Software licence payments to non-residents are not royalty and do not attract TDS under the more beneficial DTAA.

Payments to non-resident software suppliers under end-user licence or distribution arrangements do not create any interest in copyright and are not royalty under Section 9(1)(vi) of the Income-tax Act. Applying the Supreme Court ruling in Engineering Analysis Centre of Excellence (P.) Ltd., the Bombay HC treated such remittances as outside the royalty charge and held that tax deduction at source under Section 195 was not attracted where the DTAA definition was more beneficial. The revenue's contrary contention was no longer open, and the appeals raised no question of law.

---

---

Issues: Whether payments made by the assessee to non-resident suppliers for obtaining computer software were chargeable to tax in India as royalty under Section 9(1)(vi) of the Income-tax Act, 1961, and whether the appeals raised any question of law in view of the Supreme Court decision in Engineering Analysis Centre of Excellence (P.) Ltd.

Analysis: The appeals concerned remittances for purchase or use of computer software from foreign residents. The issue was covered by the Supreme Court decision in Engineering Analysis Centre of Excellence (P.) Ltd., which held that such distribution or end-user licence arrangements do not create any interest or right in copyright so as to amount to royalty, and therefore do not attract tax deduction at source under Section 195 where the DTAA definition is more beneficial. The Court applied that binding position to the present transactions and held that the revenue's contention on royalty was no longer open.

Conclusion: The issue was answered against the revenue and in favour of the assessee, and the appeals did not give rise to any question of law.

Final Conclusion: The revenue's appeals failed on the governing legal position and stood dismissed.

Ratio Decidendi: Payments for resale or use of computer software under EULAs or distribution agreements, which do not confer any copyright interest, are not royalty and do not attract tax deduction at source when the applicable DTAA is more beneficial.

---