Software licence payments treated as copyrighted article use, not royalty, so no withholding tax or interest liability arose.

Payments for a limited, non-exclusive software licence used for internal business purposes were treated as consideration for a copyrighted article, not a transfer of copyright rights. On that basis, the Tribunal applied the treaty position over the broader domestic amendment and held that the retrospective insertion in section 9(1)(vi) could not be used to impose withholding for the earlier period. The related software maintenance and implementation-linked payment followed the same tax character on the accepted facts, so no tax was deductible at source under section 195. As the primary sums were not chargeable as royalty, the consequential interest demand under section 201(1A) also could not survive.

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Issues: Whether payments made for software licence, software maintenance and related implementation services were taxable as royalty or fees for technical services so as to require deduction of tax at source under section 195 of the Income-tax Act, 1961, and whether interest under section 201(1A) was consequentially leviable.

Analysis: The payments were made for a limited and non-exclusive right to use software for the assessee's internal business, with no right to reproduce, distribute, sell or commercially exploit the software. The software acquired was treated as a copyrighted article and not a transfer of copyright rights. The treaty position was applied in preference to the broader domestic amendment, and the retrospective insertion of the relevant explanation to section 9(1)(vi) was not used to fasten withholding liability on the assessee for an earlier period. The maintenance-related payment, being linked to the same software arrangement, did not justify a different tax treatment on the facts accepted by the Tribunal. As the primary payments were not chargeable as royalty, the consequential interest demand under section 201(1A) also could not survive.

Conclusion: The payments were not royalty or taxable fees for technical services, no tax was deductible at source, and the assessee was not liable for interest under section 201(1A).

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