Software licence payments as royalty under income tax law, making foreign supplier receipts taxable in India with withholding duties.

Consideration paid for the right to use software or computer programmes, where the payment relates to copyright rights, falls within royalty under section 9(1)(vi) read with Explanation 2(v) of the Income-tax Act, 1961. The Karnataka HC applied its earlier rulings on the same question and treated such sums paid by Indian customers to foreign software suppliers as income taxable in India, with corresponding tax-deduction-at-source obligations. The Revenue's position was accepted and the assessee's challenge did not succeed.

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Issues: Whether consideration paid for transfer of the right to use software/computer programmes falls within the definition of royalty under section 9(1)(vi) of the Income-tax Act, 1961, and whether such payments give rise to taxable income in India requiring deduction of tax at source.

Analysis: The Court applied its earlier decisions on the same legal question and held that payments made by Indian customers or end users to foreign software suppliers for the right to use software/computer programmes in respect of copyrights fall within the mischief of royalty under Explanation 2(v) to section 9(1)(vi). On that basis, the sums were treated as income taxable in India, with consequential withholding obligations.

Conclusion: The question was answered in favour of the Revenue and against the assessee.

Final Conclusion: The appeal succeeded, and the assessee's challenge to the treatment of the software payment as royalty did not prevail.

Ratio Decidendi: Consideration paid for the right to use software/computer programmes, where it relates to copyright rights, constitutes royalty within section 9(1)(vi) and Explanation 2(v) of the Income-tax Act, 1961.

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