Software licence payments as royalty: Tribunal followed binding precedent and upheld withholding tax default treatment.

Payments for shrink-wrapped software licences to non-resident vendors were treated as royalty because the licence was held to involve use of copyright rights rather than a mere sale of copyrighted articles. The Tribunal followed the binding jurisdictional High Court view and declined to prefer a contrary reading of another decision. On that basis, the amounts were chargeable to tax in India, tax had to be withheld at source, and the assessee was correctly treated as in default with interest payable.

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Issues: Whether payments made for shrink-wrapped software licences to non-resident vendors constituted royalty taxable in India so as to attract deduction of tax at source, and whether the assessee was in default under the withholding provisions.

Analysis: The appeal concerned payments for software licences distributed by the assessee to end users. The Tribunal noted that the jurisdictional High Court had already held in earlier decisions that consideration paid for such software transactions amounted to royalty, because the licence involved use of copyright rights rather than a mere purchase of copyrighted articles. It further held that it was bound by the latest jurisdictional High Court view and could not disregard that binding precedent on the basis of a contrary reading of another decision. On that footing, the payments were treated as chargeable to tax in India and the assessee's failure to deduct tax at source attracted the withholding default provisions.

Conclusion: The payments were royalty, tax was deductible at source, and the assessee was correctly treated as in default with interest chargeable accordingly.

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