Software licence payments are not royalty where no copyright is transferred, leaving no Indian tax liability.

Payments made by Indian end-users or distributors to non-resident software suppliers under distribution agreements or end-user licence agreements do not constitute royalty under Section 9(1)(vi) where no copyright is transferred and only limited use of software is permitted. Following Engineering Analysis Centre of Excellence (P.) Ltd., such consideration is not taxable in India as royalty, and the existence of a DTAA reinforces that position. The issue was therefore decided against the Revenue and in favour of the assessee.

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Issues: Whether payments made for obtaining computer software were liable to be taxed in India as royalty under Section 9(1)(vi) of the Income-tax Act, 1961.

Analysis: The dispute was covered by the authoritative ruling in Engineering Analysis Centre of Excellence (P.) Ltd., which held that consideration paid by resident Indian end-users or distributors to non-resident software suppliers under distribution agreements or end-user licence agreements does not amount to payment for the use of or right to use copyright. In such transactions, the payments are not royalty and do not give rise to income taxable in India. As the applicable DTAA was also in place, the payments in the present batch stood covered by the same legal position.

Conclusion: The question was answered against the Revenue and in favour of the assessee.

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