Software licence payments and support services were held non-taxable where no copyright rights were transferred and no technical knowledge was made available.

Consideration for a software licence was treated as business income, not royalty, because the licence conferred only a non-exclusive, non-transferable right to use a copyrighted article and did not transfer copyright rights; in the absence of a permanent establishment in India, the receipts were not taxable in India under the India-USA DTAA. Receipts from annual maintenance and support services were also held not taxable as fees for technical services or included services, because the services did not make available technical knowledge, experience, skill, know-how, or processes to the recipient. The assessment addition on both software licence and AMC receipts was deleted.

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Issues: (i) Whether consideration received for supply and licence of software was taxable as royalty or as business income under the India-USA DTAA. (ii) Whether receipts from annual maintenance and support services were taxable as fees for technical services or fees for included services under the India-USA DTAA, and whether the make available test was satisfied.

Issue (i): Whether consideration received for supply and licence of software was taxable as royalty or as business income under the India-USA DTAA.

Analysis: The software licence granted only a non-exclusive and non-transferable right to use the software. The licensee was not given any right to copy, modify, reverse engineer, commercially exploit, or otherwise use the underlying copyright. On these terms, the payment was for use of a copyrighted article and not for transfer of copyright rights. The receipts therefore fell within business income treatment under the treaty, and in the absence of a permanent establishment in India, they were not taxable in India.

Conclusion: The software licensing receipts were not royalty and were not taxable in India; this issue was decided in favour of the assessee.

Issue (ii): Whether receipts from annual maintenance and support services were taxable as fees for technical services or fees for included services under the India-USA DTAA, and whether the make available test was satisfied.

Analysis: The maintenance and support arrangement formed part of the software licence framework and was ancillary to the principal software supply. The services consisted of patches, updates, troubleshooting, remote support, and training, but they did not make available any technical knowledge, experience, skill, know-how, or processes to the recipient so as to enable independent application after the service ended. The make available condition was therefore not met, and the receipts could not be taxed as fees for included services or fees for technical services.

Conclusion: The maintenance and support receipts were not taxable as fees for technical services or fees for included services; this issue was decided in favour of the assessee.

Final Conclusion: The assessment addition on the software licence and AMC receipts was deleted, and the entire receipts were held to be non-taxable in India under the treaty.

Ratio Decidendi: A payment for a software licence is not royalty where only a copyrighted article is supplied and no copyright rights are transferred, and maintenance or support services are not taxable as included services unless they make available technical knowledge, experience, skill, know-how, or processes to the recipient.

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