Payments for Software not Taxable as Royalty by AKM Global

Published on March 09, 2021

In the recent judgement by the Supreme Court of India, payments for software without transfer of copyright is not subject to tax as royalty.

The Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. The Commissioner of Income Tax & ANR.  has put the controversial issue of tax on payments made for buying software to rest by deciding it in favor of the taxpayers. The case revolves around the taxability of cross-border payments for purchase of software i.e whether the payment received by a non-resident for giving license of the computer software for further distribution would be taxable as royalty or would it be a normal sale transaction. The court held that the non-resident owner continues to have proprietary rights in the software and the use of the software by the Indian company is limited to making backup copy and redistribution. So, the payment received for the sale of computer software is business income and in the absence of a permanent establishment of the seller in India, tax could not be levied.

We have prepared the attached summary of the judgement in this regard which might be relevant for the companies selling or providing software services to the customers in India.

 AKM Global

321, Tower A, Spaze I-Tech Park,
Sector 49, Sohna Road,
Gurgaon (Haryana) – 122018, India
Tel No. +91 - 9910257625

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