Interconnectivity charges held not taxable as royalty or technical services where no permanent establishment existed.

Interconnectivity charges received by a non-resident telecom service provider were treated as standard telecom interconnection service receipts, not royalty under section 9(1)(vi) or Article 13 of the India-Spain DTAA, because they did not involve any grant of intellectual property, exclusive rights, equipment use, or a qualifying process. The domestic term "process" was read in context as referring to an intellectual property process, while the treaty definition was narrower and required a secret process. The receipts were also not fees for technical or consultancy services, as the services were automated and involved no human intervention. With no permanent establishment in India, the amounts were business profits taxable only in the State of residence, and the addition was deleted.

---

---

Issues: Whether interconnectivity charges received by a non-resident telecom service provider constituted royalty or fees for technical services under section 9(1)(vi) and section 9(1)(vii) of the Income-tax Act, 1961 and under Article 13 of the India-Spain DTAA, and whether such receipts were taxable in India in the absence of a permanent establishment.

Analysis: The receipts were held to be for standard telecom interconnection services and not for the grant of any intellectual property right, exclusive right, or right to use equipment or a process. The term "process" in the domestic royalty definition was read in the context of surrounding words and treated as referring to an intellectual property process, while the treaty definition was narrower and required a secret process. The Court also noted that the services were automated and involved no human intervention, so they did not amount to technical or consultancy services. As the non-resident had no permanent establishment in India, the receipts were characterised as business profits taxable only in the State of residence under the DTAA.

Conclusion: The interconnectivity charges were not taxable in India as royalty or fees for technical services, and the addition was deleted in favour of the assessee.

---