Software licence receipts as royalty rejected where only copyrighted articles were used, not copyright rights transferred.

Receipts under a non-exclusive, limited software licence were treated as consideration for use of a copyrighted article, not a transfer of copyright or the right to exploit copyright, so they did not constitute royalty under section 9(1)(vi) or Article 12 of the India-USA DTAA. Applying its earlier decision and the jurisdictional High Court's view, the Tribunal also held that the Test Tools Agreement was inseparable from the principal BREW arrangement and likewise not independently taxable as royalty. The assessee therefore succeeded on the substantive tax issue.

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Issues: Whether the receipts under the BREW Operator Agreement and the Test Tools Agreement were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-USA DTAA.

Analysis: The Tribunal followed its own earlier decision in the assessee's case and the jurisdictional High Court's view that a non-exclusive and limited licence for software use, where no copyright or right to exploit copyright is transferred, is a transfer of a copyrighted article and not of copyright rights. The receipts from BREW-related agreements were found to be for use of copyrighted material and not for the right to use copyright. On the same reasoning, the Test Tools Agreement was also held to be inseparable from the principal BREW arrangement and not independently taxable as royalty.

Conclusion: The receipts under both agreements were held not chargeable to tax as royalty, and the assessee succeeded on the substantive ground.

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