2024 (7) TMI 512 - HC - Income Tax

Income taxable in India or not - payments made by the respondent for obtaining computer software were liable to be taxed in India as royalties under the provisions of Section 9 (1) (vi) of the Income Tax Act, 1961 - HELD THAT -As in Engineering Analysis Centre of Excellence (P.) Ltd 2021 (3) TMI 138 - SUPREME COURT held that 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 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. Decided against revenue.

Summary

Issues:
Whether payments made for obtaining computer software are liable to be taxed in India as royalties under Section 9 (1) (vi) of the Income Tax Act, 1961.

Analysis:

Issue 1:
The primary issue in this case was whether payments made for obtaining computer software by the assessee from foreign parties were liable to be taxed in India as royalties under Section 9 (1) (vi) of the Income Tax Act, 1961.

Analysis:
The Tribunal considered the provisions of the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and the countries involved in the transactions. It was noted that similar cases had been decided in favor of the assessee by the Tribunal previously. The Tribunal observed that the purchases of computer software fell within the DTAA provisions, and following its previous decisions, dismissed the appeal filed by the Revenue.

Issue 2:
Whether the decisions of the High Courts and the Supreme Court in similar cases were applicable to the present matter.

Analysis:
The High Court referred to a case where the High Court of Karnataka had found that payments for computer software constituted royalties under Section 9 (1) (vi) of the Act. However, the Supreme Court, in the case of Engineering Analysis Centre of Excellence (P.) Ltd., held that such transactions did not amount to royalty payments. The Supreme Court's decision was based on the interpretation of the DTAA and the Income Tax Act, concluding that no TDS was required under Section 195 of the Act.

Issue 3:
Whether the Assessing Officer's approach in the present case was consistent with the legal position established by the Tribunal and endorsed by the Supreme Court.

Analysis:
The High Court found that the Assessing Officer's approach was against the correct legal position as determined by the Tribunal and upheld by the Supreme Court in the Engineering Analysis Centre of Excellence (P.) Ltd. case. The High Court agreed that the appeals did not raise any substantial question of law, given the settled legal principles from the Supreme Court's decision.

In conclusion, the High Court dismissed the appeals filed by the Revenue, as the legal position regarding the taxation of payments for computer software as royalties had been clarified by the Supreme Court's decision in the Engineering Analysis Centre of Excellence (P.) Ltd. case. The High Court found that the transactions in the present case did not give rise to any question of law and therefore upheld the decisions of the lower authorities.