Software resale without copyright rights is business income, not royalty, and remains outside Indian tax absent a permanent establishment.

Payment for software products is business income, not royalty, where the buyer receives only the right to resell the copyrighted article and no right to reproduce, duplicate, or otherwise exploit the underlying copyright. The agreement and treaty royalty clause both required a transfer of rights in, or use of, copyright itself; invoices could not change the real nature of the transaction. As the assessee had no permanent establishment in India, the resulting business profits were not taxable in India.

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Issues: Whether the amount received on sale of software products was taxable as royalty or as business profits.

Analysis: The distinction between transfer of copyright and sale of a copyrighted article was decisive. Consideration for a transfer of all or any rights in copyright falls within royalty, but consideration for supply of software products without any right to reproduce, duplicate, or commercially exploit the underlying copyright is business income. On the facts, the agreement in question only enabled resale of the software products as such and did not grant any right to copy the software. The invoices' description could not alter the real nature of the transaction. The treaty provision on royalties also required payment for the use of, or the right to use, copyright and not merely for use of the copyrighted product. Since the assessee had no permanent establishment in India, business profits were not taxable in India.

Conclusion: The amount of Rs. 58.29 lakh was not royalty but business profits, and it was not chargeable to tax in India.

Ratio Decidendi: A payment for sale of a copyrighted product, without any right to reproduce or otherwise exploit the copyright itself, is business profit and not royalty.

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