Software licence receipts and maintenance charges were not royalty where only a restricted user right was granted, not copyright.

Receipts from software supply and related maintenance services were held not taxable as royalty where the agreements granted only a limited, non-exclusive, non-transferable licence to use the software, with no transfer of copyright or right to reproduce the programme. The Tribunal applied the principle that consideration for a copyrighted article, as distinct from consideration for copyright rights, does not constitute royalty under section 9(1)(vi) of the Income-tax Act or Article 13 of the India-UK treaty. It also followed the earlier year's identical factual and legal determination and treated the software-related receipts as outside royalty taxation on the facts before it.

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Issues: Whether receipts from supply of software and related maintenance services were taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 13 of the India-UK tax treaty.

Analysis: The Tribunal noted that the relevant agreements granted only a limited, non-exclusive and non-transferable right to use the software, without transfer of copyright or any right to reproduce the programme. It followed the binding principle that consideration for use of a copyrighted article, where the payer receives only a restricted user licence and not a copyright right, does not amount to royalty. The Tribunal also applied the earlier year's identical factual and legal determination, and held that the receipts from software licensing and maintenance were not taxable as royalty on the facts before it.

Conclusion: The issue was decided in favour of the assessee; the software-related receipts were not taxable as royalty under section 9(1)(vi) of the Income-tax Act, 1961 or under the treaty.

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