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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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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 Article 12(3) of the India-USA DTAA, or constituted business income not chargeable to tax in India in the absence of a permanent establishment.
Analysis: The issue was covered by earlier decisions in the assessee's own case for prior assessment years, holding that the customer obtained only a non-exclusive, restricted right to use the software product and not any copyright or right to exploit copyright. The payment was thus for a copyrighted article and not for use of, or right to use, copyright. On that basis, the receipts did not fall within the definition of royalty under section 9(1)(vi) or Article 12(3) of the treaty. Since the assessee had no permanent establishment in India, the receipts were not taxable as business income either.
Conclusion: The receipts from sale of software licences were not royalty and were not taxable in India; the issue was decided in favour of the assessee.
Ratio Decidendi: Consideration received for a limited licence to use copyrighted software, without transfer of copyright or any right to commercially exploit it, is not royalty but business income, and is not taxable in India absent a permanent establishment.
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