Cross-border payments for sale of software not taxable as ‘Royalty’: Supreme Court

The Supreme Court on Tuesday ruled that payments received by non-residents as consideration for sale of license of computer software to Indian companies/ entities is not taxable as ‘Royalty.

A Bench of Justices Rohinton Nariman, Hemant Gupta and BR Gavai allowed the appeals filed by assesses in this regard while dismissing the appeals of the Income Tax Department (IT department).

The IT department had sought to tax money received from sale of software as royalty. It was their contention that the Indian entities to whom the software license was granted should deduct tax at source before making payment to the foreign seller.

Companies had opposed the same contending that the transaction between the foreigner seller and Indian companies is sale and not licensing. Hence, the income generated cannot be classified as royalty but only as business income.

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