Database access receipts are not royalty where only a copyrighted article is used, not copyright rights transferred.

Receipts from granting access to a database were held not to constitute royalty under section 9(1)(vi) of the Income-tax Act or Article 12 of the India-USA DTAA because the payer obtained only use of the product, not any right to exploit copyright. The assessee retained legal title and exclusive rights in the copyrighted material, and the distributor had no authority to reproduce, translate, or adapt the data. The arrangement was therefore characterised as use of a copyrighted article rather than transfer or use of copyright, and the addition was deleted.

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Issues: Whether the receipts from granting access to the database constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-USA DTAA.

Analysis: The applicable treaty provision was examined as being more beneficial to the assessee. Under Article 12, royalty covers payments for the use of, or the right to use, copyright in a literary, artistic or scientific work. The payments in question were found to relate only to access to the database and use of the product itself. The assessee retained legal title and exclusive rights in the copyrighted material, while the distributor had no authority to reproduce, translate, or adapt the data. The arrangement therefore involved use of a copyrighted article, not transfer or use of copyright.

Conclusion: The receipts were not royalty and were not taxable as such under Article 12 of the India-USA DTAA or section 9(1)(vi) of the Income-tax Act, 1961. The addition was directed to be deleted, in favour of the assessee.

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