Cross border payments for use of software not taxable as royalty

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 8733-8734 OF 2018
ENGINEERING ANALYSIS CENTRE OF
EXCELLENCE PRIVATE LIMITED …APPELLANT
Versus
THE COMMISSIONER OF INCOME …RESPONDENTS
TAX & ANR.
WITH
CIVIL APPEAL NOS. 8735-8736 OF 2018
CIVIL APPEAL NOS. 8737-8941 OF 2018
CIVIL APPEAL NOS. 8942-8947 OF 2018
CIVIL APPEAL NOS. 8950-8953 OF 2018
CIVIL APPEAL NOS. 8948-8949 OF 2018
CIVIL APPEAL NO. 4419 OF 2012
CIVIL APPEAL NO. 4420 OF 2012
CIVIL APPEAL NO. 10114 OF 2013
CIVIL APPEAL NO. 10097 OF 2013
CIVIL APPEAL NOS. 10112-10113 OF 2013
CIVIL APPEAL NO. 10106 OF 2013
CIVIL APPEAL NOS. 8954-8955 OF 2018
CIVIL APPEAL NOS. 10115-10117 OF 2013
CIVIL APPEAL NO. 8956 OF 2018
CIVIL APPEAL NO. 8957 OF 2018
CIVIL APPEAL NO. 8990 OF 2018
CIVIL APPEAL NO. 10103 OF 2013
CIVIL APPEAL NO. 10104 OF 2013
CIVIL APPEAL NO. 8960 OF 2018
CIVIL APPEAL NO. 8966 OF 2018
CIVIL APPEAL NO. 8958 OF 2018
CIVIL APPEAL NO. 8959 OF 2018
CIVIL APPEAL NO. 8962 OF 2018
CIVIL APPEAL NO. 8961 OF 2018
CIVIL APPEAL NO. 8963 OF 2018
CIVIL APPEAL NO. 8964 OF 2018
CIVIL APPEAL NO. 8965 OF 2018
CIVIL APPEAL NO. 8969 OF 2018
CIVIL APPEAL NO. 8967 OF 2018
CIVIL APPEAL NO. 8968 OF 2018
CIVIL APPEAL NO. 8972 OF 2018
CIVIL APPEAL NO. 8971 OF 2018
CIVIL APPEAL NO. 8970 OF 2018
CIVIL APPEAL NO. 4629 OF 2014
CIVIL APPEAL NO. 8973 OF 2018
CIVIL APPEAL NO. 4631 OF 2014
CIVIL APPEAL NO. 4630 OF 2014
CIVIL APPEAL NOS. 8974-8975 OF 2018
CIVIL APPEAL NOS. 6386-6387 OF 2016
CIVIL APPEAL NO. 10105 OF 2013
CIVIL APPEAL NO. 7852 OF 2012
CIVIL APPEAL NOS. 1416-1418 OF 2013
CIVIL APPEAL NO. 1403 OF 2013
CIVIL APPEAL NO. 1405 OF 2013
CIVIL APPEAL NO. 1410 OF 2013
CIVIL APPEAL NO. 1421 OF 2013
CIVIL APPEAL NO. 1409 OF 2013
CIVIL APPEAL NO. 1415 OF 2013
CIVIL APPEAL NO. 1414 OF 2013
CIVIL APPEAL NO. 1412 OF 2013
CIVIL APPEAL NO. 1413 OF 2013
CIVIL APPEAL NO. 1419 OF 2013
CIVIL APPEAL NO. 1411 OF 2013
CIVIL APPEAL NO. 1420 OF 2013
CIVIL APPEAL NO. 1404 OF 2013
CIVIL APPEAL NO. 1406 OF 2013
CIVIL APPEAL NO. 1408 OF 2013
CIVIL APPEAL NO. 1407 OF 2013
CIVIL APPEAL NO. 2304 OF 2013
CIVIL APPEAL NO. 2305 OF 2013
CIVIL APPEAL NO. 2306 OF 2013
CIVIL APPEAL NOS. 10098-10102 OF 2013
CIVIL APPEAL NOS. 2307-2308 OF 2013
CIVIL APPEAL NOS. 4666-4667 OF 2013
CIVIL APPEAL NO. 6764 OF 2013
CIVIL APPEAL NO. 4634 OF 2014
CIVIL APPEAL NO. 8976 OF 2018
CIVIL APPEAL NOS. 8977-8988 OF 2018
CIVIL APPEAL NO.781 OF 2021
(@ SLP(C) NO. 37580 OF 2016)
CIVIL APPEAL NO.782 OF 2021
(@ SLP(C) NO. 28867 OF 2016)
CIVIL APPEAL NO. 783 OF 2021
(@ SLP(C) NO. 28868 OF 2016)
CIVIL APPEAL NO. 10673 OF 2016
CIVIL APPEAL NO. 784 OF 2021
(@ SLP(C) NO. 29571 OF 2016)
CIVIL APPEAL NO. 10674 OF 2016
CIVIL APPEAL NO. 785 OF 2021
(@ SLP(C) NO. 36782 OF 2016)
CIVIL APPEAL NO. 3402 OF 2017
CIVIL APPEAL NO. 10758 OF 2017
CIVIL APPEAL NO. 9486 OF 2017
CIVIL APPEAL NO. 8711 OF 2018
CIVIL APPEAL NO. 8722 OF 2018
CIVIL APPEAL NO. 8724 OF 2018
CIVIL APPEAL NO. 8725 OF 2018
CIVIL APPEAL NO. 9551 OF 2018
CIVIL APPEAL NO. 786 OF 2021
(@ SLP(C) NO. 450 OF 2019)
CIVIL APPEAL NO. 2006 OF 2019
CIVIL APPEAL NO. 790 OF 2021
(@ SLP(C) NO. 6736 OF 2020)

J U D G M E N T

R.F. Nariman, J.

1. Leave granted.

2. The appeals in these cases are by both the assessees as well as the Department of Revenue, Ministry of Finance [“Revenue”]. Whereas the assessees have succeeded in the question that was posed before the High Court of Delhi, the Revenue has succeeded insofar as the same question was posed before the High Court of Karnataka, and in the ruling by the Authority for Advance Rulings [“AAR”], impugned in C.A. No. 8990/2018.

3. One group of appeals arises from a common judgment of the High Court of Karnataka dated 15.10.2011 reported as CIT v. Samsung Electronics Co. Ltd., (2012) 345 ITR 494, by which the question which was posed before the High Court, was answered stating that the amounts paid by the concerned persons resident in India to nonresident, foreign software suppliers, amounted to royalty and as this was so, the same constituted taxable income deemed to accrue in India under section 9(1)(vi) of the Income Tax Act, 1961 [“Income Tax Act”], thereby making it incumbent upon all such persons to deduct tax at source and pay such tax deductible at source [“TDS”] under section 195 of the Income Tax Act. This judgment dated 15.10.2011 has been relied upon by the subsequent impugned judgments passed by the High Court of Karnataka to decide the same question in favour of the Revenue.

4. The appeals before us may be grouped into four categories:

i) The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer.

ii) The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users.4

iii) The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users.

To read/download the full judgment, find the enclosed file