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Issues: (i) whether infrastructure data centre charges received from the Indian group companies were taxable as royalty under the Income-tax Act, 1961 and the India-Singapore DTAA; (ii) whether other service charges or referral fees were taxable as royalty under the Income-tax Act, 1961 and the India-Singapore DTAA; (iii) whether member login fees were taxable as royalty under the Income-tax Act, 1961 and the India-Singapore DTAA.
Issue (i): whether infrastructure data centre charges received from the Indian group companies were taxable as royalty under the Income-tax Act, 1961 and the India-Singapore DTAA.
Analysis: The receipt arose from infrastructure management, mailbox hosting and website hosting services rendered from Singapore. The issue had already been decided in the assessee's own case for earlier years, where such charges were held not to constitute royalty because the Indian entities only received standard IDC services and did not acquire any right to use equipment, software or a process. Following that consistent view and finding no change in facts or law, the addition was directed to be deleted.
Conclusion: The receipt was not royalty and the addition was deleted in favour of the assessee.
Issue (ii): whether other service charges or referral fees were taxable as royalty under the Income-tax Act, 1961 and the India-Singapore DTAA.
Analysis: The referral arrangement involved referring potential customers to the Indian entity, without transfer of technical knowledge, skill, know-how or any right that could be characterised as royalty. The issue was covered by earlier decisions in the assessee's own case, which held that referral services of this nature neither amount to royalty nor satisfy the treaty threshold for technical services. Following that settled position, the addition was deleted.
Conclusion: The receipt was not royalty and the addition was deleted in favour of the assessee.
Issue (iii): whether member login fees were taxable as royalty under the Income-tax Act, 1961 and the India-Singapore DTAA.
Analysis: The member login facility was treated as similar to IDC services and amounted only to a standard facility without conferring any exclusive right in copyright, process or equipment. Since the Tribunal had already held comparable receipts not to be royalty in earlier years, the same reasoning was applied and the addition was deleted.
Conclusion: The receipt was not royalty and the addition was deleted in favour of the assessee.
Final Conclusion: The assessment additions made by treating the impugned receipts as royalty were set aside, and the appeal succeeded on all substantive issues.
Ratio Decidendi: A receipt for standard infrastructure, hosting, referral, or login-related services is not royalty where the recipient acquires no right to use equipment, software, process, or proprietary know-how, and recurring issues already decided in the assessee's favour should be followed absent a change in facts or law.
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