Centralized support services are not royalty or technical fees without equipment use rights or make-available knowledge

Centralized IT support services were not royalty because the arrangement provided only a facility for data centre support, bandwidth management, disaster recovery, backup, offsite storage, and security management, without conferring any right to use equipment or infrastructure. The amended Explanations 5 and 6 to section 9(1)(vi) did not change that characterisation on the facts found. Business support services were also not fees for technical services because they covered functional support in areas such as procurement, legal, tax, finance, human resources, and strategy, but did not make available technical knowledge or enable independent performance by the recipient. The dispute therefore turned on the absence of proprietary use and the absence of a make available element.

---

---

Issues: (i) whether receipts for centralized IT support services were taxable as royalty; (ii) whether amended Explanations 5 and 6 to section 9(1)(vi) affected the taxability of such receipts; and (iii) whether receipts for business support services were taxable as fees for technical services.

Issue (i): whether receipts for centralized IT support services were taxable as royalty.

Analysis: The services under the IT arrangement related to centralized data centre support, WAN bandwidth management, disaster recovery, backup and offsite storage, and security management. The arrangement showed that only a facility was provided and no right to use equipment or infrastructure was conferred on the Indian entities. On that basis, the consideration could not be characterised as royalty under the Act or the treaty.

Conclusion: The receipts were not taxable as royalty, and the addition was rightly deleted.

Issue (ii): whether amended Explanations 5 and 6 to section 9(1)(vi) affected the taxability of such receipts.

Analysis: The same IT services were examined in the light of the treaty and the statutory royalty definition. Since the arrangement did not involve granting a right to use equipment or any similar proprietary use, the amendments did not alter the character of the receipts for the purpose of taxing them as royalty on the facts found.

Conclusion: The receipts did not fall within royalty even after considering the amended Explanations.

Issue (iii): whether receipts for business support services were taxable as fees for technical services.

Analysis: The support services covered purchasing, communications, international relations, legal and insurance support, tax, internal audit, quality, finance, treasury, human resources, strategy, and development functions. The services did not enable the recipient to independently perform similar functions in future and no training or transfer of technical knowledge was shown. The make available requirement was therefore not satisfied.

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

Final Conclusion: The revenue's challenge to the deletion of the additions failed, and the assessments did not survive on the disputed characterisation of the receipts.

Ratio Decidendi: Payments for centralized support services are not royalty or fees for technical services unless the recipient acquires a right to use equipment or is enabled to apply the technical knowledge, skill, or experience independently.

---