Imported software payments as copyrighted articles, not royalty, so no tax deduction at source was required.

Consideration for imported off-the-shelf computer software was treated as payment for a copyrighted article, not as a transfer or licence of copyright. The assessee acquired only the right to use the software embedded in the media for business purposes, while copyright ownership remained with the foreign supplier. On that basis, the remittance was held not to be royalty within section 9(1)(vi), so no income chargeable to tax arose in India and deduction at source under section 195 was not required. The consequential demand under section 201 for non-deduction of tax was therefore not sustainable.

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Issues: Whether consideration paid for imported off-the-shelf computer software constituted royalty so as to attract tax deduction at source under section 195 of the Income-tax Act, and whether the demand raised for non-deduction of tax was sustainable.

Analysis: The payment was for purchase of a copyrighted article, namely software, and not for transfer or licence of any copyright in the software. The right acquired by the assessee was only to use the programme embedded in the media for business purposes, while ownership of the copyright continued with the foreign supplier. On this distinction, the earlier decisions of the Tribunal on identical facts were followed. Since the remittance did not amount to royalty within the meaning of section 9(1)(vi), no income chargeable to tax arose in India on which deduction under section 195 could be required. Consequentially, the demand under section 201 for failure to deduct tax at source could not stand.

Conclusion: The payments for import of software were not royalty, and the assessee was not liable to deduct tax at source under section 195. The demand under section 201 was cancelled.

Ratio Decidendi: Consideration paid for acquisition of a copyrighted article, without transfer of any copyright or right to exploit copyright, is not royalty for income-tax purposes and does not attract deduction of tax at source under section 195.

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