Software resale receipts are not royalty where distributors receive no copyright rights under the India-USA treaty and domestic law.

Consideration from sale of software to Indian resellers and distributors was held not to be royalty under section 9(1)(vi) or Article 12 of the India-USA DTAA because the arrangements only allowed resale of software products and did not transfer any right in copyright or any right to use copyright. Applying its earlier year decision and the Supreme Court ruling on computer software distributions, the Tribunal treated the receipts as business sale proceeds rather than royalty, with the result that the Revenue's royalty characterisation failed.

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Issues: Whether the consideration received on sale of software to Indian resellers/distributors was taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-USA DTAA.

Analysis: The appeal turned on whether the distributor/reseller arrangements transferred any right in copyright or merely permitted sale of software products. The Tribunal followed its decision in the assessee's own earlier year and applied the Supreme Court's ruling on computer software distributions, holding that the agreements were for resale of software products and did not create any interest in, or right to use, copyright. Since no copyright right was transferred, the amounts could not be characterised as royalty under the domestic provision or under the treaty.

Conclusion: The issue was decided in favour of the assessee and against the Revenue; the software-sale receipts were not taxable as royalty.

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