Information supplied was in nature of data. It was not exploitation of know how. Hence, the payment received was business receipt and not Royalty.

Information supplied was in nature of data. It was not exploitation of know how. Hence, the payment received was business receipt and not Royalty.

The taxpayer was an Indonesian company engaged in the business of providing strategic consultancy services. During the year, it had provided information to its group company in India and had received certain amount as consideration therefor. The taxpayer had claimed that the consideration received by it was in the nature of business receipt and since it did not have a PE in India, it was not chargeable into tax in India. According to the AO, the information provided by the taxpayer constituted technical and consultancy services so as to make available technical knowledge, skill, know-how, experience or process and thus, was in the nature of ‘fees for included services’ as covered by Article 12 of the DTAA between India and Indonesia2. The AO held that the fees received by the taxpayer were for consultancy/advisory services without any technology and they constituted Royalty in term of Article 12. The taxpayer approached DRP, which held that provisions of Article 22(3) – ‘other income’ – apply.

Held

The Tribunal observed and held as follows. The AO had nowhere established that the information supplied was arising out of exploitation of the knowhow generated by the skills or innovation of person who possesses such talent. In taxation terminology, the term ‘royalty’ has a distinct meaning. The information received by the Indian group company was in the nature of data and the consideration for the same cannot constitute ‘Royalty’. Article 22 is a residuary head analogous to sections 56 and 57 of I-T Act. Hence, It will not apply if the sum can be taxed under any other Article. With regard to earlier decisions of the Tribunal in respect of similar payments by the Indian group company, the payment should be treated as business profits in terms of Article 7.