Shrink-wrapped software receipts treated as non-royalty where only a copyrighted article was sold, not copyright itself.

Receipts from the sale of shrink-wrapped software by a non-resident were not royalty under section 9(1)(vi) of the Income-tax Act or Article 12(3) of the India-USA DTAA. The software was distributed with only a limited right of use, while reproduction and transfer rights remained restricted; following earlier coordinate bench decisions on identical facts, the Tribunal applied the principle that sale of a copyrighted article is not a transfer of copyright. The receipts were therefore not taxable as royalty, and the addition made by the Assessing Officer was deleted.

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Issues: Whether receipts from sale of shrink-wrapped software by a non-resident were taxable in India as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the Double Taxation Avoidance Agreement between India and the USA.

Analysis: The assessee's receipts arose from distribution of shrink-wrapped software in which the end user obtained only a limited right to use the software, while reproduction and transfer of the software were restricted. The Tribunal noted that the issue had already been decided in the assessee's own case for earlier assessment years on identical facts. Following those decisions, and the settled view that sale of a copyrighted article is not equivalent to transfer of copyright, the Tribunal held that the software receipts could not be characterised as royalty. The fact that the Revenue had preferred appeals in earlier years did not displace the binding effect of the coordinate bench decisions on the identical issue.

Conclusion: The receipts from sale of shrink-wrapped software were not taxable as royalty and the addition made by the Assessing Officer was deleted.

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