Software supply receipts as copyrighted articles, not royalty, where no copyright is transferred and treaty protection applies.

Consideration for offshore supply of standardised or shrink-wrapped software was treated as payment for a copyrighted article, not as royalty, because the arrangement was non-exclusive and non-transferable and no copyright was parted with. On that basis, the treaty definition of royalty under the India-Singapore DTAA was not satisfied, and the more beneficial treaty position prevailed over the wider domestic deeming fiction in section 9(1)(vi) by virtue of section 90(2). The Tribunal also noted that earlier contrary views could not survive the binding Supreme Court ruling on computer software payments. The software receipts were therefore not taxable in India as royalty, and the additions could not stand.

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Issues: Whether consideration received for offshore supply of standardised or shrink-wrapped software was taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 read with Article 12 of the India-Singapore DTAA, and whether the treaty provisions, being more beneficial, displaced the domestic deeming provision.

Analysis: The controlling law was the Supreme Court ruling on computer software payments, which held that where the transaction is only for the resale or use of software under a non-exclusive, non-transferable arrangement, no copyright is parted with. The payment is for a copyrighted article and not for the use of or right to use copyright. In such cases, the treaty definition of royalty is not satisfied and, by reason of section 90(2) of the Income-tax Act, 1961, the more beneficial treaty position prevails over the wider domestic explanation to section 9(1)(vi). The Tribunal therefore treated the departmental reliance on earlier contrary views as no longer sustainable after the Supreme Court's binding pronouncement.

Conclusion: The software receipts were not royalty and were not taxable in India on that basis. The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The additions made on the footing that the offshore software receipts constituted royalty could not survive, and both appeals were allowed.

Ratio Decidendi: A payment for a non-exclusive licence or resale of computer software, without any transfer of copyright or proprietary interest in the copyright, is not royalty under the treaty definition, and the treaty prevails over the wider domestic deeming provision where it is more beneficial to the assessee.

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