Shrink-wrapped software sale receipts are not royalty when only a copyrighted article is sold, not copyright rights.

Receipts from sale of shrink-wrapped software were held not taxable as royalty under section 9(1)(vi) of the Income-tax Act and Article 12(3) of the India-USA DTAA because the consideration was for a copyrighted article, not for transfer of copyright rights. The issue was covered by earlier coordinate bench decisions in the assessee's own case for preceding years, and that settled view was followed. On that basis, the software receipts could not be characterised as royalty, and the corresponding addition was deleted.

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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 found to be covered by earlier coordinate bench decisions in the assessee's own case for preceding assessment years. The receipts were treated as consideration for sale of a copyrighted article, not as consideration for transfer of copyright rights. On that basis, and following the settled view adopted in the assessee's case, the software receipts could not be characterised as royalty. The corresponding addition was therefore liable to be deleted.

Conclusion: The receipts from sale of shrink-wrapped software were not taxable in India as royalty, and the assessee succeeded on this issue.

Ratio Decidendi: Consideration received for sale of a copyrighted article, without transfer of copyright rights, does not constitute royalty under section 9(1)(vi) of the Income-tax Act, 1961 or the corresponding treaty provision.

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