Advertisement platform access is not royalty without copyright rights, so withholding tax under section 195 does not arise.

Online advertisement payments made to a non-resident Facebook entity were analysed under the Income-tax Act and the applicable treaty and were treated as not constituting royalty. The arrangement provided only an enabling facility for placing advertisements and did not confer any right to use or exploit copyright, software, or any similar proprietary interest. On that basis, the sums were not chargeable to tax in India as royalty, so no obligation to deduct tax at source arose under section 195. Consequently, the payer could not be treated as an assessee in default under section 201(1), and interest under section 201(1A) was not attracted.

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Issues: Whether the advertisement payments made to the non-resident Facebook entity were taxable as royalty under the Income-tax Act and the applicable treaty, and whether the assessee was required to deduct tax at source under section 195, so as to be treated as an assessee in default under section 201(1) with consequential interest under section 201(1A).

Analysis: The payment was examined in the light of the agreements and the nature of the facility provided for online advertisement placement. The arrangement did not grant the assessee any right to use or exploit copyright in the software or platform in the sense required for royalty characterisation. The facility was only an enabling mechanism for placing advertisements, and the non-resident did not part with any copyright or similar proprietary right. Following the governing treaty principle and the ratio that payments do not constitute royalty unless there is a use or right to use copyright, the amounts were held not to be taxable as royalty. As the sums were not chargeable to tax in India on that basis, the obligation to deduct tax at source did not arise.

Conclusion: The payment was not royalty, no tax was deductible under section 195, and the assessee could not be treated as an assessee in default under section 201(1) or visited with interest under section 201(1A).

Ratio Decidendi: Online advertisement payments for mere access to an enabling platform or facility, without transfer of any right to use copyright or other taxable proprietary interest, do not constitute royalty and do not attract withholding tax under section 195.

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