Software licence receipts are not royalty absent copyright rights; ITAT Delhi deleted the addition applying Engineering Analysis.

Receipts from resale or use of computer software under distribution agreements or EULAs are not royalty unless the payer is granted an interest in, or right to use, copyright. Applying the Supreme Court's principle in Engineering Analysis Centre of Excellence Pvt. Ltd., the ITAT Delhi held that the assessee's software licence and maintenance receipts could not be taxed as royalty under section 9(1)(vi) of the Income-tax Act. The addition made on that basis was deleted, and the assessee's appeal succeeded.

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Issues: Whether receipts from sale of software licences were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and whether the addition made on that basis was sustainable.

Analysis: The matter was governed by the Supreme Court's ruling in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that payments for resale or use of computer software under distribution agreements or EULAs do not amount to royalty where no interest or right in copyright is created in the payer. The Court applied that binding principle to the assessee's receipts from software licences and maintenance services and held that the amounts could not be taxed as royalty in India.

Conclusion: The issue was decided in favour of the assessee and against the Revenue.

Final Conclusion: The addition treating the software licence receipts as royalty was deleted and the assessee's appeal succeeded.

Ratio Decidendi: Payments for the resale or use of computer software under licence arrangements are not royalty unless they confer a right in or to use copyright.

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