Software distribution rights without copyright rights do not create royalty income or withholding obligations under tax law.

Software distribution and ancillary service receipts under an EULA do not constitute royalty unless the arrangement confers an interest in, or right to use, copyright in the software. Applying Engineering Analysis, the ITAT held that a non-resident distributor's receipts were not royalty under section 9(1)(vi) of the Income-tax Act because the agreement transferred only distribution rights, not copyright rights. As the payments were not chargeable as royalty, no withholding obligation arose under section 195. The Tribunal also rejected remand because the agreement had already been examined and was materially identical to the arrangements considered by the Supreme Court.

---

---

Issues: Whether receipts from distribution of computer software and ancillary services by a non-resident Singapore tax resident were taxable in India as royalty and whether section 195 withholding obligation arose.

Analysis: The agreement granted distribution and related rights, but the decisive question was whether those rights created any interest in or right to use copyright in the software. Following the binding ruling of the Supreme Court in Engineering Analysis, the Tribunal held that such distribution/EULA arrangements do not amount to a transfer of copyright rights and therefore do not generate royalty income. Since the receipts were not royalty, section 9(1)(vi) of the Income-tax Act, 1961 did not apply, and the payer was under no obligation to deduct tax at source under section 195. The request for remand was rejected because the agreement had already been examined and was materially identical to the arrangements considered by the Supreme Court.

Conclusion: The receipts from sale of software and related services were not taxable in India as royalty, and no withholding obligation arose under section 195.

Ratio Decidendi: A software distribution agreement that does not confer any right in copyright does not give rise to royalty income or a corresponding obligation to deduct tax at source.

---