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Issues involved: Interpretation of the term 'royalty' u/s 9(1) of the Income Tax Act, 1961 in relation to consideration paid by Indian customers to foreign suppliers for software/computer programme usage rights.
Judgment Summary: Issue 1: Interpretation of 'royalty' u/s 9(1) of the Income Tax Act, 1961 The High Court, in response to the appeal by the revenue against the Tribunal's order favoring the assessee, considered the substantial question of law regarding the payment of consideration by Indian customers to a foreign supplier for the right to use software/computer programs. This question had previously arisen in cases such as Commissioner of Income tax v Synopsis international Old Ltd. and Commissioner of Income Tax v. Samsung Electronics Private Limited. The court held that such consideration falls within the definition of 'royalty' as per sub-clause [V] to Explanation 2 to Clause [vi] of section 9(1) of the Income Tax Act, 1961. In alignment with the precedents set by the court in previous cases, it was concluded that the consideration paid by Indian customers to foreign suppliers for the transfer of software/computer program usage rights constitutes 'royalty' as defined under the relevant provisions of the Income Tax Act, 1961. Consequently, the substantial questions of law framed in the present case were resolved in favor of the revenue and against the assessee. Therefore, the appeal by the revenue was allowed, and the order was made accordingly.
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