A row over the intellectual property in a series of Aboriginal readers produced at a school in Alice Springs has laid bare deep rifts between the Indigenous community and the white professionals who were seen as the saviours of the school but who have now been accused of exploitation and misappropriation of culture.

The Yipirinya School Council has demanded that Margaret James, wife of the former principal Ken Langford-Smith, hand back copyright in a series of small books known as the Honey Ant Readers. They say that despite sizeable grants to the school from government and private philanthropists, they have been left with nothing to show from the $434,000 the school spent on the project.

Ms James for her part says she has always been the owner of the copyright and that it was her, not the school, who secured the grants to produce the readers, even though the grants were paid to the school. She says she has been motivated only by her passion for teaching Aboriginal children to read by producing a series of culturally appropriate books in Aboriginal English that transition to standard English.

In March 2015, the school's lawyers referred the matter to the Northern Territory Police. No action was taken. They are also contemplating legal action over breach of copyright.

An independent school, Yipirinya serves one of the poorest communities in Alice Springs. It was set up in 1978 to educate children from Alice Springs' town camps. Elders believed the government schools in Alice were failing to meet the language and cultural needs of the children from the camps, and applied to set up their own school.

Run by a school council, Yipirinya has gone through its ups and downs and in 2002, when its very existence was in doubt, it employed a former headmaster of the Armidale School, Mr Langford-Smith.

He parted company with the school in early 2015 after the school council locked him out.

Prior to this, the school council overhauled the constitution to change the way board members were chosen.

This caused a major power shift in the school. Mr Langford-Smith has reached a confidential settlement, but there remains an ongoing dispute with Ms James, Mr Langford-Smith's wife, who is the sole shareholder of Honey Ant Readers Pty Ltd, a company which continues to market the readers to Aboriginal schools in Australia and overseas.

At the heart of the dispute is the basis on which Ms James came to work on the Honey Ant readers, and whether the traditional stories from elders associated with the school were provided to her or the school.

The school council argues Ms James was employed by the school for two periods to work on the readers and that it had been involved in producing literacy tools in traditional language for some years.

The school had received a grant for the project in 2008 and Ms James, a linguist, was hired to collect stories from the women who worked in the Language and Culture Centre.

She was hired again in 2012 as the project co-ordinator for the readers. In total, the school paid her $180,666. During both stints, her engagement letters, signed by her husband, state she was entitled to paid leave and superannuation, which the school says are indicators of employment.

In addition to paying her, the school council says a further $253,000 was spent on materials and travel. School resources, such as computers and copiers were also used.

According to the school, elders were encouraged to divulge cultural stories for the readers on the understanding that they would be benefiting the school community.

Despite this, the school council says it has got nothing out of the project. It received no copyright payments or royalties. It even ended up buying readers from Ms James once they were published.

Ms James strongly disagrees. She says that only four of the readers used traditional stories, and the rest were her creations and that copyright was always hers. She says there were no royalties paid because there were no profits.

She says she was a contractor, not an employee. The school, she says, was merely the conduit for the grants because of its not-for-profit status.

"It was a fee for service contract," Ms James told Fairfax Media. "I could have picked any organisation to host the grants, but I picked Yipirinya."

Ms James says she spent a great deal more than the grants, taking out a loan on her house to meet the shortfall.

As for the allegation of theft of cultural stories, Ms James says elder Trudy Inkamala was happy for her to use her stories in the readers. Ms Inkamala is now painting in the outback and uncontactable, but Ms Inkamala's daughter Rhonda said she was not unhappy.

"Trudy owns the stories on behalf of the community. She was happy for me to use them and I paid her cash every time she provided me with stories. She was acknowledged in the readers," Ms James said.

But Jungala Kriss, the current chair of the school, said the stories used in the Honey Ant readers "were given to benefit the school".

"They don't understand the notion of commercialising creation stories," he said. "They were totally used. It's like commercialising the Bible," he said.

Ms James said she was the victim of a vendetta by Mr Kriss, whom she accused of taking over the school and ousting the elders. This is denied by Mr Kriss.

In 2010, Ms James signed a deed with her husband Mr Langford-Smith and then head of the school council Benedict Stevens which purported to assign copyright to Ms James – something Mr Kriss says was not authorised and not minuted.

He says says in all over $645,000 in grants and donations were given to the school between 2008 and 2014 and that the lion's share was given for the readers.

In 2012, Ms James was listed as finalist for the NT's nomination for Australian of the Year for her work on the Honey Ant Readers.

She was granted $825,000 in 2015 from the Department of Prime Minister and Cabinet to further the Honey Ant Readers.

Yipirinya has now adopted an alternative literacy program.