Treaty royalty test under the India-UK DTAA: licensing and examination receipts were not taxable absent copyright exploitation rights.

Under section 90(2), a non-resident may rely on the more beneficial treaty provisions, and under Article 13(3) of the India-UK DTAA, royalty exists only where the payer obtains a right to use copyright or comparable exploitable rights, or information concerning industrial, commercial or scientific experience. Applying the Supreme Court ruling in Engineering Analysis, the Tribunal found that receipts from licensing, examination content, and examination setting and marking did not show such a copyright or similar right in the payer's hands. The receipts were therefore not taxable as royalty, and the addition was deleted in favour of the assessee.

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Issues: Whether receipts from granting licences and examination-related content, setting and marking of examinations were taxable as royalty under the India-UK DTAA.

Analysis: Section 90(2) of the Income-tax Act, 1961 permits a non-resident to invoke treaty provisions where they are more beneficial. Under Article 13(3) of the India-UK DTAA, amounts constitute royalty only when paid for the use of, or the right to use, copyright or for information concerning industrial, commercial or scientific experience. The receipts in question were examined in light of the settled law that royalty arises only where the payer obtains a copyright right or similar exploitation right. Following the binding ruling of the Supreme Court in Engineering Analysis, the Tribunal held that the revenue could not establish that the receipts represented royalty income.

Conclusion: The receipts were not taxable as royalty and the addition was liable to be deleted, in favour of the assessee.

Ratio Decidendi: Where a treaty definition of royalty is more beneficial, receipts are not taxable as royalty unless the payer acquires a right to use copyright or a comparable exploitable interest.

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