Software user rights in a copyrighted article are not royalty when no copyright rights are transferred under the treaty or income tax law.

Consideration for granting user rights in the OPUS software was held to be payment for a copyrighted article, not for transfer or use of copyright rights. As the copyright remained with the original owner and no rights under section 14 of the Copyright Act were shown to have passed to the Indian users, the receipt did not fall within the royalty definition in Explanation 2 to section 9(1)(vi) or Article 12 of the India-Germany tax treaty. The Tribunal followed earlier coordinate bench rulings in the assessee's own case and held that the software formed part of the supply arrangement, so the amount was not taxable as royalty and the related addition was deleted.

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Issues: Whether consideration received for granting user rights in the software OPUS constituted royalty under Explanation 2 to section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Germany tax treaty.

Analysis: The consideration was found to be for a right to use a copyrighted article, not for any transfer or use of copyright itself. The copyright in the software remained with the original owner, and no rights falling within section 14 of the Copyright Act were shown to have been vested in the Indian users. Following the earlier coordinate bench decisions in the assessee's own case and the approved distinction between a copyrighted article and copyright, the amount could not be treated as royalty. The Tribunal also noted that the software formed an inseparable part of the supply arrangement and did not have independent existence for royalty characterization.

Conclusion: The receipts from granting user rights in OPUS were not taxable as royalty and the addition made on that basis was deleted in favour of the assessee.

Ratio Decidendi: Payment for a right to use a copyrighted article, without transfer of any copyright rights, is not royalty under section 9(1)(vi) or the treaty royalty clause.

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