Software supply receipts treated as payment for a copyrighted article, not royalty, under the India-USA tax treaty.

Receipts from supply of software were treated as consideration for a copyrighted article, not for the use of, or right to use, copyright in software, and therefore were not taxable as royalty under Article 12 of the India-USA DTAA. The commentary further notes that where the treaty contains its own operative definition of royalty, subsequent enlargements in domestic law do not expand that treaty meaning, and the more beneficial treaty position prevails under section 90(2). Earlier orders in the assessee's own case for prior years were followed, with the software supply receipts remaining outside royalty taxation.

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Issues: Whether consideration received for supply of software was taxable as royalty under the Income-tax Act, 1961 and Article 12 of the India-USA Double Taxation Avoidance Agreement.

Analysis: The Tribunal held that the assessee's receipts from supply of software did not represent consideration for the use of, or right to use, copyright in software. The payment was for supply of software as a copyrighted article and, on the facts, did not fall within the treaty definition of royalty. The Tribunal further held that amendments inserted in section 9(1)(vi) of the Income-tax Act, 1961 could not be read into the treaty where Article 12 already contained an operative definition of royalty, and the treaty would prevail under section 90(2) to the extent beneficial to the assessee. The earlier orders in the assessee's own case for preceding assessment years were followed.

Conclusion: The receipts were not taxable as royalty in India and the assessee succeeded on the issue.

Final Conclusion: The assessee's appeals were allowed and the Revenue's appeal was dismissed, the software supply receipts being held not chargeable to tax as royalty under the applicable treaty and domestic law provisions.

Ratio Decidendi: Where a tax treaty contains its own definition of royalty, retrospective enlargements in domestic law do not expand that treaty meaning, and payment for a copyrighted article is not, by itself, royalty for use of copyright.

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