Consultancy payments to a US entity were not royalty or fees for included services under the India-USA treaty.

Advisory and consultancy payments to a US non-resident entity for business promotion, marketing, publicity and financial counselling were held not to constitute royalty under the India-USA DTAA because they were not made for use of, or right to use, copyright, patent, process or similar protected information. The payment also did not qualify as fees for included services since there was no material showing that technical knowledge, experience, skill, know-how or processes were made available to the recipient. As the treaty position was more favourable, the domestic deeming fiction could not prevail, and the withholding demand under section 201 read with section 195 was unsustainable.

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Issues: Whether the payment made for strategic and financial counselling services to a US non-resident entity was taxable as royalty or fees for included services under the India-USA DTAA, and whether the assessee was liable to deduct tax at source and be treated as an assessee in default under section 201 read with section 195 of the Income-tax Act, 1961.

Analysis: The payment was made for rendition of professional advisory services, namely business promotion, marketing, publicity and financial advisory, and not for the use of any copyright, patent, process or information concerning industrial, commercial or scientific experience. For a receipt to fall within royalty under article 12(3)(a), the payment must be for use of, or right to use, the specified intellectual property or information, which was not the position here. The alternative limb of fees for included services under article 12(4) also failed because there was no material to show that the services made available technical knowledge, experience, skill, know-how or processes so as to enable the recipient to perform the services independently in future. Since the treaty provision was more favourable, the domestic deeming fiction could not override the DTAA.

Conclusion: The impugned payment was not taxable in India as royalty or fees for included services, and the withholding demand under section 201 read with section 195 was unsustainable. The assessee's appeal succeeded.

Ratio Decidendi: A payment for advisory or consultancy services is not royalty unless it is made for the use of specified rights or information, and it is not fees for included services unless the services make available technical knowledge or skill to the recipient.

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