Software resale and support services were held outside royalty and treaty FTS, with interest and penalty challenge failing.

Software resale under a non-exclusive, non-transferable licence without transfer of copyright was not royalty, so the distribution receipts were taxable as business income rather than royalty. Management and support services that did not make available technical knowledge, skill, know-how or processes also did not qualify as fees for technical services under the India-Singapore tax treaty, and the more beneficial treaty treatment prevailed. Interest under section 234B was held consequential and leviable, while the challenge to initiation of penalty proceedings under section 270A was premature. The assessee therefore obtained relief on the royalty and management fee issues, but failed on interest and penalty initiation.

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Issues: (i) Whether income from sale or distribution of off-the-shelf software was taxable as royalty; (ii) whether management service fees were taxable as fees for technical services under the India-Singapore tax treaty; (iii) whether interest under section 234B was leviable; and (iv) whether initiation of penalty proceedings under section 270A was tenable at this stage.

Issue (i): Whether income from sale or distribution of off-the-shelf software was taxable as royalty.

Analysis: The assessee sold software licences on a non-exclusive and non-transferable basis, with no transfer of copyright or right of commercial exploitation to the distributor or end users. The transaction fell within the principle laid down for software resellers, where payments for mere resale of software copies do not constitute royalty under the tax treaty. The revenue did not bring material to show transfer of copyright or a right to use copyright.

Conclusion: The software distribution receipts were not taxable as royalty and the issue was decided in favour of the assessee.

Issue (ii): Whether management service fees were taxable as fees for technical services under the India-Singapore tax treaty.

Analysis: The services comprised business support, coordination, advisory, logistics, branding, tax, treasury, legal, compliance, human resources, trade compliance, and real estate administration functions. On the facts, the services did not make available technical knowledge, experience, skill, know-how, or processes, nor did they involve development and transfer of a technical plan or design. The treaty definition of fees for technical services was therefore not satisfied, and the broader domestic definition could not prevail over the more beneficial treaty position.

Conclusion: The management fees were not taxable as fees for technical services and the issue was decided in favour of the assessee.

Issue (iii): Whether interest under section 234B was leviable.

Analysis: The levy was treated as consequential and mandatory on the facts of the case.

Conclusion: The interest issue was decided against the assessee.

Issue (iv): Whether initiation of penalty proceedings under section 270A was tenable at this stage.

Analysis: The challenge to penalty initiation was considered premature.

Conclusion: The penalty initiation issue was decided against the assessee.

Final Conclusion: The additions on software royalty and management fee were deleted, while the challenges to interest and penalty initiation failed, resulting in partial relief to the assessee.

Ratio Decidendi: Where software is resold under a non-exclusive, non-transferable licence without transfer of copyright, the receipts are not royalty; and where managerial or support services do not make available technical knowledge, skill, know-how, or processes, they are not fees for technical services under the treaty.

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