Software access and IT support receipts were treated as non-royalty and non-FTS under the India-Netherlands DTAA.
Receipts for access to software were analysed under the India-Netherlands DTAA and the Copyright Act distinction between use of copyright and use of a copyrighted article. Limited business access without transfer of copyright rights, source code, or exploitation rights was treated as mere software use, so the receipts were not royalty. IT support receipts were tested against the treaty make available requirement and were treated as support and facilitation services that did not impart enduring technical knowledge or enable independent future performance, so they were not fees for technical services. The resulting royalty and FTS additions were deleted.
Issues: (i) Whether receipts for access to use software constituted royalty under Article 12 of the India-Netherlands DTAA; (ii) Whether receipts for IT support services constituted fees for technical services under the Act and the India-Netherlands DTAA.
Issue (i): Whether receipts for access to use software constituted royalty under Article 12 of the India-Netherlands DTAA.
Analysis: The payment was examined in the light of the treaty definition of royalty and the distinction between a right to use copyright and a right to use a copyrighted article. The software arrangements granted only limited access for business use, without transfer of copyright rights, source code, or any right to exploit the software as owner. The reasoning also drew support from the statutory meaning of copyright under the Copyright Act, 1957, to conclude that mere use of software does not by itself amount to use of copyright.
Conclusion: The receipts were not royalty under Article 12 of the India-Netherlands DTAA and the issue was decided in favour of the assessee.
Issue (ii): Whether receipts for IT support services constituted fees for technical services under the Act and the India-Netherlands DTAA.
Analysis: The services were tested against the treaty requirement that technical or consultancy services must make available technical knowledge, experience, skill, know-how, or processes to the recipient. The services were found to be support and facilitation services without imparting enduring technical knowledge or enabling the recipient to perform the services independently in future. The make available condition was therefore not satisfied.
Conclusion: The receipts did not constitute fees for technical services and the issue was decided in favour of the assessee.
Final Conclusion: The taxability additions on royalty and fees for technical services were deleted, while the remaining grounds were either kept open or treated as consequential.
Ratio Decidendi: A payment for access to software is not royalty unless rights in the copyright itself are transferred, and technical support receipts are not fees for technical services unless the service recipient is made able to apply the technical knowledge or skill independently.
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