Treaty definition of royalty and make available test blocked taxability of bandwidth and maintenance payments

Payments for bandwidth services to a Singapore recipient were not royalty under section 9(1)(vi) or Article 12 of the India-Singapore DTAA because the payer received only the service, not access to equipment or a secret process, and the domestic-law explanations could not expand the treaty meaning through Article 3(2). Payments for operations and maintenance services were not fees for technical services under section 9(1)(vii) or the treaty because no technical knowledge, skill, know-how or process was made available to the payer. The additions were therefore unsustainable, and the appellate relief remained undisturbed.

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Issues: (i) Whether payments for bandwidth services to the Singapore entity constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Singapore DTAA, including the effect of Explanation 5 and Explanation 6 and the application of Article 3(2); (ii) Whether payments for operations and maintenance services constituted fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the India-Singapore DTAA, including the make available requirement.

Issue (i): Whether payments for bandwidth services to the Singapore entity constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Singapore DTAA, including the effect of Explanation 5 and Explanation 6 and the application of Article 3(2).

Analysis: The payment was for standard bandwidth services, and the recipient had control over the infrastructure and process used to provide those services. The payer had access only to the service and not to equipment or any secret process. The treaty definition of royalty was narrower, and the amendment in the domestic law could not be imported to enlarge the treaty meaning through Article 3(2). The domestic law amendment to section 9(1)(vi) did not override the treaty definition, and the receipts were not shown to fall within royalty.

Conclusion: The payments did not constitute royalty under the Act or the treaty and were not taxable in India as such.

Issue (ii): Whether payments for operations and maintenance services constituted fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12 of the India-Singapore DTAA, including the make available requirement.

Analysis: The operations and maintenance work was routine upkeep connected with bandwidth infrastructure. No technical knowledge, skill, know-how or process was transferred so as to enable the payer to apply the technology independently. The treaty required the make available condition, which was not satisfied, and the services therefore did not fall within the treaty concept of fees for technical services.

Conclusion: The payments for operations and maintenance services did not constitute fees for technical services under the Act or the treaty and were not taxable in India as such.

Final Conclusion: The additions were not sustainable on either the royalty issue or the fees for technical services issue, so the appellate relief granted below was left undisturbed.

Ratio Decidendi: A domestic-law amendment enlarging the definition of royalty or technical services cannot be read into a treaty definition through Article 3(2) where the treaty itself defines the relevant term, and treaty taxation for technical services requires satisfaction of the make available condition when so stipulated.

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