End User Licence Payments Not Taxable as Royalty or FTS; No Substantial Law Question Found, Appeal Dismissed.

The court upheld the Tribunal's decision, determining that the consideration received under the End User Licence Agreement was not taxable as royalty or as Fee for Technical Services (FTS) under the relevant sections of the Act and India-USA DTAA. The Tribunal found no transfer of copyright or technical knowledge, thus excluding the payments from being classified as royalty or FTS. Consequently, the court found no substantial question of law to warrant interference, dismissed the appeal, and closed the related application as infructuous.

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Issues:
The judgment concerns Assessment Year 2015-16. The two main issues before the court are:
1. Whether consideration received for granting rights to customers under EULA to use software is taxable as Royalty under Section 9(1)(vi) of the Act and Article 12 of India-USA DTAARs.
2. Whether the amount received for annual maintenance charges of the software is taxable as FTS/FIS under Section 9(1)(vii) of the Act and Article 12 of the India-US DTAARs.

First Issue:
The respondent had received a sum under an End User Licence Agreement, including an amount for the sale of the licence and annual maintenance charges. The Assessing Officer treated the licence fee as royalty under the Act and DTAA. However, the Tribunal ruled that since no copyright was transferred to customers, the fee could not be considered as royalty, citing the decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT. The Tribunal also noted that the licences issued were non-exclusive and non-transferable, with no access to the source code provided.

Second Issue:
Regarding the amount treated as FTS by the AO, the Tribunal found that for it to be considered Fee for Included Services (FIS) under the DTAA, it must be ancillary to the enjoyment of property rights. Since no property rights were transferred, Article 12(4)(a) of the DTAA did not apply. The Tribunal also examined Article 12(4)(b) of the DTAA, concluding that no technical knowledge or skills were made available to the recipients of the services, thus not meeting the requirements for FIS under this provision.

The court, after considering the arguments and the Tribunal's findings, declined to interfere with the Tribunal's decision, stating that no substantial question of law arose for consideration. The appeal was closed, and a related application was deemed infructuous and closed as well. Parties were instructed to act based on the digitally signed copy of the order.

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