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Issues: Whether consideration paid for purchase of shrink-wrapped software from a non-resident constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Ireland DTAA, thereby attracting the obligation to deduct tax at source under section 195 of the Income-tax Act, 1961, and the consequential liability under sections 201(1) and 201(1A) of the Income-tax Act, 1961.
Analysis: The payment was for the right to use copyrighted software and not a bare sale of a physical medium. The governing agreement and the use permitted under it showed that the non-resident retained the copyright, while the assessee obtained only a licence to use the software, including copying it onto the hard disk and making backup copies. Such rights were treated as part of the copyright itself. Following the binding Karnataka High Court ruling and the co-ordinate bench view applied in the order, the consideration answered the description of royalty both under the Act and under the DTAA. Once the payment was royalty chargeable to tax in India, the assessee had a statutory obligation to deduct tax at source.
Conclusion: The issue was decided against the assessee and in favour of the Revenue. The assessee was liable to deduct tax at source, and the finding of default and interest liability was upheld.
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