2022 (8) TMI 1383 - HC - Income Tax

TDS u/s 195 - Royalty - taxability of software receipts - Whether constitutes as taxable income deemed to accrue in India u/s 9(1)(vi) - income deemed to accrue or arise in India - HELD THAT - The issue of taxability of software receipts in the present cases is no longer res integra as the Supreme Court in Engineering Analysis Centre of Excellence Private Limited 2021 (3) TMI 138 - SUPREME COURT as held amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 were not liable to deduct any TDS u/s 195 of the Income Tax Act. No substantial question of law arises in the present appeals.

Summary

Issues Involved:
Challenging the common order passed by the Income Tax Appellate Tribunal regarding taxability of software receipts in different scenarios.

Analysis:
The present income tax appeals were filed challenging the common order passed by the Income Tax Appellate Tribunal in various cases. The appellant admitted that the questions of law raised in the appeal were covered by a decision of the Supreme Court in a specific case. However, it was mentioned that the revenue had filed a review petition against the said order, leading to the filing of the present appeals to keep the matter alive.

The High Court noted that the issue of taxability of software receipts in the present cases was no longer res integra as the Supreme Court had already provided a detailed analysis in a specific case. The Supreme Court had categorized the cases into four groups based on different scenarios involving the purchase and resale of computer software by various entities. The judgment of the Supreme Court clarified that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software, did not constitute payment of royalty for the use of copyright in the software. Therefore, such payments did not give rise to any income taxable in India, and no TDS was required to be deducted under section 195 of the Income Tax Act.

The ruling of the Authority for Advance Rulings (AAR) regarding the transfer of copyright through a license was also discussed. The High Court disagreed with the AAR's reasoning, emphasizing that when an end-user gets the right to use computer software under a non-exclusive license, it does not amount to the transfer of copyright. The judgment highlighted the distinction between a copyrighted article and the rights retained by the owner under the Copyright Act.

In conclusion, the High Court held that no substantial question of law arose in the present appeals as the Supreme Court had already provided a comprehensive judgment on the taxability of software receipts in different scenarios. Therefore, the present appeals were dismissed in line with the Supreme Court's decision, bringing clarity to the tax treatment of software transactions involving resident Indian end-users/distributors and non-resident suppliers/manufacturers.