Software sale consideration is not royalty where Supreme Court precedent governs, so the tax addition was deleted.

Consideration received from software sale was not taxable as royalty under the Income-tax Act or the applicable treaty because the Tribunal followed the Supreme Court ruling in Engineering Analysis Centre of Excellence P. Ltd. v. CIT. Applying that precedent, it held that the software-related receipt could not be characterised as royalty and therefore could not be brought to tax on that basis. The assessment addition treating the amount as royalty was deleted, and the assessee succeeded.

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Issues: Whether the sale consideration for software was liable to be taxed as royalty under the Income-tax Act and the applicable treaty provisions.

Analysis: The Tribunal noted that the issue was covered by the Supreme Court decision in Engineering Analysis Centre of Excellence P. Ltd. v. CIT, which held that consideration received for software transactions of this nature does not constitute royalty. Applying that ruling to the facts, the Tribunal found that the amount received by the assessee could not be characterised as royalty and was not chargeable to tax on that basis.

Conclusion: The issue was decided in favour of the assessee. The receipt from software sale was held not to constitute royalty and could not be brought to tax.

Final Conclusion: The assessment addition treating the software-related receipt as royalty was deleted, and the assessee succeeded in the appeal.

Ratio Decidendi: Consideration received for software transactions of the kind considered here does not amount to royalty and is not taxable as such when covered by the governing Supreme Court precedent.

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