Software licence payments without copyright transfer are not royalty or technical services for withholding tax purposes.

Remittances for software-related support, maintenance and allied services were examined to determine whether they constituted royalty or fees for technical services, with corresponding withholding tax liability under section 201. Applying the earlier decision in the assessee's own case and the Supreme Court ruling in Engineering Analysis, the agreements were read as granting only a non-exclusive, non-transferable licence to use the copyrighted product, without transfer of copyright rights. The transaction was treated as use of a product or integrated system rather than a licence in copyright, and the treaty definition of royalty was held to prevail. The payments were therefore not taxable as royalty or technical services, and no default in tax deduction arose.

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Issues: Whether the remittances made to the non-resident for software-related support, maintenance and allied services were chargeable as royalty or fees for technical services so as to attract deduction obligations and consequent liability under section 201.

Analysis: The payments arose from a commercial arrangement concerning software, hardware and after-sales support. The governing agreements, read as a whole, showed a non-exclusive and non-transferable licence to use the copyrighted product and not a transfer of copyright rights. The reasoning adopted in the earlier decision in the assessee's own case and the principles laid down by the Supreme Court in Engineering Analysis were applied. On that basis, the nature of the transaction was treated as one involving use of a product or integrated system, not a grant of rights in copyright. Since the relevant treaty provisions were more beneficial, the treaty definition of royalty prevailed and the remittances did not answer the test of royalty or taxable technical services merely because technical support was involved.

Conclusion: The payments were not taxable as royalty or fees for technical services, and the assessee was not in default for failure to deduct tax at source.

Ratio Decidendi: A non-exclusive, non-transferable licence to use software or an integrated product, without parting of copyright rights or satisfaction of the treaty test for technical services, does not amount to royalty or taxable technical services for the purpose of withholding tax liability.

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