India: Payment to foreign software manufacturers for resale or use not a royalty (Supreme Court decision)

India: Payment to foreign software manufacturers

The Supreme Court of India held that amounts paid by resident Indian end-users or distributors to non-resident computer software manufacturers and suppliers, as consideration for the resale or use of the computer software through an end-user licensing agreement and distribution agreement, was not a payment of a royalty for the right to use the copyright of the computer software under various income tax treaties.


Thus, the high court concluded that the payments were not subject to tax withholding at source under provisions of the Income-tax Act, 1961 (India’s tax law).

The Supreme Court further noted that the definition of “royalty” (as contained in Article 12 of the various applicable income tax treaties) indicated that there was no obligation to withhold (deduct) tax at source because the licensing agreements or distribution agreements did not create any interest or right in the Indian end-users or distributors that would be equated to the use of or right to use a copyright.

The case is: Engineering Analysis Centre of Excellence Private Ltd.

Read a March 2021 report [PDF 321 KB] prepared by the KPMG member firm in India

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