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2012 (6) TMI 203 - HC - Income TaxWhether the consideration paid by the Indian customers or end users to the assessee - a foreign supplier, for transfer of the right to use the software/computer programme in respect of the copyrights falls within the mischief of royalty as defined under sub-clause v to Explanation 2 to Clause vi of section 9 1 of the Act Held that - yes, it is within the mischief of royalty as defined under sub-clause v to Explanation 2 to Clause vi of section 9 1 of the Income Tax Act, 1961. Decided in favour of the revenue and against the assessee. Appeal is allowed.
Issues:
Interpretation of 'royalty' under the Income Tax Act, 1961 for consideration paid by Indian customers to foreign suppliers for the right to use software/computer programs. Analysis: The High Court of Karnataka heard an appeal by the revenue against a Tribunal order favoring the assessee. The court referred to two previous cases, CIT v. Synopsis International Old Ltd. and CIT v. Samsung Electronics Co. Ltd., where the issue of whether consideration paid by Indian customers to foreign suppliers for software use constituted 'royalty' was discussed. In both cases, it was concluded that such payments fell within the definition of 'royalty' under the Income Tax Act, 1961. The court reiterated that the consideration paid by Indian customers to foreign suppliers for the right to use software/computer programs, involving copyrights, constituted 'royalty' as per the relevant provisions of the Income Tax Act, 1961. Citing the precedents set by the earlier cases, the court held that the substantial questions of law in the present case were also decided in favor of the revenue and against the assessee. In conclusion, the court allowed the appeal by the revenue, emphasizing the consistent interpretation of 'royalty' in cases involving payments made by Indian customers to foreign suppliers for the transfer of software/computer program rights. The judgment reaffirmed the position that such payments are subject to taxation as 'royalty' under the Income Tax Act, 1961.
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