Software licence fees are not royalty when only a copyrighted article is supplied, not any copyright right.

Receipts for supply of software bundled with installation, testing, commissioning and AMC were not royalty where the Indian customer obtained only a non-exclusive, non-transferable licence and no title or copyright interest in the software or documentation. The tribunal applied the principle that payment for mere use of software, without transfer of any right in the underlying copyright, does not amount to royalty. It also held that the India-Singapore DTAA definition, being narrower and more beneficial, prevails over the expanded domestic definition. The receipts were therefore not taxable in India under section 9(1)(vi) or Article 12, and the addition was deleted.

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Issues: Whether receipts from supply of software, together with installation, testing, commissioning and AMC, constituted royalty taxable in India under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-Singapore Double Taxation Avoidance Agreement.

Analysis: The assessee was a Singapore resident without a permanent establishment in India. The arrangement showed supply of software under a non-exclusive, non-transferable licence, and the end-user licence agreement stated that no title or ownership in the software or documentation was transferred. The Court applied the principle that consideration for mere use of software, without transfer of any right in the copyright, is not royalty. It further held that the treaty definition, being narrower and more beneficial, prevails over the expanded domestic definition. The contractual restrictions showed only a copyrighted article was supplied, not any copyright or right to use copyright.

Conclusion: The receipts were not royalty and were not chargeable to tax in India under section 9(1)(vi) or Article 12 of the India-Singapore Double Taxation Avoidance Agreement.

Final Conclusion: The software supply transaction was held to be outside the royalty charge, and the addition was deleted.

Ratio Decidendi: A payment for a non-exclusive, non-transferable licence to use software, where no right or interest in the underlying copyright is transferred, is not royalty; the treaty definition prevails where it is more beneficial to the assessee.

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