Software licence receipts treated as business profits where no copyright rights were transferred, despite maintenance and training charges.

Software licence receipts under non-exclusive, non-transferable agreements were treated as consideration for a copyrighted article, not as payment for transfer of copyright rights under section 9(1)(vi) of the Income-tax Act and the relevant treaty provision. Because the user acquired no right to copy, sub-license, decompile, commercially exploit, or transfer the software copyright itself, the amounts did not constitute royalty. Maintenance charges and training fees were held to follow the same character as the software receipts. The receipts were therefore not royalty and were taxable as business profits.

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Issues: Whether the amounts received under software licence agreements, together with maintenance charges and training fees, constituted royalty or business income.

Analysis: The relevant agreements granted only a non-exclusive and non-transferable right to use the software, with restrictions on copying, sub-licensing, decompilation, commercial exploitation, and transfer. The payment was for a copyrighted article and not for transfer of any copyright rights within the meaning of section 9(1)(vi) of the Income-tax Act, 1961 and the corresponding treaty provision. The incidental maintenance and training receipts were held to take the same character as the software receipts. The Tribunal followed the principle that where the user acquires no right to commercially exploit the copyright itself, the payment is not royalty.

Conclusion: The receipts were not royalty and were taxable as business profits.

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