Software licence receipts not royalty where no copyright rights are transferred under the India-US treaty.

Amounts received for a limited end-user software licence were not taxable as royalty under Article 12(3) of the India-USA DTAA because the agreements granted only a non-transferable right to use object code software. No copyright, title, proprietary interest, or source code access passed to the licensees, and restrictions on copying, sublicensing, reverse engineering, decompiling, and disassembling confirmed that no rights in the copyrighted work were transferred. Consideration for such a restricted licence therefore did not constitute royalty under the treaty, and the Revenue's challenge failed.

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Issues: Whether amounts received from supply of software licences and related services were taxable as royalty under Article 12(3) of the India-USA DTAA.

Analysis: The agreements conferred only a non-transferable right to use the software in object code form. The licensees did not acquire any copyright, title, interest, proprietary right, or source code access, and were restricted from copying, sublicensing, reverse engineering, decompiling, or disassembling the software. The claimed modification rights did not amount to transfer of rights in copyright within the meaning of the Copyright Act. The factual matrix was found to be squarely covered by the principle that a software licence which does not transfer copyright cannot be taxed as royalty under the treaty.

Conclusion: The receipts were not taxable as royalty under Article 12(3) of the India-USA DTAA and the Revenue's challenge failed.

Ratio Decidendi: Consideration for grant of a limited end-user software licence, without transfer of copyright or any rights in the copyrighted work, does not constitute royalty under the applicable tax treaty.

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