Software licence receipts not royalty where no copyright rights are transferred; interest for advance tax default also not leviable.

Receipts from software licence sales were not royalty because the licences granted only a non-exclusive, non-transferable right to resell or use the programme, without transfer of copyright or any right to reproduce, modify, sublicense, or otherwise exploit it; the royalty addition under the Income-tax Act and the India-Singapore DTAA was deleted. Interest under section 234B was also not leviable because, after deletion of the royalty addition, the tax liability was fully covered by tax deducted at source and no advance tax liability arose on those facts. The assessee obtained relief on the principal issue and the levy of interest was sustained as unwarranted.

---

---

Issues: (i) Whether receipts from sale of software licences were taxable as royalty under the Income-tax Act and the India-Singapore DTAA. (ii) Whether interest under section 234B could be levied on the assessee.

Issue (i): Whether receipts from sale of software licences were taxable as royalty under the Income-tax Act and the India-Singapore DTAA.

Analysis: The software licences were found to confer only a non-exclusive, non-transferable right to resell or use the computer programme, without any transfer of copyright or any right to reproduce, modify, sublicense, or otherwise exploit copyright in the software. Applying the Supreme Court ruling on software distribution and end-user licence agreements, the payments for such licences were held not to constitute royalty under the DTAA, and the domestic royalty provision was held inapplicable on the facts.

Conclusion: The issue was decided in favour of the assessee and the addition treating the software licence receipts as royalty was deleted.

Issue (ii): Whether interest under section 234B could be levied on the assessee.

Analysis: Since the royalty addition was deleted and the assessee's tax liability stood fully covered by tax deducted at source, the assessee was held not liable to advance tax in the circumstances. On that basis, levy of interest under section 234B was not warranted.

Conclusion: The issue was decided in favour of the assessee and the deletion of interest under section 234B was sustained.

Final Conclusion: The assessee obtained relief on the principal royalty addition and the revenue's challenge failed, leaving only partial relief to the assessee overall.

Ratio Decidendi: Payments for software licences that do not transfer any copyright or right to exploit copyright are not royalty under the applicable DTAA, and where tax liability is fully met through tax deduction at source, interest for failure to pay advance tax is not leviable.

---