Software licence payments as royalty trigger tax withholding and default liability when copyright use rights are granted.

Payments to non-resident software suppliers for a licence to use copyrighted software, including the right to make installation or backup copies, were characterised as royalty. On that basis, the consideration was treated as income chargeable in India, the remitter was required to deduct tax at source under section 195, and liability as an assessee in default under sections 201(1) and 201(1A) was upheld.

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Issues: Whether payments made for purchase or licence of software from non-resident suppliers were royalty, requiring deduction of tax at source under section 195 and attracting liability under sections 201(1) and 201(1A).

Analysis: The appeal was decided by following the jurisdictional High Court decision in the assessee's own case on identical facts. The payment for software was held to involve a licence to use copyright in the software, including the right to make a copy for installation and backup, and therefore to fall within the expression royalty. Once the payments were characterised as royalty and income chargeable in India in the hands of the non-resident recipients, the remitter was obliged to deduct tax at source. The consequential liability as assessee in default and the interest levy were upheld.

Conclusion: The issue was decided against the assessee and in favour of the Revenue.

Ratio Decidendi: Payment for software that conveys a right to use copyright, including copying for installation or backup, constitutes royalty and triggers the obligation to deduct tax at source under section 195.

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