Shrink-wrapped software receipts not treated as royalty where only a copyrighted article is transferred, not copyright rights.

Receipts from sale of shrink-wrapped software were held not to be royalty under section 9(1)(vi) of the Income-tax Act or Article 12(3) of the India-USA DTAA, because the transaction involved transfer of a copyrighted article and not any copyright rights. The Tribunal followed its coordinate bench rulings in the assessee's own earlier years and found no distinguishing material on the same facts. It also noted that the Department's appeals in earlier years did not displace the binding effect of that view for the year under consideration. The addition was deleted and the assessment was set aside to that extent.

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Issues: Whether receipts from sale of shrink-wrapped software were taxable in India as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-USA DTAA.

Analysis: The issue was identical to earlier assessment years in the assessee's own case. The Tribunal followed its coordinate bench decisions holding that sale of shrink-wrapped software amounts to sale of a copyrighted article and does not involve transfer of copyright. On the same facts, and in the absence of any distinguishing material, the receipts could not be characterised as royalty. The Tribunal also noted that the Department's appeal in earlier years did not dilute the binding effect of the coordinate bench view for the year under consideration.

Conclusion: The receipts from sale of shrink-wrapped software were not taxable in India as royalty and the addition was liable to be deleted.

Final Conclusion: The assessee succeeded on the substantive transfer-pricing related royalty issue and the assessment was set aside to that extent.

Ratio Decidendi: Receipts from sale of shrink-wrapped software, where only a copyrighted article is transferred and not copyright rights, are not royalty and are not taxable in India on that basis.

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