Standard telecom connectivity charges are neither royalty nor technical services without make available of technology or process

Consideration for Virtual Voice Network connectivity services was treated as payment for a standard telecom facility, not for use of equipment, process or scientific work, so it was not royalty under Article 13(3) of the India-U.K. DTAA. The receipts also did not qualify as fees for technical services under section 9 and the DTAA because no technical knowledge, skill, know-how or process was made available to enable the recipient to perform the service independently, and the facility was automated rather than dependent on constant human intervention. The commentary states that such connectivity charges fall outside both royalty and technical services treatment absent make available or underlying process exploitation.

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Issues: (i) Whether the consideration received for Virtual Voice Network connectivity services was taxable as royalty under Article 13(3) of the India-U.K. DTAA; (ii) Whether the receipts were taxable as fees for technical services under section 9 of the Income-tax Act, 1961 and the DTAA.

Issue (i): Whether the consideration received for Virtual Voice Network connectivity services was taxable as royalty under Article 13(3) of the India-U.K. DTAA.

Analysis: The payment was found to be for connectivity services rendered to Indian customers and not for the use of, or the right to use, any equipment, process, or scientific work in the sense required for royalty. The facility was a standard telecom service, and the customers were paying for the service output, not for exploitation of any underlying equipment or process.

Conclusion: The receipt was not taxable as royalty.

Issue (ii): Whether the receipts were taxable as fees for technical services under section 9 of the Income-tax Act, 1961 and the DTAA.

Analysis: The services did not satisfy the make available requirement under the DTAA, because no technical knowledge, skill, experience, know-how, or process was imparted to the recipients so that they could perform the same service independently. The Court also relied on the principle that technical services require constant human intervention, and an automated or standard facility does not by itself amount to technical services.

Conclusion: The receipts were not taxable as fees for technical services.

Final Conclusion: The Revenue failed to establish that the connectivity charges were taxable under either royalty or technical services provisions, and no substantial question of law arose.

Ratio Decidendi: A standard automated connectivity service is not royalty or technical services unless the recipient is enabled to use the underlying process or technology independently through a make available of technical knowledge or through human intervention.

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