Restrictive software reseller licences do not create fee for technical services where no technical knowledge is made available.

Receipts from restrictive software licence and reseller arrangements were not taxable as fee for technical services because the assessee granted only a non-exclusive, non-transferable and non-sublicensable right, without transferring any proprietary interest or copyright. The technical-support element was merely ancillary and did not make available technical knowledge or skill to the Indian recipient, so the treaty definition of fee for technical services was not satisfied. The same principle was applied to treat the receipts as outside the royalty and FTS net under the Act and the India-USA DTAA.

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Issues: Whether the receipts from grant of limited software-related rights and reseller arrangements were taxable as fee for technical services under the Act and the India-USA DTAA.

Analysis: The receipts arose from arrangements under which the assessee granted only a non-exclusive, non-transferable and non-sublicensable licence, without parting with any proprietary interest or copyright. The predominant agreements were reseller arrangements, and the technical-support element, where present, was ancillary and did not show that any technical knowledge or skill was made available to the Indian recipient. The Tribunal followed the earlier decision in the assessee's own case and applied the principle that such restrictive software licence transactions do not amount to royalty or fee for technical services. It also noted that the treaty definition of fee for technical services was not satisfied, as the make available condition was not established.

Conclusion: The receipts were not taxable as fee for technical services and were held to be exempt both under the Act and under the treaty.

Final Conclusion: The appeal was allowed on the substantive tax issue, while the interest and penalty grounds were only consequential.

Ratio Decidendi: A restrictive software reseller licence, without transfer of copyright or making available technical knowledge, does not constitute fee for technical services under the Act or the applicable treaty.

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