Software supply receipts are not royalty where only a copyrighted article is transferred, not copyright rights.

Receipts from supply or distribution of software were held not to constitute royalty under section 9(1)(vi) or Article 12 of the India-Ireland treaty because the arrangement involved only a transfer of a copyrighted article, not any copyright or rights in copyright. The tribunal followed binding jurisdictional rulings that distinguish between a copyrighted product and the underlying copyright, and held that mere use, sale, or distribution of software without conferral of copyright rights does not amount to royalty. As the treaty provisions were more beneficial, no separate characterization under the Act was required. The receipts were therefore not taxable as royalty.

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Issues: (i) Whether the receipts from supply or distribution of software constituted royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Ireland Double Taxation Avoidance Agreement.

Analysis: The software arrangement was found to involve transfer of a copyrighted article and not transfer of any copyright or any rights in copyright. The Tribunal followed the binding jurisdictional decisions distinguishing a copyrighted product from copyright rights, and held that mere use or distribution of software without conferral of rights in the copyright does not amount to royalty. As the treaty provisions were more beneficial, the characterization under the Act did not require separate adjudication.

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

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