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.

1000

Related content

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

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal