Software sale receipts are not royalty where the licence covers only a copyrighted article, not copyright rights.

Receipts from sale or distribution of software were held not taxable as royalty under Article 12 of the India-Ireland DTAA because the payment was for a copyrighted article, not a transfer of copyright rights. The licence was non-exclusive and non-transferable and did not confer any right in the copyright itself. Applying its consistent view in earlier years, binding jurisdictional precedent, and the Supreme Court ruling in Engineering Analysis Centre of Excellence Pvt. Ltd., the ITAT Delhi concluded that the software consideration did not constitute royalty and deleted the addition in favour of the assessee.

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Issues: Whether the revenue from sale/distribution of software was chargeable to tax in India as royalty under Article 12 of the India-Ireland Double Taxation Avoidance Agreement.

Analysis: The amount received for software was held to be consideration for a copyrighted product and not for transfer of copyright rights. The licence granted did not confer any right in the copyright itself, and the distinction between a copyrighted article and copyright rights was treated as decisive. The Tribunal followed its consistent view in the assessee's own earlier years and the binding jurisdictional precedent, and noted that the issue was also settled by the Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd.

Conclusion: The receipts from sale of software were not royalty under Article 12 of the India-Ireland DTAA and were not taxable on that basis; the addition was deleted in favour of the assessee.

Ratio Decidendi: Consideration for a non-exclusive, non-transferable right to use software as a copyrighted article, without transfer of any copyright rights, is not royalty under the treaty.

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