Interconnectivity charges were held outside royalty treatment under the treaty because no IP, equipment control, or secret process was involved.

Interconnectivity utility charges received by a non-resident were examined under the domestic royalty definition and Article 13 of the India-Austria DTAA, but the receipts were found to arise only from interconnect services, with no transfer of intellectual property, no possession or control of equipment, and no use of a secret process in the treaty sense. The broader domestic explanations expanding "process" did not override the narrower treaty definition. The amounts were treated as business receipts taxable in India only if treaty conditions and a permanent establishment basis were satisfied, and no such basis was established.

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Issues: Whether interconnectivity utility charges received by the non-resident assessee were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and under Article 13 of the India-Austria DTAA.

Analysis: The payment was examined in the context of the statutory definition of royalty and the treaty definition. The receipt was found to arise from provision of interconnect services without transfer of any intellectual property, without possession or control of equipment by the recipient, and without any use of a secret process in the treaty sense. The domestic explanations widening the meaning of process were held not to override the narrower treaty definition. The payment was therefore treated as business receipts of a non-resident, taxable only where treaty conditions permit, and no permanent establishment basis was made out in India.

Conclusion: The interconnectivity utility charges were not taxable as royalty in India under the Act or the DTAA, and the issue was decided in favour of the assessee.

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