Software licence and support receipts are not royalty or FTS under the India-USA DTAA absent copyright transfer or make available

Consideration for a non-exclusive, non-transferable software licence for use of a copyrighted article, rather than transfer of copyright or commercial exploitation rights, is not taxable as royalty or process royalty under the India-USA DTAA and is treated as business profits absent a permanent establishment. Ancillary support and maintenance services are not taxable as fees for technical services or fees for included services unless they make available technical knowledge, skill, experience, know-how or processes to the customer; training that does not meet that treaty test is insufficient. On these principles, the income was held not taxable in India and the addition was deleted.

---

---

Issues: (i) Whether the consideration received for software licence supply was taxable as royalty or process royalty under the India-USA DTAA. (ii) Whether the amounts received for support and maintenance services were taxable as fees for technical services or fees for included services under the India-USA DTAA.

Issue (i): Whether the consideration received for software licence supply was taxable as royalty or process royalty under the India-USA DTAA.

Analysis: The licence granted was non-exclusive, non-transferable and for use of a software product. The receipt was for use of a copyrighted article and not for transfer of copyright or commercial exploitation of the underlying rights. On the same factual matrix, the earlier decision in the assessee's own case was followed, and the Revenue could not distinguish the agreement or show any material change in facts.

Conclusion: The software licence receipts were not taxable as royalty or process royalty and were held to be business profits not chargeable in India in the absence of a permanent establishment.

Issue (ii): Whether the amounts received for support and maintenance services were taxable as fees for technical services or fees for included services under the India-USA DTAA.

Analysis: The support and maintenance obligations were ancillary to the software licence arrangement and did not involve making available technical knowledge, skill, experience, know-how or processes to the Indian customer. The record did not establish that the customer could apply any such technology independently after the services ended, and the training component was found insufficient to satisfy the treaty test.

Conclusion: The support and maintenance receipts were not taxable as fees for technical services or fees for included services and were held to be business profits not chargeable in India in the absence of a permanent establishment.

Final Conclusion: The addition made by the Assessing Officer was deleted and the assessee's appeal was allowed.

Ratio Decidendi: Consideration for use of a copyrighted software article is not royalty under the treaty, and ancillary support or maintenance services are not taxable as FTS/FIS unless they satisfy the treaty's make available requirement and independently create taxable business presence.

---