Royalty is generally a consideration received by a person - a creator or an innovator for allowing his work of art or scientific invention to be used commercially. But in commercial and industrial terms, the concept of Royalty is wider. Royalty is generally a payment received by the owner of an intangible right or knowhow under license in any technology transfer. Such intangible rights are often for making use of intellectual property such as patents, inventions, models, secret formulae, processes, designs, trademarks, service marks, trade names, brand names, franchises, licenses, commercial or industrial know-how, copyrights, cultural activities, films or television rights, literary, artistic or scientific works, computer software, exclusivity rights, etc. Royalty essentially signifies payment for ‘user right’. Such user right could be an annual payment or a pre-decided periodical payment.
Fees for Technical Services (FTS) have been defined in Section 9 itself under clause (vii) as any consideration (including lump sum) for rendering of any managerial, technical or professional services including the services of technical or other personnel. However, considerations for assembly, mining or similar project undertaken by the recipient have been taken out of the ambit of the definition of FTS. Similarly if any sum is received by a non resident technician is chargeable to tax as salaries, the receipt cannot be taxable as FTS. Important clause for FTS in some of the treaties is the make available clause.
Make available clause: The term ‘make available’ means that the person acquiring the technical service is enabled to independently apply the technology. The word ‘enable’ is used in the sense that the technical services should be such that they make the recipient able or wiser in the subject matter. Thus, where the recipient of technical services does not get equipped with the knowledge or expertise and the recipient would not be able to apply it in future independently without support from the service provider, it will not be a case of technical service having been ‘made available’.