Royalty classification of online subscription receipts turns on access rights, copyright transfer, and control over equipment under treaty rules.

Subscription receipts for access to online video courses and a database were not royalty under section 9(1)(vi) of the Income-tax Act or Article 12(3) of the India-USA DTAA because the customers received only a non-exclusive, non-transferable right to access hosted content. No copyright rights were transferred under section 14 of the Copyright Act, and there was no right to reproduce, distribute, exploit, or otherwise use the underlying intellectual property. The receipts also were not consideration for imparting industrial, commercial, or scientific experience, and the customers had no use of or control over the servers. Applying section 90(2), the more restrictive treaty definition governed, so the receipts were not taxable as royalty.

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Issues: Whether subscription receipts from Indian customers for access to online video courses and database were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-USA DTAA.

Analysis: The subscription arrangement granted only a non-exclusive, non-transferable right of access to the website and its content. The customers were not conferred any copyright rights under section 14 of the Copyright Act, 1957, nor any right to reproduce, distribute, exploit, or otherwise use the underlying intellectual property. The receipts were therefore for access to copyrighted products, not for use of or right to use copyright. The same consideration was also not for imparting the assessee's own industrial, commercial, or scientific experience, because the assessee did not share its methods, techniques, or know-how in creating or maintaining the database. Nor was there any use or right to use industrial, commercial, or scientific equipment, since the customers had no control or access to the servers beyond accessing the hosted content. In view of section 90(2) of the Income-tax Act, 1961, the more restrictive treaty definition governed the characterization.

Conclusion: The subscription receipts did not constitute royalty and the addition was deleted; the issue was decided in favour of the assessee.

Ratio Decidendi: Mere access to online content or a database under a restrictive subscription licence, without transfer of copyright rights or control over equipment, does not amount to royalty under the treaty definition.

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