The Apex Court has again rejected the review petitions of the income tax department against its March 2021 ruling that payments made to non-residents for software purchases cannot be charged to tax as royalty.
The tax department argued that payments to foreign software companies and distributors were royalties, as selling to end users involved licensing the underlying program. It contended that because Indian buyers granted rights to exploit software copyrights, the income should be taxed as royalties for the overseas sellers.
A three-judge bench, including justices Sanjay Kumar, KV Viswanathan, and K Vinod Chandran, stated that the court had earlier dismissed review petitions filed via the tax department against the same judgment in April 2024. As per the bench, it is inappropriate to reopen the issue and dismissed the latest review petitions after a brief hearing in open court.
The 2024 order had denied the claims of the department, both on the grounds of delay and on the merits. It did not find any justifiable cause to interrupt the 2021 judgment.
The Supreme Court, in its March 2, 2021, ruling, held that end-user licence agreements do not transfer or assign copyright for software and that distributors are allotted only a non-exclusive, non-transferable licence to resell software. The judgment had lower software acquisition costs for Indian companies, as overseas sellers could decrease prices because of the tax relief. Companies, along with IBM India, Samsung Electronics, GE India, Hewlett-Packard India, and Mphasis, were among the key beneficiaries.
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In the 2021 decision, the principles specified have been consistently applied by lower courts to various evolving tech models along with cloud, digital marketing, etc., as the only guiding framework, and revenue shall be required to align its position in due assessments and withholding tax proceedings, therefore acknowledging this dismissal in open court proceedings.
