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Consideration paid for the use of a patented article would fall within the definition of Royalty payment. Since one of the rights of the patent holder is the right to use the invention (apart from the right to make or vend), which he can license to others. Softwares are entitled to Patents which is evidenced from thousands of Softwares have been patented all over the world. Patent gives an exclusive right to inventor to use make and/or vend his patented article. In Patent Law, the Patentee gets, inter alia, an exclusive right to sue the article (on which he has the Patent). This exclusive right (to use) can be transferred to others either by selling the product (where an ownership is transferred) or though t a license agreement, allowing the license to use the article for a consideration. Hence, it is absolutely correct to say that payment made for the use of patented article is for the use of patent since physical use of the article (which is patented) is a right vested to patentee by Patent Law. In respect of Software, which is patented, the same can be licensed for physical use. And as discussed earlier, the right to physically use the article (which is patented is one of the rights embedded in the Patent Rights. The common argument that it is only the source code that is entitled to Patent and not the object code, is without any merits. It is the technology that gets patented. For software, technology is the logic behind the programme. This logic when written in 'man-readable' form is known as the "source-code" and when the same is converted in to machine readable form, it is called the "object-code", however, during the translation, the logic remains intact. There appears to be some confusion in respect of the term "use of" in relation to a property which would become clear when one examines the basic definition of royalty as stated in Corpus Juris Secundum which was quoted with approval by the Hon'ble Gujarat High Court in the case of CIT v. Ahmedabad Mfg. Calico Printing Co. [1983] 139 ITR 806 as:

4.6 Shri Korde alternatively argued that, these softwares can also be classified as secret formula or process. The software programme as mentioned above is an array/sequence of instructions, which are used by the computer, or computer aided equipment to do a certain thing by carrying out procedures in a systematic manner. This is what a formula does. Since the source code of this software programme is not made public, it is secret. Similarly the software can also be termed as a "process". The word "process" has been defined in the Oxford Dictionary as "course ot action or a procedure, especially a series of stages in manufacture or some other operation". As per Corpus Juris Secundum, the meaning of the term 'Process' as understood in Patent Laws is:
- a mode, method or operation whereby a result or effect is produced.
- A means devised for the production of a given result.
- An operation done by rule in order to secure a result.
This is exactly how a software works in a series of instructions/operations to achieve a desired result. It would suffice to say here that software can rightly be termed as "formula". And since the source code is not given, to the user the formula (in form of the logic of the software) actually remain secret since the use is unable to decipher the object code. It may also be mentioned here that Canada (which is a part of OECD) has not accepted the OECD Model Convention in respect of tax treatment of software purchases. In Canada payments by sue of software are payments for the use of secret formula or process and thus are royalties. Similarly, countries like Spain, Greece, Portugal (who are part of OECD) have reserved the rights to tax the software income as royalties. It may also be mentioned here that many companies in India (including some MNCs) have been regularly deducting tax on their own on such remittances treating them as royalty payments.