Software licence receipts not taxable as royalty where no copyright rights are transferred or included services are shown.

Consideration received for supply of software licences and associated services from Indian entities is not taxable as royalty or as fees for included services where there is no transfer of the right to use copyright and no qualifying technical or ancillary service element is established. The analysis follows the Supreme Court ruling in Engineering Analysis and earlier Tribunal decisions in the assessee's own case, applying the same reasoning to hold that receipts from software products and related services do not fall within section 9(1)(vi) of the Income-tax Act or Article 12 of the India-USA DTAA. The addition was therefore deleted and the tax adjustment was not sustained.

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Issues: Whether amounts received for supply of software licences and associated services from Indian entities were taxable as royalty or fee for included services under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-USA Double Taxation Avoidance Agreement.

Analysis: The issue was covered by the Supreme Court ruling in Engineering Analysis and by prior Tribunal orders in the assessee's own case for earlier assessment years. On the same reasoning, receipts arising from supply of software products and associated services, where there was no transfer of use or right to use copyright, were not liable to be treated as royalty or fee for included services. The appellate authority's deletion of the addition was therefore found to be correct.

Conclusion: The amounts were not taxable as royalty or fee for included services. The deletion of the addition was upheld, in favour of the assessee.

Final Conclusion: The appeal failed and the assessment addition was not sustained.

Ratio Decidendi: Consideration received for supply of software licences is not royalty absent transfer of copyright rights, and the same receipts are not taxable as fee for included services when no qualifying technical or ancillary service element is established.

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