The Supreme Court on 2nd March 2021 held that Indian Companies need not deduct tax for the amount they pay foreign manufacturers and suppliers for use or re-sale of computer software through end-user license agreements (EULA).
The judgement was based on cross-appeals by the revenue authorities and alike on the question of whether the money paid by Indian buyers to foreign, 'non-resident' software suppliers amounted to royalty and thus, tax deductible at source under Section 195 of the Income Tax Act.
Justice Nariman reasoned that payment of royalty is only for the exclusive use of copyright of a work. Here, the computer software is solid in the form of a CD and thus, cannot qualify as royalty for which tax should be deducted at source.
To read the official judgement, click here.Tags : income tax