Background screening reports were not royalty because no copyright, database right, or technical know-how was transferred.

Receipts for background screening and investigation services were treated as consideration for supplying factual verification reports, not as payment for any right to use copyright, database rights, or another protected commercial or technical asset. Because the client received only reports for internal use and no right to reproduce, modify, exploit, or commercially use them, the payment did not fall within royalty under section 9(1)(vi) or Article 13 of the India-UK DTAA. The activity also did not involve making available technical knowledge, experience, skill, or know-how, or access to a database in the treaty sense. The addition was therefore not sustainable.

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Issues: Whether consideration received for providing background screening and investigation services is taxable as royalty under Section 9(1)(vi) of the Income-tax Act, 1961 and Article 13 of the India-UK DTAA.

Analysis: The receipts arose from the supply of background screening reports and not from any grant of right to use copyright, database, or any protected commercial or technical asset. The reports were factual compilations prepared for the client's internal use, and the client did not obtain rights to exploit, reproduce, modify, or commercially use the reports. The activity also did not amount to making available technical knowledge, experience, skill, or know-how, nor did it involve access to a database in the relevant treaty sense.

Conclusion: The receipts from background screening and investigation services were not taxable as royalty and the addition could not be sustained.

Ratio Decidendi: A payment for furnishing factual background-verification reports, without transfer of copyright, database rights, or making available technical knowledge or commercial experience, is not royalty under the Income-tax Act, 1961 or the India-UK DTAA.

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