Software licence subscription receipts are not royalty where no copyright rights are transferred, following Engineering Analysis.

Consideration from software licence subscriptions was held not to be royalty under Article 12 of the India-Japan DTAA or the Income-tax Act because the receipts did not involve transfer of copyright rights. Relying on the Supreme Court decision in Engineering Analysis and earlier tribunal and advance ruling rulings, the Tribunal noted that the Revenue had not shown any factual or legal distinction warranting a different view. The character of the receipts therefore remained business income outside the royalty provisions, so taxability on that basis failed.

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Issues: Whether consideration received for sale of software licence subscriptions from Indian end customers constituted royalty taxable under Article 12 of the India-Japan Double Taxation Avoidance Agreement and under the Income-tax Act, or business income not chargeable to tax in India.

Analysis: The assessee, a non-resident Japanese company, earned income from software distribution and related services. The dispute concerned only the taxability of receipts from software licence subscriptions. The lower appellate authority had followed the Supreme Court's ruling in Engineering Analysis and earlier tribunal and advance ruling decisions to hold that such receipts did not involve transfer of copyright rights and therefore did not amount to royalty. The Revenue did not demonstrate any distinguishing factual or legal feature to depart from that settled position. In light of the binding Supreme Court precedent, the character of the receipt remained outside the ambit of royalty under the treaty.

Conclusion: The receipt from software licence subscriptions was not royalty and was not taxable on that basis. The Revenue's appeals were rejected, in favour of the assessee.

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