Software distribution receipts not royalty in India where no copyright rights are transferred, following Engineering Analysis.

Consideration received by a non-resident for resale or distribution of copyrighted software products was held not taxable in India as royalty under Article 12 of the India-Ireland DTAA or section 9(1)(vi) of the Income-tax Act, 1961. Applying the Supreme Court ruling in Engineering Analysis Centre of Excellence Pvt. Ltd., the ITAT Delhi found that distribution agreements and EULAs did not confer any right to use copyright in the software, but only permitted resale or use of the product. The Tribunal therefore followed the binding precedent and deleted the addition in favour of the assessee.

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Issues: Whether consideration received from supply or distribution of copyrighted software products is taxable in India as royalty under Article 12 of the India-Ireland DTAA and section 9(1)(vi) of the Income-tax Act, 1961.

Analysis: The dispute was governed by the Supreme Court's ruling in Engineering Analysis Centre of Excellence Pvt. Ltd., which held that amounts paid by resident distributors or end-users to non-resident software suppliers for resale or use of computer software through distribution agreements or EULAs do not amount to payment for the use of, or right to use, copyright in the software. On that basis, such receipts do not constitute royalty under the DTAA, and the Income-tax Act provisions dealing with royalty do not apply where they are not more beneficial to the assessee. The Tribunal accordingly followed the binding Supreme Court decision and directed deletion of the addition.

Conclusion: The software distribution receipts were not taxable as royalty in India, and the addition was deleted in favour of the assessee.

Ratio Decidendi: Consideration paid for resale or distribution of computer software, without conferring any right to use copyright, is not royalty under the applicable DTAA or section 9(1)(vi) of the Income-tax Act, 1961.

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