Software resale receipts as business income, not royalty, where the distributor had no copyright rights and no permanent establishment.

Consideration from resale of off-the-shelf software by a non-resident distributor was treated as business income rather than royalty under Article 12(3) of the India-Singapore DTAA and section 9(1)(vi), because the distributor did not own or transfer copyright and only dealt in copyrighted articles. Applying Engineering Analysis, payments for distribution or use of software did not amount to consideration for use of copyright. In the absence of a permanent establishment in India, the receipts were not taxable as business income in India.

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Issues: Whether the consideration received from sale or distribution of off-the-shelf software by a non-resident distributor constituted royalty under Article 12(3) of the India-Singapore DTAA and section 9(1)(vi) of the Income-tax Act, 1961, or was business income not taxable in India in the absence of a permanent establishment.

Analysis: The assessee was found to be only a distributor reselling software purchased from non-resident manufacturers and vendors, without owning the copyright in the software. The software sold was treated as a copyrighted article and not a transfer of rights in copyright. Applying the principle laid down in Engineering Analysis, the payment received for resale/use of software through distribution arrangements was held not to be consideration for use of copyright. On those facts, the amount could not be characterised as royalty, and in the absence of a permanent establishment in India, it could not be taxed as business income in India.

Conclusion: The issue was decided in favour of the assessee. The software-sale receipts were held not to be royalty, but business income not chargeable to tax in India for want of a permanent establishment.

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