Background verification services not royalty or technical fees when only factual findings are supplied for internal use.

Receipts from background scrutiny and verification services were held not to constitute royalty or fees for technical services under the India-UK tax treaty. The service provider only carried out factual verification and prepared screening reports for internal use, without granting any right to use copyright, transferring any proprietary interest in a literary, artistic or scientific work, or making available technical knowledge, skill, know-how or processes. On those facts, the activity was confined to validation of information and was therefore not taxable as royalty or fees for technical services.

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Issues: Whether receipts from background scrutiny and verification services were taxable as royalty or fees for technical services under the India-UK Double Taxation Avoidance Agreement.

Analysis: The receipts arose from factual verification and preparation of background screening reports. The service provider did not grant any right to use copyright in the reports, did not transfer any proprietary right in a literary, artistic or scientific work, and the clients only received factual findings for internal use. The activity also did not involve imparting or making available technical knowledge, experience, skill, know-how or processes. On the facts, the service was confined to validation of information and did not amount to royalty or fees for technical services.

Conclusion: The receipts were not taxable as royalty or fees for technical services and the issue was decided in favour of the assessee.

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