Software licence receipts not royalty where only copyrighted article is used, with no transfer of copyright rights.

Licensing or supply of software to Indian customers was not royalty under Article 12(3) of the India-Ireland DTAA or section 9(1)(vi) because the customers acquired only a right to use the copyrighted article for internal use, without any transfer of copyright or right to use copyright. The treaty definition of royalty, being more beneficial, prevailed over the domestic amendment. The receipts were therefore characterised as business income, and the absence of a permanent establishment in India reinforced non-taxability.

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Issues: Whether consideration received by a non-resident for licensing or supply of computer software to Indian customers constituted royalty under Article 12(3) of the India-Ireland DTAA and section 9(1)(vi) of the Income-tax Act, 1961.

Analysis: The software supplied was for the customers' internal use and the agreement preserved the supplier's intellectual property rights. The customers obtained only a right to use the copyrighted article and not any right in the copyright itself. Under Article 12(3) of the India-Ireland DTAA, royalty arises only where payment is made for the use of, or the right to use, copyright. The treaty, being more beneficial, prevails over the domestic amendment in section 9(1)(vi). The receipt was therefore business income and not royalty, and the absence of a permanent establishment in India reinforced non-taxability.

Conclusion: The software receipts were not royalty and were not taxable in India under the treaty.

Ratio Decidendi: Payment for a copyrighted article, without transfer of any copyright or right to use copyright, does not constitute royalty under a tax treaty provision defining royalty by reference to copyright.

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