Court rules software licensing not taxable as royalty under IT Act & DTAA. Mere license /= copyright transfer.

The Court upheld the ITAT judgment, ruling that software licensing is not taxable as royalty under Section 9(1)(vi) of the Income Tax Act and Article 12 of the Indo US DTAA. It clarified that the mere grant of a license does not amount to a transfer of copyright, emphasizing that end-users only receive the right to use the software, not the copyright itself. The Court emphasized alignment with DTAA provisions and previous Supreme Court decisions, ultimately dismissing the appeals as no substantial question of law arose for consideration.

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Issues:
- Challenge to ITAT judgment on taxation of software licensing as royalty under Section 9(1)(vi) of the Income Tax Act and Article 12 of the Indo US DTAA.

Analysis:
1. The appellant challenged the ITAT judgment regarding the taxation of software licensing as royalty under Section 9(1)(vi) of the Income Tax Act and Article 12 of the Indo US DTAA for the Assessment Years 1997-98 and 1999-2000.

2. The appellant contended that the ITAT erred in ruling that the licensing of software products by the respondent was not taxable in India as royalty. The appellant argued that the distribution model involved in the case indicated a transfer of copyright, which should be considered taxable.

3. The Court referred to the Supreme Court judgment in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax, categorizing cases involving software transactions into four categories. The Court emphasized that the mere grant of a license does not necessarily entail a transfer of copyright.

4. The Court highlighted that the AAR's ruling, which considered a license as transferring copyright, was incorrect. It emphasized that the end-user under a license only receives the right to use the software and not the copyright itself. The Court also noted that any interpretation of the Income Tax Act must align with the DTAA provisions.

5. Referring to a similar case, the Court reiterated that for a payment to be taxed as royalty, there must be a transfer of copyright in the software. In the case at hand, where the end-user was authorized to use the software without exclusive rights, it did not constitute a transfer of copyright.

6. The Court dismissed the appeals, stating that the issue had been conclusively decided by the Supreme Court in favor of the assessee. It noted that the appellant had acknowledged the previous Tribunal decision in favor of the assessee. Consequently, no substantial question of law arose for consideration in the present appeals.

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