Software licence fees treated as royalty, and reopening sustained where the original assessment showed no examined opinion.

Reopening under sections 147 and 148 was upheld because the original assessment order was cryptic and showed no conscious examination of the software licence receipts; with notice issued within four years, the change-of-opinion objection failed. Licence fees for allowing Indian affiliates to use software were held taxable as royalty under the Income-tax Act and the India-USA DTAA, since the assessee granted use rights in software while copyright remained with the owner. The Tribunal applied the retrospective amendment to section 9(1)(vi) and treated permitted use, including copying and installation for internal business, as use of copyright. The additions and reassessment were sustained.

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Issues: (i) Whether reopening of the assessment under sections 147 and 148 was invalid as a mere change of opinion. (ii) Whether licence fees received for allowing Indian affiliates to use software were taxable as royalty under the Income-tax Act and the India-USA DTAA.

Issue (i): Whether reopening of the assessment under sections 147 and 148 was invalid as a mere change of opinion.

Analysis: The original assessment order was found to be cryptic and showed no inquiry or conscious examination of the taxability of the software licence receipts. Since the reassessment notice was issued within four years, the proviso restricting reopening was not attracted. On the record, there was no basis to infer that the Assessing Officer had formed any opinion on the issue earlier.

Conclusion: The reopening was valid and the objection based on change of opinion failed.

Issue (ii): Whether licence fees received for allowing Indian affiliates to use software were taxable as royalty under the Income-tax Act and the India-USA DTAA.

Analysis: The agreements showed that the assessee had only granted licence and sub-licence rights for use of software, while ownership and copyright remained with the original software owner. The Tribunal applied the retrospective amendment to section 9(1)(vi) and relied on the legal principle that the right to make use of software for internal business, including copying and installation as permitted by the licence, can amount to use of copyright and therefore royalty. The treaty argument was rejected on the basis that the payment fell within the royalty article and was taxable in India.

Conclusion: The licence fee constituted royalty and was taxable in India.

Final Conclusion: The assessee succeeded on no substantive ground and the additions and reopening were sustained in full.

Ratio Decidendi: Where the original assessment does not show application of mind on a material issue, reopening within four years is not barred as mere change of opinion, and consideration for software licence rights enabling use of copyright in the software is taxable as royalty.

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