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Hon'ble Delhi High Court was seized of an issue, wherein customized software used for :- 10 -:

designing highways, railways, airports, ports etc was licenced to an Indian customer who used such software in its business. Their lordships held that such software, by virtue of the relevant agreements, could be used only for assessee's own business and could not be loaned, rented, sold, sub-licenced or transferred to a third party. Their lordships therefore held that mere transfer of right to use a copyrighted material did not give rise to any royalty income in terms of article 12(3) of India -US DTAA. Thus, there seems to be an apparent contradiction in the view regarding right to use copyrighted software between Hon'ble Karnataka High Court and Hon'ble Delhi High Court. Assessee in such a situation, in our opinion can always fall back on the judgment in their favour, so long as there is no jurisdictional High Court judgment on the issue. However, we have to see whether assessee's case falls within the same parameter of facts as they were there before Hon'ble Delhi High Court. Annex 1 of the agreement entered by the assessee with its Italian principal has been reproduced by the ld. Commissioner of Income Tax (Appeals) in its order and this is once again reproduced hereunder for brevity.
13. A distinction has to be made between the acquisition of a "copyright right" and a "copyrighted article." Copyright is distinct from the material object, copyrighted. Copyright is an intangible incorporeal right in the nature of a privilege, quite independent of any material substance. Copyright or even right to use copyright is distinguishable from the sale consideration paid for a "copyrighted" article. This sale consideration is for the purchase of goods and is not royalty. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the customer should acquire rights either in entirety or partially, co-extensive with the owner who divests himself of the copyrights that he possesses.. A non-exclusive and non-transferable license enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in the treaty. The enjoyment of some or all the rights which the copyright owner has is necessary to invoke the royalty definition. The parting of intellectual property rights inherent in and attached to the software product in favour of the customer triggers royalty characterization under the treaty. Merely authorizing or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not amount to transfer of rights in relation to copyright.
products and provide ail services to customers during the term of 'TLA' under an agreement dated 31/10/1999, for a period of one year to be continued thereafter, after mutual agreement, as per the discretion of the Synopsys Inc. In pursuance of the rights acquired under the said agreement, the assessee has entered into 'EULA" with various Indian customers. One such agreement is dated 30/5/2002 entered into with M/s. Athena Semi- conductors Private Limited, Bangalore.

11. In pursuance of the aforesaid agreement, the assessee has granted the Indian customers a non-exclusive, non-transferable license, without right of sub-license, to use the licensed software and design techniques only in the quantity authorised by the licensee, in accordance with the documentation and in the use area with a right to licensee to make a reasonable opportunity of copies of the licensed software for backup and storage or archival purposes only. For grant of such license for use of the software, for a period of 20 years, the Indian customers, have paid consideration in lump sum. The said agreement is for a period of 20 years. It is on receipt of the said consideration, the assessee has not paid tax under section 9 of the Act, on the ground that the said consideration is not 'Royalty' as defined under section 9 of the Act. In support of their contention that it is not a 'Royalty', which is liable to tax, they rely principally on two judgments. First in the case of Motorola Inc. (supra). The question which was referred to the Special Bench was as under:-

14. Ultimately, it was ruled that payment was received by the VARs ("third party resellers") on account of supplies of software products to the end-customers (from whom the licence fee is collected and appropriated by VAR) does not result in income in the nature of royalty to the applicants.

15. It was contended relying on these two judgments that under the 'EULA' no right in the copyright as such is transferred. As such, the consideration paid in the aforesaid agreement is not a 'Royalty' and no tax is leviable under section 9 of the Act.