Software licence receipts are not royalty where only use of a copyrighted article is granted, not copyright rights.

Consideration for a non-exclusive, non-transferable licence to use software as a copyrighted product, without transfer of any copyright or rights in copyright, is treated as payment for a copyrighted article rather than royalty under the Act and the treaty. The analysis distinguished use of software from exploitation of copyright and concluded that the receipts were not taxable as royalty on that basis. It also held that a domestic amendment to section 9(1)(vi) by the Finance Act, 2012 cannot be read into a concluded treaty unless incorporated into the treaty itself, so the amended domestic definition did not govern these receipts.

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Issues: (i) whether receipts from sale or licensing of software were taxable as royalty under the Act and the applicable treaty; (ii) whether the amendment to section 9(1)(vi) by the Finance Act, 2012 could be read into the treaty.

Issue (i): whether receipts from sale or licensing of software were taxable as royalty under the Act and the applicable treaty.

Analysis: The software was supplied under a non-exclusive and non-transferable arrangement, and the customer obtained only the right to use the copyrighted product for its internal business purposes. The arrangement did not transfer any copyright or any right in the copyright. A distinction was drawn between a copyright right and a copyrighted article, and the payment was held to be for use of the article and not for exploitation of copyright.

Conclusion: The receipts were not taxable as royalty; they were not covered by the royalty definition under the Act or the treaty and were, therefore, not taxable on that basis.

Issue (ii): whether the amendment to section 9(1)(vi) by the Finance Act, 2012 could be read into the treaty.

Analysis: A domestic amendment cannot, by itself, alter the terms of a concluded treaty. The treaty position can change only if the amendment is incorporated into the agreement between the sovereign states. Since no such incorporation existed, the domestic amendment could not enlarge the treaty meaning of royalty.

Conclusion: The amendment to section 9(1)(vi) could not be read into the treaty and did not govern the receipts in question.

Final Conclusion: The revenue's challenge failed, and the assessment treating the software receipts as royalty was not sustained.

Ratio Decidendi: Consideration for a non-exclusive, non-transferable licence that permits only use of software as a copyrighted product, without transfer of copyright or copyright rights, is not royalty; a unilateral domestic amendment cannot expand treaty taxation unless incorporated into the treaty itself.

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