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Issues: (i) Whether consideration for supply of customised software was royalty under Article 12 of the Indo-US Double Taxation Avoidance Agreement read with Section 9(1)(vi) of the Income-tax Act, 1961. (ii) Whether interest under Section 234B of the Income-tax Act, 1961 was chargeable.
Issue (i): Whether consideration for supply of customised software was royalty under Article 12 of the Indo-US Double Taxation Avoidance Agreement read with Section 9(1)(vi) of the Income-tax Act, 1961.
Analysis: The Court followed its earlier binding view that supply of software, even where separately invoiced or licensed, amounted to transfer of a copyrighted article and not transfer of any right in copyright. The character of the payment was therefore not royalty, and the receipt had to be treated as business receipt subject to the question of business connection or permanent establishment.
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Issue (ii): Whether interest under Section 234B of the Income-tax Act, 1961 was chargeable.
Analysis: The Court applied its earlier ruling that the levy of interest under Section 234B was not attracted in the circumstances considered, and reiterated that the point stood concluded against the Revenue.
Conclusion: The issue was decided in favour of the assessee and against the Revenue.
Final Conclusion: The appeals failed on both questions of law, and the order of the Tribunal was left undisturbed.
Ratio Decidendi: Payment for supply of software is not royalty where no right in copyright is transferred, and the connected levy of interest under Section 234B is not attracted in the circumstances governed by the earlier binding rulings.
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