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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the licence fee paid for software access, including access to proprietary databases, constituted royalty under the India-Singapore DTAA and the Income-tax Act, 1961, so as to attract tax withholding under section 195.
Analysis: The payment was examined in the context of the treaty definition of royalty under Article 12(3), which taxes consideration for the use of, or the right to use, copyright, or for information concerning industrial, commercial or scientific experience. The decisive consideration was whether the payer obtained a copyright right or only access to a copyrighted article. The software arrangement did not involve transfer of any copyright rights such as the right to copy, distribute, adapt, publicly perform, or publicly display the programme. The access to databases and software functionality was treated as use of a product or copyrighted material, not use of copyright itself. On that basis, the payment was not brought within the treaty concept of royalty, and the withholding obligation under section 195 did not arise.
Conclusion: The software licence fee was not royalty, and no tax was deductible on the remittance. The issue was decided in favour of the assessee.
Ratio Decidendi: A payment for mere use of software or access to copyrighted material, without acquisition of copyright rights, is not royalty under the treaty definition.
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