Royalty under India-UK DTAA excluded where shared services involved only brand, communications, and technology support.

Payments made under a shared services arrangement for global brand support, communications, and technology/knowledge management were examined under Article 13(3) of the India-UK DTAA. The payments were found not to involve transfer of copyright, intellectual property, or any right to commercially exploit work or equipment, and mere access to software, systems, guidance, or support services was treated as insufficient to constitute royalty. As the amounts were not for use of, or the right to use, copyright or for treaty-defined technical experience, they fell outside Article 13(3). No withholding tax obligation arose under section 195.

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Issues: Whether payments made for global brand, global communications, and global technology/knowledge management under the shared services arrangement constituted royalty under Article 13(3) of the India-UK DTAA so as to attract withholding tax under section 195 of the Income-tax Act, 1961.

Analysis: The disputed payments were examined against the treaty definition of royalty and the nature of the services under the shared services agreement. The services were found to relate to internal brand support, communications, and technology/knowledge management for the member firms, without any transfer of copyright, intellectual property, or right to commercially exploit any work or equipment. The reasoning also followed the later judicial view that mere access to software, systems, guidance, or support services, without transfer of copyright, does not amount to royalty. Since the payments were not for use of, or right to use, any copyright, nor for information concerning industrial, commercial, or scientific experience in the treaty sense, they were held to fall outside Article 13(3).

Conclusion: The payments were not royalty under Article 13(3) of the India-UK DTAA, and the assessee was not required to deduct tax at source under section 195.

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