Software licence receipts treated as sale of copyright article, not royalty, under the India-USA DTAA.

Software supplied under a perpetual, irrevocable, non-exclusive licence was treated as consideration for sale of a copyright article, because copyright remained with the assessee and the agreement did not transfer copyright rights. Applying the same contractual terms as in the earlier year, the Tribunal held that the receipt did not constitute royalty under Article 12(3) of the India-USA DTAA. The payment was therefore not taxable as royalty on that basis.

---

---

Issues: Whether the amount received for supply of software under the licence arrangement was royalty within Article 12(3) of the India-USA DTAA or consideration for sale of a copyright article.

Analysis: The payment arose from supply of software under an agreement that granted Reliance a perpetual, irrevocable, non-exclusive right to use the software within its network, while copyright in the software remained with the assessee. On the facts and clauses of the agreement, and following the earlier Tribunal decision on an identical issue for the preceding assessment year, the receipt was treated as consideration for the sale of a copyright article and not as royalty. The Tribunal found no material difference between the earlier year and the present year.

Conclusion: The receipt was not royalty under Article 12(3) of the India-USA DTAA and was not taxable on that basis; the finding was in favour of the assessee.

---