Bandwidth service payments are not royalty or FTS; treaty protection denied Indian tax on business profits without a permanent establishment.

Bandwidth service payments were held not to constitute royalty or fees for technical services because the recipient obtained no right to use equipment, no access to a process, and no making available of technical knowledge, skill, experience, know-how or process. The later domestic-law expansion of the royalty definition in the Income-tax Act, 1961 did not override the narrower India-Singapore DTAA definition. The receipts were treated as business profits, but they were not taxable in India because the foreign recipient had no business connection or permanent establishment in India under Article 7 of the treaty.

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Issues: Whether the payment made for bandwidth services was taxable in India as royalty under the Income-tax Act, 1961 and the India-Singapore DTAA, and whether in the absence of a business connection or permanent establishment in India the receipts were taxable as business profits.

Analysis: The payment was for standard bandwidth services, with no transfer of any right to use equipment and no access to any process by the recipient. The process used for providing the service was not shown to be secret or to involve any making available of technical knowledge, skill, experience, know-how, or process. The later domestic-law expansion of the royalty definition in the Income-tax Act, 1961 did not control the narrower treaty definition under the India-Singapore DTAA. Since the foreign recipient had no business connection or permanent establishment in India, the receipts, even if treated as business profits, could not be taxed in India under Article 7 of the DTAA.

Conclusion: The payment was not royalty or fees for technical services and was only business profits not taxable in India in the absence of a permanent establishment.

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