Software supply payments are not royalty unless the arrangement grants a right or interest in copyright.

Payments for supply of computer software under distribution agreements or EULAs are not royalty where the arrangement does not grant any right or interest in copyright. Applying the Supreme Court's software-payment ruling, the Bombay HC treated Section 9(1)(vi) of the Income-tax Act, 1961, and its explanations as inapplicable because the relevant DTAA provisions were not less beneficial and the receipts were for resale or use of software, not for use of copyright. The Court aligned earlier co-ordinate decisions with that principle and held the software supply receipts were not taxable as royalty.

---

---

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

Analysis: The controversy was governed by the Supreme Court's ruling on software payments, which held that consideration paid by end-users or distributors to non-resident computer software suppliers under distribution agreements or EULAs does not amount to royalty for the use of copyright. The governing principle applied was that, where the transaction does not create any interest or right in copyright and the relevant DTAA provisions are not less beneficial, Section 9(1)(vi) read with its explanations has no application. The earlier co-ordinate decisions relied upon by the Court were treated as covering the same legal position for both the purchaser and the supplier of software.

Conclusion: The receipts from supply of computer software were not taxable as royalty under Section 9(1)(vi), and the appeal failed.

Ratio Decidendi: Payment for the resale or use of computer software under distribution arrangements is not royalty unless the arrangement grants a right or interest in copyright.

---