Software sale receipts under non-transferable licences were held outside fees for technical services due to no human service element.

Receipts from software sales and cloud-based subscriptions supplied under a non-exclusive, non-transferable distribution model were held not to be fees for technical services. The arrangement gave distributors only resale rights, with no power to sub-licence, modify, reverse engineer, or otherwise exploit copyright, and any support was merely ancillary to installation and maintenance. Because the supply involved delivery of software products through licence keys and cloud access without a real human service element or direct human intervention, the receipts were characterised as consideration for sale of software simpliciter rather than technical services under Article 12(3)(b) of the India-Ireland DTAA or section 9(1)(vii) of the Income-tax Act.

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Issues: Whether receipts from sale of software and cloud-based subscriptions to Indian distributors and end-users were taxable as fees for technical services under Article 12(3)(b) of the India-Ireland DTAA and section 9(1)(vii) of the Income-tax Act, 1961.

Analysis: The distribution arrangement granted only a non-exclusive, non-transferable right to resell software, with no right to sub-licence, reverse engineer, modify, or otherwise exploit copyright. The payment was for software products supplied through cloud delivery and licence keys, while any technical support was merely ancillary to installation and maintenance. On these facts, the receipts represented consideration for sale of software simpliciter and not for rendering technical services. The absence of human intervention or a direct human interface in the supply of the software took the receipts outside the scope of fees for technical services. The judicial principles applied were that technical services require a real service element with human involvement, and a mere technology-enabled product does not, by itself, become technical service income.

Conclusion: The receipts were not taxable as fees for technical services under Article 12(3)(b) of the DTAA or section 9(1)(vii) of the Income-tax Act, 1961, and the addition was deleted in favour of the assessee.

Final Conclusion: Software supplied under the relevant distribution and end-user arrangements was held to be sale of software and not taxable FTS income, so the assessee succeeded on the substantive tax characterization issue.

Ratio Decidendi: Where software is sold under a non-transferable licence and the payment is for the software product itself, with no human interface constituting the service element, the receipt is not assessable as fees for technical services.

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