Software licence payments are not royalty when no copyright right is transferred, so no tax deduction is required.

Payments for the resale or use of computer software under licence or distribution arrangements were treated as not constituting royalty where the arrangement did not confer any right in copyright. Applying the Supreme Court's interpretation of the DTAA royalty article and section 9(1)(vi) of the Income-tax Act, the amounts paid to non-resident suppliers were therefore not taxable income in India. As no taxable income arose, the payer had no obligation to deduct tax at source under section 195. The question was answered in favour of the assessee, and the Revenue's appeal failed.

---

---

Issues: Whether payments made for resale or use of computer software under licence arrangements constituted royalty and attracted deduction of tax at source under section 195.

Analysis: The appeal was covered by the Supreme Court's ruling that, on the true import of the royalty article in the applicable DTAA and section 9(1)(vi) of the Income-tax Act, payments for computer software under EULAs or distribution agreements did not create any interest or right amounting to use of copyright. On that basis, the amounts paid to non-resident suppliers were not royalty and did not give rise to taxable income in India, so the payer had no obligation to deduct tax at source under section 195.

Conclusion: The question was answered in favour of the assessee and against the Revenue.

Final Conclusion: The substantial questions of law were decided against the Revenue, and the appeal failed.

Ratio Decidendi: Payments for the resale or use of computer software under licence or distribution agreements are not royalty where they do not confer any right in copyright, and therefore no tax is deductible under section 195 absent taxable income in India.

---