Maintenance receipts linked to software support were not taxable as royalty where the underlying software receipts were not royalty.

Maintenance revenue from software customers was examined under section 9(1)(vi) and Article 12 of the India-USA DTAA. Because the underlying software receipts had already been held by the Mumbai Bench not to constitute royalty, the Tribunal treated the maintenance receipts on the same factual matrix as not ancillary to royalty. It also noted that it was not independently deciding the wider Article 12(3) or domestic-law question beyond the prior ruling relied on. The maintenance receipts were therefore not chargeable to tax in India as royalty, and the addition was deleted.

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Issues: Whether maintenance revenue received from software customers was taxable in India as royalty or fees for included services under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-USA DTAA.

Analysis: The maintenance receipts were held to be linked to software support, but the decisive factor was that the underlying software receipts, on which the Revenue had built its case, had already been held by the Mumbai Bench not to constitute royalty. Following that ruling and applying the same factual matrix for the relevant assessment year, the maintenance revenue could not be characterised as ancillary to royalty. The Tribunal also noted that it was not deciding the wider question under Article 12(3) or the domestic definition independently, but was guided by the prior ruling on the software receipts.

Conclusion: The maintenance revenue was not chargeable to tax in India as royalty, and the addition was deleted.

Final Conclusion: The assessee succeeded and the tax addition on maintenance receipts was set aside.

Ratio Decidendi: Where the foundational software receipts are not royalty, maintenance receipts merely connected with such software cannot be taxed as royalty or as ancillary fees for included services on the same footing.

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