Software subscription receipts are not royalty or FTS, while customer-specific professional services may still qualify as FTS.

A non-transferable software subscription conferring only limited access for a customer's own business use, without transfer of copyright, technology, or technical know-how, is not taxable as royalty or fee for technical services under the Act or the India-USA DTAA. Separately charged professional services that were customer-specific and involved specialised technical and professional inputs were held taxable as fee for technical services. As only the professional-services receipts were sustained, proportionate relief was allowed for equalisation levy on receipts not brought to tax, with surcharge and interest treated as consequential.

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Issues: (i) whether receipts from supply of software subscription were taxable as royalty or fee for technical services under the Act and the India-USA DTAA; (ii) whether receipts from professional services were taxable as fee for technical services; and (iii) whether proportionate relief was to be granted in respect of equalisation levy and consequential levy-related additions.

Issue (i): whether receipts from supply of software subscription were taxable as royalty or fee for technical services under the Act and the India-USA DTAA

Analysis: The software subscription was found to confer only a non-transferable, limited right of access and use for the customer's own business purposes. The restrictions on modification, sublicensing, reverse engineering, and transfer showed that no copyright, technology, or technical know-how was parted with. Applying the settled distinction between a copyrighted article and copyright, and the treaty test for fee for technical services, the receipts could not be characterised as royalty or fee for technical services.

Conclusion: The software subscription receipts were held not taxable as royalty or fee for technical services and were therefore deleted.

Issue (ii): whether receipts from professional services were taxable as fee for technical services

Analysis: The professional services were separately charged, varied materially across customers, and reflected specialised customer-specific consultation rather than mere incidental support for software access. On the facts, the services were held to involve specialised technical and professional inputs falling within the scope of fee for technical services under the Act and the DTAA.

Conclusion: The professional services receipts were held taxable as fee for technical services.

Issue (iii): whether proportionate relief was to be granted in respect of equalisation levy and consequential levy-related additions

Analysis: Since only the professional services receipts were sustained as taxable, the assessee was held entitled to corresponding relief for equalisation levy paid on the receipts that were not brought to tax, and the surcharge and interest issues were treated as consequential.

Conclusion: Proportionate equalisation levy relief was allowed, and the surcharge and interest matters were directed to be dealt with consequentially.

Final Conclusion: The appeal was partly allowed: software subscription receipts were excluded from taxation, professional services receipts were sustained as fee for technical services, and consequential relief was granted on the related levy consequences.

Ratio Decidendi: A non-transferable subscription granting limited access to software for the customer's own use, without transfer of copyright or technology, is not taxable as royalty or fee for technical services, whereas separately charged specialised customer-specific professional services may constitute fee for technical services.

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