Treaty definition of royalty controls taxation of voice termination receipts absent a permanent establishment in India.

Receipts from voice termination and telecom connectivity services were treated as business profits under the India-USA DTAA because they did not involve use of a secret process, right to use equipment, or transfer of intellectual property. The domestic law expansion of "process" in section 9(1)(vi) was not applied to enlarge the treaty meaning of "royalty", and retrospective amendments did not change the DTAA definition. As no permanent establishment existed in India, the receipts were not taxable in India as royalty or fees for technical services and fell outside Indian tax jurisdiction under the treaty.

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Issues: Whether receipts from voice termination services were taxable in India as royalty or fees for technical services, and whether they were instead assessable as business profits under the India-USA DTAA in the absence of a permanent establishment in India.

Analysis: The receipts arose from telecom connectivity and termination services rendered through infrastructure and technical arrangements abroad. The domestic law attempt to treat the receipts as royalty based on the expanded meaning of "process" under section 9(1)(vi) was not accepted for treaty purposes. The relevant treaty expression "royalty" was construed in accordance with the DTAA, and the services were found not to involve use of a secret process or grant of any right to use equipment or intellectual property. The retrospective domestic amendments did not alter the treaty definition. In the absence of a permanent establishment in India, the receipts were held to fall within business profits under the DTAA and not to be taxable in India as royalty or fees for technical services.

Conclusion: The issue was decided in favour of the assessee and against taxation of the receipts as royalty or fees for technical services in India.

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