Software licence payments are not royalty where no copyright rights transfer and the DTAA is more beneficial.

Payments for the use or resale of computer software under licence or distribution arrangements are not royalty where the arrangement does not transfer any copyright rights in the software. The Supreme Court ruling in Engineering Analysis controlled the issue, and the Delhi HC applied that binding precedent to hold that the wider domestic definition in section 9(1)(vi) cannot override a more beneficial DTAA under section 90(2). As the dispute was fully covered by precedent, no substantial question of law survived in the Revenue's appeal, and the appeal failed.

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Issues: Whether consideration paid for resale or use of computer software under licence or distribution arrangements constitutes royalty taxable in India, and whether any substantial question of law arose in the Revenue's appeal.

Analysis: The issue was concluded by the Supreme Court in Engineering Analysis Centre of Excellence Private Limited, which held that payments made by resident Indian end-users or distributors to non-resident software suppliers for use or resale of computer software under EULAs or distribution agreements are not royalty for the use of copyright. Such arrangements do not involve transfer of any rights in copyright, and the wider language in section 9(1)(vi) cannot prevail where the applicable DTAA is more beneficial to the assessee by virtue of section 90(2). The same legal position had also been applied in the earlier writ decisions relied upon by the Court. Since the present dispute stood covered by binding precedent, no substantial question of law survived.

Conclusion: The payment for software use or resale was not royalty and was not taxable in India on that basis. The Revenue's appeal failed.

Ratio Decidendi: Payment for a non-exclusive right to use or resell computer software under a licence or distribution agreement does not amount to royalty unless there is a transfer of rights in copyright itself, and a DTAA prevails over a wider domestic definition where it is more beneficial to the assessee.

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