Sale of copyrighted articles, not royalty, means business profits escape Indian tax absent a permanent establishment.
Payments for electronically supplied Business Information Reports were treated as receipts from sale of copyrighted articles on a principal-to-principal basis, because no copyright or right to use copyright was transferred or licensed to the Indian purchaser. The receipts therefore constituted business profits under Article 7 of the India-UK treaty and not royalty. On the facts, no branch, office, fixed place, dependent agent, or other material showed a permanent establishment in India, so the Indian purchaser was not the non-resident's PE. As no PE existed, the business profits were not taxable in India under the treaty.
Issues: (i) whether the payments for electronically purchased Business Information Reports constituted business profits within Article 7 of the India-UK treaty; (ii) whether the applicant had a permanent establishment in India under Article 5; (iii) whether the receipts were taxable in India as business profits.
Issue (i): whether the payments for electronically purchased Business Information Reports constituted business profits within Article 7 of the India-UK treaty.
Analysis: The receipts arose from sale of Business Information Reports on a principal-to-principal basis. The applicant retained copyright in the reports and did not transfer or license any copyright or right to use copyright to the Indian purchaser. The transaction was treated as a sale of a copyrighted article, not as a payment for use of intellectual property or information falling within royalty.
Conclusion: The payments were business profits covered by Article 7 and not royalty.
Issue (ii): whether the applicant had a permanent establishment in India under Article 5.
Analysis: The facts showed no branch, office, fixed place, dependent agent, or other material indicating that the Indian purchaser functioned as the applicant's establishment. The purchaser acted independently, bought the reports as principal, and resold them on its own terms. The record did not justify treating it as the applicant's permanent establishment.
Conclusion: The applicant did not have a permanent establishment in India.
Issue (iii): whether the receipts were taxable in India as business profits.
Analysis: Under Article 7, business profits of a UK resident are taxable in India only if attributable to a permanent establishment in India. Since no permanent establishment was found, the treaty did not permit Indian taxation of the business profits.
Conclusion: The receipts were not taxable in India as business profits.
Final Conclusion: The ruling held that the electronic supply of Business Information Reports was a sale of copyrighted articles on a principal-to-principal basis, so the receipts were business profits not taxable in India in the absence of a permanent establishment.
Ratio Decidendi: A non-resident's receipts from sale of copyrighted articles remain business profits, and not royalty, where no copyright or right to use copyright is licensed or assigned; such profits are taxable in India only if they are attributable to a permanent establishment in India.