Software licence payments and related service receipts were held not taxable as royalty or technical fees; TDS credit remitted for verification.

Consideration for a non-exclusive, non-transferable software licence to use standard software was treated as payment for a copyrighted article, not a transfer of copyright rights; it was therefore not taxable as royalty under the treaty or the Act. Related software maintenance, consultancy, training and other service receipts were treated as incidental to that licence arrangement and, on the same reasoning, were not taxable as fees for technical services. The claim for short TDS credit was restored for verification against Form 26AS and appropriate credit, with limited remand only on that issue.

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Issues: (i) Whether consideration received for grant of software licence was taxable as royalty; (ii) Whether software maintenance fees, consultancy service fees, training fees and other service fees were taxable as fees for technical services; (iii) Whether short grant of TDS credit required verification and allowance.

Issue (i): Whether consideration received for grant of software licence was taxable as royalty.

Analysis: The payment was for a non-exclusive, non-transferable licence to use standard software, with ownership, title and copyright remaining with the supplier. The governing principle applied was the distinction between a copyright and a copyrighted article. A licence enabling only internal use of software, without transfer of any copyright rights under the treaty or the Act, does not amount to royalty.

Conclusion: The software licence fee was not taxable as royalty and the issue was decided in favour of the assessee.

Issue (ii): Whether software maintenance fees, consultancy service fees, training fees and other service fees were taxable as fees for technical services.

Analysis: These receipts were found to be incidental to the software licence arrangement. Once the underlying licence fee itself did not constitute royalty, the connected maintenance, consultancy and training receipts could not be treated as fees for technical services under the treaty. The services did not independently bring the receipts within the definition applied by the treaty.

Conclusion: The impugned service receipts were not taxable as fees for technical services and the issue was decided in favour of the assessee.

Issue (iii): Whether short grant of TDS credit required verification and allowance.

Analysis: The credit claim was restored for verification with reference to Form 26AS.

Conclusion: The matter was remitted for verification and appropriate credit, with statistical relief.

Final Conclusion: The appeal succeeded on the substantive taxability issues and was otherwise sent back only for limited verification of TDS credit, leaving the penalty ground without relief.

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