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2018 (5) TMI 1318 - AT - Income TaxConsideration received on account of sale on software - Whether royalty within the meaning of Article 13 of the Indian UK DTAA? - business income - Held that:- The license granted by the Infrasoft is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer’s hard drive or random access memory or making archival copy is an essential step in utilizing program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7 of India-UK DTAA. Thus, the issue relating to the consideration received by the assessee from various entities on account of sale of software is not royalty within the meaning of Article 13 of the India UK DTAA, the effect of Article 3(2) of DTAA clearly set out the definition of royalty as per the distributor agreement and the end user license agreement which was produced before the Assessing Officer as well as before the CIT(A). The DRP has not taken into account the correct and true meaning of the royalty and the services do not come under the purview of royalty. As in case of Principal CIT Vs. M. Tech India Pvt. Ltd. [2016 (1) TMI 812 - DELHI HIGH COURT] has held that payment made by reseller for the purchase of software for sale in Indian market could not be considered as royalty - Decided in favour of assessee.
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