Software sale receipts are not royalty where only a copyrighted article is sold and no copyright rights are transferred.

Receipts from sale of shrink-wrap software to distributors and resellers in India were held not to constitute royalty under section 9(1)(vi) of the Income-tax Act or Article 12(3) of the India-USA DTAA, because the transaction involved sale of a copyrighted article and not transfer of copyright rights. The Tribunal followed its earlier decisions in the same assessee's case for prior years and found the factual and legal position unchanged. A retrospective amendment to section 9(1)(vi) did not alter the treaty position applied on these facts, so the software sale receipts remained outside royalty taxation.

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Issues: Whether receipts from sale of shrink-wrap software to distributors/resellers in India were taxable in India as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-USA DTAA.

Analysis: The dispute was covered by the Tribunal's own earlier decisions in the assessee's case for prior assessment years, which had consistently held that the software transactions involved sale of a copyrighted article and not transfer of copyright rights. Following the same factual and legal position for the year under consideration, the receipt from sale of software could not be characterised as royalty. The retrospective amendment to section 9(1)(vi) did not alter the conclusion reached on the treaty position as applied in the assessee's case.

Conclusion: The issue is decided in favour of the assessee. The software sale receipts are not taxable as royalty.

Final Conclusion: The addition treating the software sale receipts as royalty was unsustainable, and the appeal was allowed.

Ratio Decidendi: Consideration received for distribution of shrink-wrap software is not royalty where only a copyrighted article is sold and no copyright right is transferred.

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