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2016 (5) TMI 955 - AT - Income TaxReceipts from transfer of shrink wrapped software - whether amount to business income or royalty under section 9(1) (vi) and DTAA - Held that:- Terms and conditions of software license in the decision before honorable Delhi high court in Director of Income Tax Versus Infrasoft Ltd. [2013 (11) TMI 1382 - DELHI HIGH COURT] and in the impugned case before us. We found them similar to the issue decided by honourabel Delhi High court. They are similar as to non-exclusive, non-transferable and user restrictions of the software i.e. the software has to be used in accordance with the Agreement, all the intellectual property rights in the form of patent, copyright, trademark etc. are the property of the seller only and at no point of time same has been transferred to either the buyer/ customer, the rights acquired in relation to the copyright are limited to those necessary to enable the user to operate the program, for example, where the transferee is granted limited rights to reproduce the program. The Agreement categorically restricts the user to copy, publish, display, disclose, modify, merge etc. the software except for archival purposes and not allowed to exploit the computer software commercially. On identical facts and circumstances, honourable Delhi high court has held that what is transferred is neither the copyright in the software nor the use of the copyright in the software, but what is transferred is the right to use the copyrighted material or article, which is clearly distinct from the rights in a copyright. The right that is transferred is not a right to use the copyright but is only limited to the right to use the copyrighted material and the same does not give rise to any royalty income and would be chargeable to tax as business income. Therefore respectfully following the decision of Honourable Delhi high court we hold that that consideration received by the assessee on sale of software is not chargeable to tax as royalty such as equipment royalty, process royalty etc. Under Article 12 of DTAA but as business income under article 7 of the INDO Finland DTAA. - Decided in favour of assessee.
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