Software supply receipts are not royalty where only a copyrighted article is supplied; PE and attribution issues were remanded.

Receipts from supply of software as a copyrighted article, without transfer of copyright rights, were treated as business receipts and not royalty under the applicable treaty; the Tribunal followed the assessee's earlier ruling as affirmed by the jurisdictional High Court, so the royalty issue was decided for the assessee. Questions on fixed place, installation and dependent agent permanent establishment were not conclusively determined on the existing record and were remanded to the Assessing Officer for fresh verification; attribution of income and arm's length treatment were to be examined after the permanent establishment finding, leaving those issues open.

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Issues: (i) Whether receipts from supply of software were taxable as royalty; (ii) whether the assessee had a permanent establishment in India and whether the related issues of attribution of income required fresh examination.

Issue (i): Whether receipts from supply of software were taxable as royalty.

Analysis: The receipts from supply of software were examined in the light of the applicable treaty provisions and the binding judicial view that supply of software as a copyrighted article does not amount to transfer of copyright rights. The Tribunal followed the earlier decision in the assessee's own case, as affirmed by the jurisdictional High Court, and held that the consideration for software supply was not royalty. The receipts were to be treated as business receipts, subject to the existence of a business connection or permanent establishment in India.

Conclusion: The issue was decided in favour of the assessee.

Issue (ii): Whether the assessee had a permanent establishment in India and whether the related issues of attribution of income required fresh examination.

Analysis: The questions relating to fixed place, installation, and dependent agent permanent establishment were not finally determined on the existing material. Following the earlier coordinate bench view, the matter was restored to the Assessing Officer for proper verification and fresh consideration. The questions of attribution of income and arm's length treatment were directed to be examined after the permanent establishment issue was decided.

Conclusion: The issue was remanded for fresh adjudication and was not finally decided on merits.

Final Conclusion: The software supply receipts were held not to be royalty, while the permanent establishment and consequential attribution questions were sent back for reconsideration, resulting in a partial success for the assessee.

Ratio Decidendi: Payment for supply of software as a copyrighted article, without transfer of copyright rights, is not royalty under the treaty; permanent establishment questions requiring factual verification may be remanded for fresh decision when the record is incomplete.

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