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7. Referring to the definition of royalty given in the Act, the Assessing Officer observed that transfer of licence and sub-licence in respect of certain softwares to be used for the purpose of business is transferred and in case the payments are for licence, the non-residents receives consideration for transfer of all or any right for use or right to use computer software and owns all right, title and interest in the software, therefore, what the supplier parts with to the end-user is only a right to use the software for its application. Hence, one of the rights embedded in intellectual property, that is software, being a right to copy and use, is transferred by the supplier to the assessee. The Assessing Officer thus, held that therefore what was being transferred was a right to use the software. The Assessing Officer then, referred to the definition of 'computer software' provided in Explanation 3 under section 9(1)(vi) of the Act and held that the payment for right to use was therefore in the nature of royalty and taxable under clause (v) of Explanation 2 of section 9(1)(vi) of the Act. The Assessing Officer further referred to clarification issued by the Finance Act, 2012 which had vide Explanation 4 provided that the right to use computer software including granting of licence was royalty. The Assessing Officer referred to the Memorandum of Finance Bill, 2012 and held that in view of the above Explanation, the payment was in the nature of royalty and taxable as royalty under section 9(1)(vi) of the Act. He then, referred to the computer programmes and the copyright and was of the view that as the source code or object code of computer had been Tata Technologies Ltd.

being transferred was right to use software, which was in the nature of 'royalty' as per clause 5 of Explanation 2 to section 9(1)(vi) of the Act. Further, the Assessing Officer made reference to the Finance Ac, 2012, which has clarified that right to use of computer software including license is 'royalty'. Reference was made to Explanation 4 under section 9(1)(vi) of the Act inserted by Finance Act, 2012. In other words, Finance Act, 2012 has enlarged the meaning of term 'royalty'. The said amendment was issued with retrospective effect w.e.f. 01.06.1976.