Software licence payments for shrink-wrapped software were not royalty where no copyright rights were transferred under the treaty.

Consideration for off-the-shelf, shrink-wrapped software sold to Indian distributors and resellers was analysed under the tax treaty on the basis that a non-exclusive, non-transferable licence only enabled use of the copyrighted product and did not transfer copyright rights. The governing distinction was that the right to use software is different from the right to reproduce or otherwise exploit copyright in the software, so the payment could not be characterised as royalty on that footing. The document states that the consideration was not royalty and that no substantial question of law arose, leading to closure of the appeal.

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Issues: Whether consideration received on sale of off-the-shelf, shrink-wrapped software to Indian distributors and resellers constituted royalty under the applicable tax treaty.

Analysis: The sale was of copyrighted software in the form of shrink-wrapped software. A non-exclusive and non-transferable licence merely enabled use of the copyrighted product and did not amount to parting with copyright rights under the Copyright Act. The reasoning followed the governing principle that the right to use software is distinct from the right to reproduce or exploit copyright in the software, and that the character of the payment must be determined accordingly under the treaty framework.

Conclusion: The consideration was not royalty.

Final Conclusion: No substantial question of law arose, and the appeal was closed.

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