Software sale and cloud-service receipts held not to be royalty where no copyright or usage rights were transferred.

Receipts from software sales and cloud-service subscriptions were held not to constitute royalty, following binding precedent in the assessee's own earlier years. The Tribunal applied the principle that sale of software as a copyrighted article does not involve transfer of copyright rights, and that mere online access to cloud services, without any right to use, reproduce, or exploit the underlying software or infrastructure, is likewise outside the scope of royalty. The Revenue's treatment of both receipts as royalty was rejected and the addition was deleted.

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Issues: Whether receipts from sale of software and cloud services were taxable as royalty in India in the hands of the assessee.

Analysis: The receipts from software licensing and cloud-based services were held to be covered by the binding precedent in the assessee's own case for earlier assessment years. The Tribunal followed the settled principle that sale of software as a copyrighted article does not give rise to royalty, and that cloud-service subscriptions, where the customer gets only online access without any right to use or reproduce the underlying software or infrastructure, are not royalty either. The Revenue's treatment of both receipts as royalty was therefore inconsistent with the applicable legal position already affirmed in prior decisions.

Conclusion: The issue was decided in favour of the assessee, and the receipts were held not taxable as royalty.

Final Conclusion: The addition made on account of software sale and cloud-service receipts was deleted, and the assessee's appeal succeeded.

Ratio Decidendi: Consideration for sale of software as a copyrighted article and for mere online access to cloud services, without transfer of reproduction or usage rights in the underlying software or infrastructure, is not royalty.

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