Web hosting receipts not taxable as royalty or fees for technical services under the India-USA treaty.

Web hosting receipts were treated as payments for access to standard server space, connectivity and infrastructure, not for use or right to use industrial, commercial or scientific equipment, because the customer had no possession, operational control or dominion over the servers and only limited inspection rights for security verification. The domestic-law expansion of royalty could not enlarge the India-USA DTAA definition without a corresponding treaty amendment, so the receipts were not taxable as royalty. The arrangement also did not make available technical knowledge, skill, know-how or a process, so it did not constitute fees for technical services under the treaty. The Revenue's appeals were rejected.

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Issues: Whether receipts from web hosting services received by the assessee from its Indian customer were taxable in India as royalty or fees for technical services under the Income-tax Act, 1961 and the India-USA DTAA.

Analysis: The web hosting arrangement showed that the assessee provided standard server space, internet connectivity and related infrastructure, while the customer had no possession, operational control or dominion over the servers. Limited inspection rights for security verification did not amount to use or right to use industrial, commercial or scientific equipment. The payments were therefore for availing a facility and not for use of equipment, and the domestic-law expansion of royalty could not enlarge the treaty definition in the absence of a corresponding treaty amendment. The services also did not make available technical knowledge, skill, know-how or process so as to constitute fees for technical services under the treaty.

Conclusion: The receipts from web hosting services were held not taxable in India as royalty or fees for technical services, and the Revenue's appeals were rejected.

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