Royalty classification for data licences: access to datasets was held outside treaty royalty, so no withholding obligation arose.

Payments for access to geophysical and geological datasets under non-exclusive licences were treated as consideration for use of a copyrighted article or data product, not as royalty. The licensors retained title and ownership, and the agreements did not transfer copyright rights or impart technology, skill, experience, know-how, or industrial, commercial or scientific experience. Because the treaty definition of royalty was narrower and more beneficial than the domestic definition, the DTAA governed and the amounts were held not to be royalty. As a result, section 195 was not attracted and the payer could not be treated as an assessee in default under sections 201(1) and 201(1A).

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Issues: Whether the amounts paid for access to geophysical and geological datasets under a non-exclusive licence constituted royalty under the Income-tax Act, 1961 and the applicable tax treaties, and whether the assessee was liable to deduct tax at source under section 195 of the Income-tax Act, 1961.

Analysis: The payments were made for the right to use data and derivatives supplied under non-exclusive licences. The agreements showed that title and ownership in the datasets remained with the licensors, but the licensors merely made available the data acquired by them and did not impart any technology, skill, experience, or know-how to the assessee. The data was described as proprietary and confidential, and the assessee's right was limited to use of the datasets subject to contractual restrictions. Comparing the domestic definition of royalty with the narrower treaty definitions, the treaty provisions were held to be more beneficial. The transaction was treated as involving access to a copyrighted article or data product, not a transfer of rights in copyright or an imparting of industrial, commercial or scientific experience.

Conclusion: The payments were not royalty under the applicable DTAA provisions, section 195 was not attracted, and the assessee could not be treated as an assessee in default under sections 201(1) and 201(1A).

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