Treaty test for royalty and technical services rejected for managed services; salary recharge remanded for fresh factual verification.

Under the India-Singapore treaty, receipts for managed services, data centre hosting and related project services were not royalty because the recipient did not obtain any right to use copyright, process, equipment or similar property; the treaty definition controlled and domestic law could not enlarge it. The same receipts were also not fees for technical services because the services did not make available technical knowledge, experience, skill, know-how or processes that the recipient could apply independently. The cost recharge relating to an employee's salary was remitted for fresh factual examination, as the material was insufficient to determine whether any technical knowledge had been made available. The main addition was deleted, with partial relief granted.

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Issues: (i) Whether receipts for managed services, data centre hosting and related project services were taxable as royalty under the India-Singapore treaty; (ii) Whether those receipts constituted fees for technical services under the treaty; (iii) Whether the cost recharge pertaining to salary of an employee constituted fees for technical services or required fresh examination.

Issue (i): Whether receipts for managed services, data centre hosting and related project services were taxable as royalty under the India-Singapore treaty.

Analysis: The services consisted of mailbox hosting, data centre hosting, remote server monitoring, database management and related support rendered from Singapore. The recipient did not obtain use or right to use any copyright, process, plan, secret formula, industrial or commercial experience, or any industrial, commercial or scientific equipment. The arrangement was one for rendering services through the assessee's own infrastructure and personnel, not for granting independent access to the underlying equipment or software. The treaty definition of royalty controlled the issue and the domestic law provision could not enlarge it.

Conclusion: The receipts from the project related and managed services were not royalty and the finding was in favour of the assessee.

Issue (ii): Whether those receipts constituted fees for technical services under the treaty.

Analysis: Under the treaty, fees for technical services require that the services be managerial, technical or consultancy in nature and, under the relevant clause, make available technical knowledge, experience, skill, know-how or processes so that the recipient can apply the technology independently. The record did not show that the Indian recipient acquired any such enduring or self-usable technical knowledge or capability. The services remained assistance rendered by the service provider and did not satisfy the make available requirement.

Conclusion: The receipts from the project related and managed services were not fees for technical services and the finding was in favour of the assessee.

Issue (iii): Whether the cost recharge pertaining to salary of an employee constituted fees for technical services or required fresh examination.

Analysis: The nature of the employee's services was not clearly established and the material was insufficient to determine whether any technical knowledge, skill or know-how had been made available to the Indian recipient. The issue therefore required factual verification and reconsideration by the assessing authority after granting opportunity to the assessee.

Conclusion: The issue was restored to the assessing authority for fresh adjudication.

Final Conclusion: The taxability addition on the main project related receipts was deleted, the employee salary recharge issue was remitted for reconsideration, and the appeals were disposed of with partial relief to the assessee.

Ratio Decidendi: Under the India-Singapore treaty, service receipts are taxable as royalty or fees for technical services only when the payment is for the specified use rights or when technical knowledge, skill or know-how is made available so that the recipient can apply it independently; mere rendering of managed or infrastructure services does not satisfy those tests.

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