Software access payments were not royalty where only a restricted copyrighted article was used, not copyright rights themselves.

Payments for restricted access to software and network facilities under the master service arrangement were not royalty under Article 12(4) of the India-Netherlands DTAA or section 9(1)(vi) of the Income-tax Act, 1961, because the service provider received only a limited, non-transferable right to use a copyrighted article for its own business use, not any right in the copyright itself. The agreement barred transfer, copying, decompiling, reverse engineering and sublicensing, and no source code or proprietary process rights were made available. Retrospective amendments to section 9(1)(vi) did not alter the treaty position. The payments were therefore not taxable in India as royalty.

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Issues: Whether payments received for restricted access to and use of software and network facilities under the master service arrangement constituted royalty under Article 12(4) of the India-Netherlands DTAA and section 9(1)(vi) of the Income-tax Act, 1961, and whether the retrospective amendments to section 9(1)(vi) altered the treaty position.

Analysis: The arrangement granted only limited and non-transferable access to copyrighted software for the service provider's own business use. The agreement prohibited transfer, copying, decompiling, reverse engineering, sublicensing and other acts showing exploitation of copyright. The ownership of the software and intellectual property remained with the assessee, and the service provider received only a copyrighted article, not any right in the copyright itself. The use permitted did not amount to use of a process, as no source code or proprietary process rights were made available. Applying the definition of copyright under sections 13 and 14 of the Copyright Act, 1957, the payment was held not to be consideration for use of or right to use copyright. The retrospective amendment to section 9(1)(vi) was held not to expand the treaty definition of royalty in a case governed by the India-Netherlands DTAA.

Conclusion: The payments were not royalty under the treaty and were not taxable in India as royalty.

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