Right to use granted through licensing of a software does not fall within the meaning of “Royalty” as provided for in the domestic law or the DTAA thus, any consideration for the same is not taxable as Royalty u/s 9(1)(vi) or the relevant DTAA.

Non-resident—Income deemed to accrue or arise in India­—Assessee-company incorporated in Sweden was engaged in business of sale of software products and rendering IT services—Assessee filed return of income for relevant AY—During assessment proceeding, AO noted that assessee and resellers had agreed, as per agreement entered, that Reseller would promote and resell QT products to end users within prescribed territory in accordance with terms and conditions set forth in agreement—Assessee had received payments from India only through sale of said software products—Indian customers had withheld taxes from consideration for sale of software—Assessee claimed a refund on account of TDS by Indian customers—AO passed a draft assessment order u/s 143(3) r/w s. 144C determining entire receipts from sale of software products, taxable as ‘royalty’ under Article 12 of India-Sweden DTAA and u/s 9(1)(vi)—Ultimately, AO passed final assessment order computing tax on gross receipts @10% as per DTAA—CIT(A) granted relief to assessee—Held, CIT(A) had rightly observed that right to use granted through licensing of a software does riot fall within meaning of “Royalty” as provided for in domestic law or DTAA—Any consideration for same was not taxable as Royalty u/s 9(1)(vi) or relevant DTAA—Thus, what was transferred by assessee was neither copyright in software nor use of copyright in software, but what was transferred was right to use copyrighted material or article which was clearly distinct from rights in a copyright—Right that was transferred was not a right to use copyright but was only limited, to right to use copyrighted material and same does not give rise to any royalty income—Mere amendment to s. 9(1)(vi) could not result in a change—It was imperative that such amendment was brought about in agreement as well—Thus, amendment in DTAA unilaterally could not be enforced, hence, provisions of s. 9(1)(vi) were not applicable to instant case—Revenue’s appeal dismissed.

DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) vs. QLIKTECH INTERNATIONAL AB, C/o BMR & Associates LLP

(2019) 57 CCH 0152 DelTrib