Cloud hosting receipts not royalty or technical fees; non-resident interest under advance tax provisions also not leviable.

Cloud hosting receipts were treated as hosting and ancillary services, not royalty, because customers did not obtain possession, control, or operating rights over the equipment; the treaty definition of royalty was applied as written and was not expanded by a retrospective domestic amendment. The same receipts were also not fees for technical services, as the arrangement was a standard hosting service and did not involve technical, managerial, or consultancy services under the treaty. Interest under section 234B was not chargeable to a non-resident where tax was deductible at source by the payer. The additions and interest levy were therefore deleted, granting relief on all substantive issues.

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Issues: (i) Whether income from cloud hosting services was taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3)(b) of the India-US tax treaty. (ii) Whether the same income was taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12(4)(a) of the India-US tax treaty. (iii) Whether interest under section 234B of the Income-tax Act, 1961 was chargeable.

Issue (i): Whether income from cloud hosting services was taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3)(b) of the India-US tax treaty.

Analysis: The services were held to be hosting and ancillary services, not a lease or hire of equipment. The customers did not obtain possession, control, or the right to operate the servers or other infrastructure, and the equipment remained under the assessee's control. The retrospective domestic amendment to the definition of royalty did not expand the treaty definition, which had to be applied as written. The receipt therefore did not fall within the treaty concept of royalty.

Conclusion: The income from cloud hosting services was not royalty and the issue was decided in favour of the assessee.

Issue (ii): Whether the same income was taxable as fees for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 12(4)(a) of the India-US tax treaty.

Analysis: Once the cloud hosting receipts were held not to be royalty, the alternative characterization as fees for technical services did not survive independently on the facts adopted from the earlier year. The service remained a standard hosting arrangement and was not shown to constitute technical, managerial, or consultancy services of the kind covered by the treaty provision.

Conclusion: The income was not fees for technical services and the issue was decided in favour of the assessee.

Issue (iii): Whether interest under section 234B of the Income-tax Act, 1961 was chargeable.

Analysis: For a non-resident whose income is subject to tax withholding at source, advance tax interest cannot be levied on the payee where the payer had the statutory obligation to deduct tax. The issue was covered by the binding principle applied in the assessee's own case.

Conclusion: Interest under section 234B was not chargeable and the issue was decided in favour of the assessee.

Final Conclusion: The additions treating cloud hosting receipts as royalty or fees for technical services were set aside, and the interest levy was also deleted, resulting in relief to the assessee on all substantive issues.

Ratio Decidendi: Cloud hosting receipts are not taxable as royalty or fees for technical services where the customer does not obtain possession or control of the equipment and the treaty definition is not enlarged by a retrospective domestic amendment; interest under section 234B is not leviable on a non-resident where tax was deductible at source by the payer.

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