Software purchase as copyrighted article, not royalty, means no withholding tax on payments to Singapore entities.

Consideration for supply of ready-made software and source code to Singapore entities was treated as payment for a copyrighted article, not as a transfer of copyright rights. Applying the distinction between copyrighted article and copyright itself, the tribunal held that the receipts fell under Article 7 of the India-Singapore DTAA as business income rather than Article 12 as royalty or fees for technical services. As no right to use copyright was granted, the sums were not chargeable as royalty or technical service fees, and no withholding obligation arose under section 195. The Revenue's challenge therefore failed, and the section 201 demand could not be sustained.

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Issues: Whether consideration paid for supply of software and source code to Singapore entities was taxable as royalty or fees for technical services, or as business income under the India-Singapore DTAA, and whether tax was deductible at source under section 195 of the Income-tax Act, 1961.

Analysis: The payments were found to relate to acquisition of a ready-made off-the-shelf computer programme and not to any transfer of copyright rights. The distinction between a copyrighted article and copyright itself was applied, and the transaction was held to fall within Article 7 of the DTAA as business income rather than within Article 12 as royalty or fees for technical services. Since no right to use the copyright was granted, the amounts were not chargeable as royalty or technical service fees, and the withholding obligation under section 195 did not arise.

Conclusion: The Revenue's challenge failed and the assessee was held not liable to deduct tax at source on the impugned payments.

Final Conclusion: The transfer was treated as a purchase of software as a copyrighted article, with the tax consequence governed by Article 7 and not Article 12, so the section 201 demand could not be sustained.

Ratio Decidendi: A non-exclusive transfer of software for internal use, without conveyance of any copyright rights, is payment for a copyrighted article and not royalty or fees for technical services; such payments are assessable as business income under the relevant DTAA and do not attract section 195 withholding.

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