Software access payments are not royalty where no copyright rights are transferred or licensed for exploitation.

Receipts from Indian group entities for access to software, network facilities, end-user services and allied support were treated as outside the scope of royalty under section 9(1)(vi) and Article 12(3) of the India-Sweden DTAA. The stated principle is that mere access to or use of software, without any transfer of copyright or right to exploit copyright, does not amount to royalty; the arrangement involved standard facilities rather than a licence conveying proprietary rights. On that basis, the receipts were not chargeable as royalty and the additions made by the lower authorities were unsustainable.

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Issues: Whether the receipts from Indian group entities for access to software, network facilities, end-user services and allied support were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-Sweden DTAA.

Analysis: The receipts were held to fall outside the scope of royalty because the arrangement did not involve a transfer of copyright or any right to exploit copyright in the software. The consideration was for access to software and related standard facilities, and not for parting with copyright or granting a licence that conveyed any proprietary interest. The binding principle applied was that mere access to or use of software, without transfer of copyright rights, does not amount to royalty.

Conclusion: The receipts were not chargeable as royalty and the additions made by the lower authorities were unsustainable.

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