Software sale without copyright transfer is not royalty; Delhi HC leaves the assessee's tax position undisturbed.

Consideration for sale of off-the-shelf software copies, without any transfer of copyright rights, does not constitute royalty under the Income-tax Act, 1961 or the India-Israel DTAA. The Delhi HC applied the settled principle in Engineering Analysis and rejected the revenue's attempt to recharacterise the software as custom-built, as that factual assertion was not supported by the record before the statutory authorities. On that basis, the receipt was not taxable as royalty, no substantial question of law arose, and the Tribunal's view in favour of the assessee was left undisturbed.

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Issues: Whether consideration received for sale of off-the-shelf software to an Indian entity constituted royalty and was taxable under the Income-tax Act, 1961 and the India-Israel Double Tax Avoidance Agreement.

Analysis: The consideration was received for sale of software without transfer of copyright. The issue had already been considered in the assessee's earlier year and the governing principle stood settled by the Supreme Court in Engineering Analysis, which held that sale of software copies, without transfer of copyright rights, does not amount to royalty. The attempt to characterise the software as custom-built was not supported by the record before the statutory authorities, and new factual assertions could not be entertained at this stage.

Conclusion: The receipt did not constitute royalty and was not taxable on that basis. No substantial question of law arose, and the appeal was not maintainable on merits.

Final Conclusion: The revenue's challenge failed on the royalty question, and the Tribunal's view in favour of the assessee was left undisturbed.

Ratio Decidendi: Consideration for sale of software copies, absent transfer of copyright rights, is not royalty for tax purposes under the Income-tax Act, 1961 and the applicable treaty.

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