2026 (4) TMI 97 - AT - Income Tax

Royalty and fees for included services denied where public-domain data access and advisory marketing support did not transfer know-how.

Receipts for title search services were not royalty under Article 12(3) of the India-US DTAA or section 9(1)(vi), because the work merely collated and ... Royalty receipts - receipts from title search services - Information concerning commercial experience - Receipts from marketing support services constituted fees for included services - Make available test Royalty receipts from title search services - Public domain databases - Commercial experience - Receipts from title process services for providing access to information collated from databases available in the public domain - India-US DTAA - HELD THAT: - The Tribunal held that Article 12(3) contemplates consideration for the use of, or right to use, information concerning industrial, commercial or scientific experience, which implies transfer of specialised and actionable know-how enabling the recipient to apply that experience independently. On the material on record, the assessee merely provided relevant extracts of existing information available in the public domain for use in preparing title search reports and did not share its methodology, techniques, experience or any proprietary process for searching or compiling the databases. Mere provision of such information, without transfer of any commercial experience or right to use any process or equipment, could not be characterised as royalty. As decided in Uptodate Inc. vs. DCIT [2023 (4) TMI 273 - ITAT DELHI] payments made for mere providing access to date already available in public domain does not fall within the meaning of royalty as defined under Article 12(3) of the India-US DTAA [Paras 11, 12, 13] The addition made by treating the title process service receipts as royalty was deleted. Fees for included services - Make available test - Consultancy services - Receipts from marketing support services constituted fees for included services holding it to be FIS under Article 12(4)(b) of India-US DTAA - assessee is providing MSS to its Indian AE pursuant to agreement for the provision of marketing and other services - HELD THAT: - Examining the agreement, the Tribunal found that the services consisted of advice, guidance, assistance in identifying customers, solicitation support and allied marketing assistance, and therefore were in the nature of consultancy services. Under Article 12(4)(b) read with the Protocol, such services become included services only if they make available technical knowledge, experience, skill, know-how, processes, or involve development and transfer of a technical plan or design; the Protocol further clarifies that consultancy services not of a technical nature cannot be included services. Since the marketing support services did not satisfy the make available condition, the receipts could not be taxed as fees for included services. The authorities cited on behalf of the Revenue were held distinguishable on facts. [Paras 16, 17] The addition made by treating the marketing support service receipts as fees for included services was held unsustainable and deleted. Final Conclusion: The Tribunal held that receipts from title process services were not royalty and receipts from marketing support services were not fees for included services under the India-US DTAA. The substantive additions were deleted, while the grounds relating to interest and penalty initiation were dismissed, and the appeal was partly allowed. Issues: (i) Whether receipts from title search services constituted royalty under Article 12(3) of the India-US DTAA and section 9(1)(vi) of the Income-tax Act, 1961. (ii) Whether receipts from marketing support services constituted fees for included services under Article 12(4)(b) of the India-US DTAA.Issue (i): Whether receipts from title search services constituted royalty under Article 12(3) of the India-US DTAA and section 9(1)(vi) of the Income-tax Act, 1961.Analysis: The title search activity consisted of collating and providing access to information already available in public-domain databases concerning title, mortgage status, and tax payment status of properties. No material showed that any proprietary commercial experience, methodology, technique, or know-how was transferred to the Indian associated enterprise. Mere access to extracted information from existing databases did not amount to use of, or the right to use, commercial experience or industrial, commercial, or scientific information within the treaty definition of royalty.Conclusion: The receipts from title search services did not constitute royalty and the addition was deleted in favour of the assessee.Issue (ii): Whether receipts from marketing support services constituted fees for included services under Article 12(4)(b) of the India-US DTAA.Analysis: The marketing support arrangement covered advisory and solicitation functions such as identifying customers, assisting with customer queries, and supporting marketing activity. Under the treaty and protocol, consultancy services fall within fees for included services only if they make available technical knowledge, experience, skill, know-how, or processes. The services rendered were advisory in nature and did not make available any technical knowledge or skill to the recipient. The make available condition was therefore not satisfied.Conclusion: The receipts from marketing support services did not constitute fees for included services and the addition was deleted in favour of the assessee.Final Conclusion: The additions treating the two service streams as taxable royalty and fees for included services were deleted, while the remaining grounds were not sustained, resulting in partial relief to the assessee.Ratio Decidendi: Payment for mere access to information collated from public-domain databases does not amount to royalty unless proprietary commercial experience or other qualifying rights are transferred, and consultancy or advisory services are taxable as fees for included services only when they make available technical knowledge, experience, skill, know-how, or processes.