Treaty royalty definition cannot be expanded by retrospective domestic amendment; software distribution receipts remain business income.

Receipts from cloud hosting and related software distribution were analysed as business receipts rather than royalty or fees for technical services because the arrangement granted only a right to distribute or resell copyrighted software, without transfer of copyright, source code, reproduction rights, or any right to commercially exploit the underlying intellectual property. Maintenance, support and upgrade receipts were treated on the same basis and held outside the treaty concept of royalty. The article also states that retrospective amendments to section 9(1)(vi) of the Income-tax Act, 1961 cannot be read into an exhaustive treaty definition of royalty absent a corresponding bilateral amendment.

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Issues: Whether receipts from cloud hosting and related software distribution services were taxable as royalty or fees for technical services under the Income-tax Act, 1961 and the applicable tax treaty, and whether the treaty definition of royalty could be enlarged by retrospective amendments to the Act.

Analysis: The receipts were held not to represent consideration for use of, or right to use, copyright or industrial, commercial or scientific equipment. The arrangement granted only a right to distribute or resell copyrighted software products, without transfer of copyright, source code, reproduction rights, or any commercial exploitation right in the underlying intellectual property. The payments were therefore treated as consideration for sale of copyrighted articles and related business receipts, not royalty. The same reasoning was applied to maintenance, support and upgrade receipts, which were found to fall outside the treaty concept of royalty. The retrospective amendments introduced in section 9(1)(vi) of the Income-tax Act, 1961 were held not to be automatically read into the treaty definition, since the treaty contained its own exhaustive definition and no corresponding bilateral amendment had been made.

Conclusion: The receipts were not taxable as royalty or fees for technical services under the treaty, and the assessee succeeded on the substantive grounds.

Final Conclusion: The appeal was allowed on the principal taxability issue, while the remaining grounds not pressed or consequential did not alter the substantive relief granted.

Ratio Decidendi: A treaty definition of royalty that is exhaustive cannot be expanded by a unilateral retrospective amendment to the domestic statute, and consideration for distribution or resale of copyrighted software without transfer of copyright remains business income rather than royalty.

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