Software distribution receipts and support fees treated as business income, not royalty, under the India-Finland treaty.

Receipts from sale of off-the-shelf software and related maintenance, support and upgrade services were treated as business income rather than royalty because the distributor agreements granted only a non-exclusive right to market and distribute copyrighted articles, with no access to source code and no right to modify, reproduce or exploit copyright. The payments were therefore not consideration for use of, or right to use, copyright under Article 12 of the India-Finland Tax Treaty. The commentary also notes that later domestic-law amendments to the royalty definition in section 9(1)(vi) could not enlarge the treaty definition, since the treaty contained its own exhaustive meaning of royalty.

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Issues: Whether receipts from sale of off-the-shelf software and maintenance and support services, including upgrades, were taxable as royalty under the Income-tax Act, 1961 and Article 12 of the India-Finland Tax Treaty.

Analysis: The software distributor agreements granted only a non-exclusive right to market and distribute the software products as copyrighted articles. The distributors had no right to the source code, no authority to modify, reproduce or exploit the underlying copyright, and no transfer of copyright in the software was shown. On that basis, the receipts were held to be sales revenue/business income and not consideration for use of, or right to use, copyright. The later domestic-law amendments to the royalty definition under section 9(1)(vi) could not be read into the treaty, because the treaty contained its own exhaustive definition of royalty and could not be unilaterally expanded by domestic legislation.

Conclusion: The receipts from sale of software and from maintenance and support services, including upgrades, were not royalty under Article 12 of the India-Finland Tax Treaty and were not taxable on that footing. The issue was decided in favour of the assessee.

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