Software licence recharges and support services were not royalty or fees for included services without copyright transfer or make-available.

Payments for access to Microsoft software licences, recharged on actual use, were treated as consideration for a copyrighted article rather than a transfer of copyright rights; on that basis they were not royalty and, on the facts, not fees for technical services under the India-USA DTAA. Service desk and coordination receipts relating to the Tower Watson project also failed the treaty make-available test because the support services did not transmit technical knowledge, skill, know-how or processes enabling the recipient to apply the technology independently. The disputed receipts were therefore described as not taxable as royalty or fees for included services under the treaty.

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Issues: (i) Whether the amounts received for recharge of Microsoft licence fees constituted royalty or fees for technical services, or were taxable only as business profits under the India-USA DTAA; (ii) Whether the amounts received for service desk and coordination services relating to the Tower Watson project constituted fees for included services or royalty under the India-USA DTAA.

Issue (i): Whether the amounts received for recharge of Microsoft licence fees constituted royalty or fees for technical services, or were taxable only as business profits under the India-USA DTAA.

Analysis: The payment related to access to Microsoft software licences procured under a global arrangement and recharged on actual usage. The core question was whether there was any transfer of copyright or merely a right to use a copyrighted product. Applying the settled distinction between copyright and copyrighted article, and following the principle that royalty arises only where rights under section 14 of the Copyright Act, 1957 are transferred, the receipt was found not to involve any parting with copyright. It therefore did not fall within royalty, and there was no basis to treat it as fees for technical services on these facts.

Conclusion: The addition on account of Microsoft licence recharge was not sustainable and is deleted.

Issue (ii): Whether the amounts received for service desk and coordination services relating to the Tower Watson project constituted fees for included services or royalty under the India-USA DTAA.

Analysis: The service desk facility and related coordination support were examined in the context of the treaty test of making available technical knowledge, experience, skill, know-how, or processes. The services were held to be support services that assisted the Indian group entity in performing its contractual obligations, but they did not transfer any technical knowledge or enable independent application of any technology by the recipient. The arrangement therefore failed the make available requirement, and the receipts were not shown to be royalty merely because they involved support infrastructure or subcontracting arrangements.

Conclusion: The addition on account of Tower Watson service desk and coordination receipts is not sustainable and is deleted.

Final Conclusion: The receipts in dispute were held not taxable as royalty or fees for included services under the treaty, and the appeal was allowed in full.

Ratio Decidendi: Payments for access to software or for support services are not taxable as royalty or fees for included services unless there is a transfer of copyright rights or the services make available technical knowledge, skill, know-how, or processes to the recipient.

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