Software licence receipts not royalty where only a copyrighted article is used and treaty protection prevails.

Consideration from the sale and licensing of software through distributors and resellers in India was treated as payment for a copyrighted article, not a transfer of copyright or rights in copyright. On that basis, the receipts were not taxable as royalty under section 9(1)(vi) of the Income-tax Act or Article 12 of the India-Sweden DTAA. The analysis also states that a unilateral domestic amendment cannot alter the treaty meaning of royalty, and the more beneficial treaty position prevails under section 90(2) where applicable.

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Issues: Whether consideration received for sale and licensing of software products through distributors and resellers in India was taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Sweden Double Taxation Avoidance Agreement, and whether the 2012 amendment to section 9(1)(vi) could alter the treaty position.

Analysis: The software supplied to Indian customers was held to be a copyrighted article and not a transfer of copyright or of rights in copyright. The right granted was only to use the software product, with the copyright remaining with the assessee. The earlier coordinate bench decisions in the assessee's own case for prior years were followed, along with the Delhi High Court view that a copyrighted article and the copyright itself are distinct, and that consideration for use of the article does not amount to royalty. It was also noted that a unilateral amendment to domestic law cannot by itself modify the treaty definition of royalty, and the beneficial treaty provision prevails where applicable under section 90(2).

Conclusion: The receipts from sale of software were not taxable as royalty under section 9(1)(vi) or Article 12 of the India-Sweden Double Taxation Avoidance Agreement, and the assessee succeeded on the substantive taxability issue.

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