Licensed in-flight entertainment content receipts are not royalty or technical fees absent copyright transfer or make-available of know-how.

Consideration for supplying licensed in-flight entertainment content is examined under the India-UK DTAA and the Income-tax Act as potential royalty and fee for technical services. The analysis states that where no copyright rights are transferred to the airline and the recipient only gets use of the content for exhibition, the payment does not constitute royalty under the treaty, applying the more beneficial treaty position. It also states that, absent any technical knowledge, skill, know-how, or process being made available to the airline, the receipt does not qualify as fee for technical services. The resulting tax addition on these two heads is treated as deleted.

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Issues: (i) Whether the consideration received for provision of in-flight entertainment content was taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 13 of the India-UK Double Taxation Avoidance Agreement; (ii) Whether the same consideration was taxable as fee for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 13 of the India-UK Double Taxation Avoidance Agreement.

Issue (i): Whether the consideration received for provision of in-flight entertainment content was taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 13 of the India-UK Double Taxation Avoidance Agreement.

Analysis: The receipts arose from supplying licensed in-flight entertainment content and related processing for screening on aircraft. The rights in the underlying content were not transferred to the airline, and the assessee only enabled use of the copyrighted content for exhibition. On the treaty definition of royalty, the payment was examined as consideration for use of, or right to use, copyright or equipment, and not as a transfer of rights in the content itself. By applying the more beneficial treaty provisions under section 90(2) of the Income-tax Act, 1961, the amount was held not to fall within royalty.

Conclusion: The amount was not assessable as royalty and the issue was decided in favour of the assessee.

Issue (ii): Whether the same consideration was taxable as fee for technical services under section 9(1)(vii) of the Income-tax Act, 1961 and Article 13 of the India-UK Double Taxation Avoidance Agreement.

Analysis: The arrangement did not involve rendering of technical knowledge, experience, skill, know-how, or processes to the airline so as to satisfy the treaty requirement of make available. The assessee's role was confined to procuring and processing entertainment content for exhibition, and no technical knowledge was imparted to the recipient. The receipt therefore did not satisfy the definition of fee for technical services under the applicable treaty provision.

Conclusion: The amount was not assessable as fee for technical services and the issue was decided in favour of the assessee.

Final Conclusion: The tax addition on account of royalty and fee for technical services was deleted, and the remaining grounds were only consequential or ancillary in nature, resulting in allowance of the appeal.

Ratio Decidendi: Consideration for supplying licensed content for use in an entertainment system is not royalty unless copyright rights are transferred or licensed for use in the relevant legal sense, and it is not fee for technical services unless technical knowledge or skill is made available to the recipient.

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