Software sale receipts not royalty under the Income-tax Act and India-Ireland DTAA, following Engineering Analysis precedent.

Receipts from the sale of software were examined to determine whether they constituted royalty under Explanation 2 to Section 9(1)(vi) of the Income-tax Act and Article 12 of the India-Ireland DTAA. The issue was treated as covered by the Supreme Court ruling in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that such receipts do not amount to royalty. Applying that precedent, the software sale receipts were held not taxable as royalty and the question was answered in favour of the assessee and against the Revenue.

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Issues: Whether receipts from sale of software amounted to royalty under Explanation 2 to Section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Ireland DTAA.

Analysis: The issue stood covered by the Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that such receipts do not constitute royalty. The Revenue was unable to dispute the applicability of that decision.

Conclusion: The question was answered in favour of the assessee and against the Revenue; the software sale receipts were not taxable as royalty.

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