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Issues: Whether the consideration received on sale of software to Indian customers constituted royalty under Article 12(3) of the India-USA Double Taxation Avoidance Agreement.
Analysis: The software was sold for internal use as copyrighted articles, and the transaction did not transfer any copyright or the right to use copyright. The consideration was therefore for the sale of software product itself, not for use of a copyright, literary work, or process. The ratio of the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. applied squarely, and the jurisdictional High Court view also supported the assessee's case.
Conclusion: The amount received from sale of software was not royalty under Article 12(3) of the India-USA Double Taxation Avoidance Agreement and the addition was liable to be deleted, in favour of the assessee.
Ratio Decidendi: Consideration received for sale of a copyrighted article, without transfer of copyright or the right to use copyright, does not constitute royalty under the treaty definition.
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