Software subscription payments are not royalty where only access is granted, with no transfer of copyright or TDS liability.

Amounts paid for software subscription and access to cloud-based software were held not to constitute royalty because the arrangement conferred only a right to use the software, not any transfer of copyright or interest in the underlying intellectual property. On that basis, the income was not taxable in India as royalty and the payer had no obligation to deduct tax at source under section 195. The same reasoning was applied to cloud-based software access, which was also found not to amount to use of industrial, commercial or scientific equipment, or to managerial, technical or consultancy services within the royalty framework.

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Issues: Whether amounts paid for software subscription and access to cloud-based software constitute royalty so as to attract taxability in India and liability to deduct tax at source under section 195.

Analysis: The issue was treated as concluded by prior binding reasoning that distinguished a transfer of copyright from a mere right to use copyrighted material. A licence or subscription enabling access to software for business use, without conferring any interest in or right over the underlying copyright, was held not to amount to royalty. On that basis, the income was not taxable in India as royalty and the payer was not obliged to deduct tax at source. The same reasoning was applied to cloud-based software subscription, with the further view that mere access to such software is not equivalent to use of industrial, commercial or scientific equipment or to managerial, technical or consultancy services within the royalty framework.

Conclusion: The subscription consideration did not amount to royalty, and no liability to deduct tax at source arose; the appeal was therefore not fit for interference and was dismissed.

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