INCOME TAX ACT, 1961

Section 195

Tax deduction at source - Under section 195 - Payment to non-resident company for purchase of software -

Assessee purchased software from a non-resident company located in USA. AO was of the view that payment made by the assessee for purchase of software would amount to royalty within the meaning of Article 12(3) of DTAA between India and USA and there was an obligation on the part of the assessee to deduct tax at source under section 195. On appeal, Tribunal held that since the assessee purchased only a right to use the copyright, i.e., the software and not the entire copyright itself, the payment could not be treated as royalty as per the DTTAA. Aggrieved, Revenue was in appeal. Held: In view of decision of Supreme Court in the case of Engineering Analysis Centre of Excellence Private Ltd. v. CIT & Anr. 2021 SCC OnLine SC 159 : 2021 TaxPub(DT) 1208 (SC), amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for resale/use of the computer software through EULAs/distribution agreements, is not payment of royalty for 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 tax at source under section 195.

Followed:Engineering Analysis Centre of Excellence Private Ltd. v. CIT & Anr. 2021 SCC OnLine SC 159 : 2021 TaxPub(DT) 1208 (SC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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