Software purchase from a non-resident is not royalty absent copyright transfer, so no tax deduction at source applies.

Consideration paid to a non-resident for supply of computer software is not royalty where there is no transfer of copyright rights in the software. Applying the Supreme Court ruling in Engineering Analysis, the payment for software supplied to meet the assessee's specific requirements did not attract the royalty characterisation. As a result, no tax was deductible at source under section 195, and the earlier revenue view treating such remittance as royalty was no longer good law for these transactions.

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Issues: Whether remittance made for purchase of computer software to a non-resident supplier constituted royalty so as to attract deduction of tax at source under section 195 of the Income-tax Act, 1961.

Analysis: The payment was for software supplied to meet the assessee's specific requirements. The controlling legal position was the Supreme Court's ruling in Engineering Analysis, which held that consideration paid for computer software, in the absence of transfer of copyright, does not amount to royalty. The earlier view relied upon by the revenue authorities was therefore no longer good law for such transactions.

Conclusion: The remittance was not royalty and no tax was deductible at source under section 195.

Ratio Decidendi: Consideration paid to a non-resident for supply of computer software is not royalty unless there is a transfer of copyright rights in the software.

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