxability, if any, had to arise under Article 13. The receipts did not represent consideration for the use of, or right to use, copyright, patent, trademark, design, plan, secret formula, process, or information concerning industrial, commercial or scientific experience. The facility provided was a connectivity service, albeit one supported by technology and infrastructure. The payment was for service, not for use of equipment or any intellectual property. The receipts also did not qualify as fees for technical services because the service did not make available technical knowledge, experience, skill, know-how or processes to the customers so that they could perform the service themselves without recourse to the assessee.

Conclusion: The receipts were not taxable as royalty or fees for technical services and could not be brought to tax in India.

Final Conclusion: The addition made on account of connectivity charges was deleted and the assessee's appeal was allowed.

Ratio Decidendi: A connectivity or telecommunication service fee is not royalty or fees for technical services under the treaty unless it is paid for use of specified intellectual property or equipment, or the service makes available technical knowledge, skill, know-how, or processes to the recipient.

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