Receipts Not ‘Royalty’ as No Use or Right To Use of IP Given to Customers

Sabre Marketing Nederland B.V., a Netherlands tax resident, provides airline decision-support software and related services through systems hosted on servers outside India and accessed online by airlines. For AYs 2015-16 to 2017-18, the Assessing Officer ultimately taxed booking and service fees received from Indian airlines as royalty under Section 9(1)(vi) at 10% of gross receipts, following DRP directions.

The assessee challenged this characterization under the India-Netherlands DTAA.

Main Issue: Whether fees received for access to foreign-hosted airline software constitute “royalty” under Article 12(4) of the India-Netherlands DTAA.

ITAT Held: The ITAT held that the receipts were not taxable as royalty under the DTAA, notwithstanding their treatment under domestic law. The Tribunal found that no right to use or exploit intellectual property, secret process, or copyright was granted; the software remained hosted, controlled, and operated outside India, with airlines merely accessing the system for internal operations.

Relying on New Skies Satellite BV, Telstra Singapore, and Salesforce.com Singapore, it reiterated that use of a technology-enabled service does not amount to use or right to use IP. Amendments to Section 9(1)(vi) were held inapplicable to the DTAA. Thus, the receipts were not taxable as royalty under Article 12(4).

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