Software licence payments without copyright transfer are not royalty and do not trigger withholding tax.

Karnataka HC held that payments for purchase or licence of software to non-resident entities did not constitute royalty because no copyright rights were transferred. Applying the Supreme Court's ruling in Engineering Analysis Centre of Excellence and finding no material factual distinction, the Court held that the receipts were not taxable as royalty in India. As a result, no deduction of tax at source arose under section 195, and the Revenue's appeal failed.

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Issues: Whether payments made for purchase or licence of software to non-resident entities constituted royalty and gave rise to income taxable in India, so as to require deduction of tax at source under section 195 of the Income-tax Act, 1961.

Analysis: The appeal was found to be covered by the Supreme Court's ruling in Engineering Analysis Centre of Excellence, where similar software-payment transactions were held not to constitute royalty. Applying the principle that like cases should be decided alike, and finding no demonstrable factual distinction, the Court held that the Revenue's challenge could not succeed.

Conclusion: The payment for software did not amount to royalty and no tax deduction at source under section 195 arose; the Revenue's appeal failed.

Ratio Decidendi: Payments for software licence or purchase, without transfer of copyright rights, do not constitute royalty for the purpose of section 9(1)(vi) and do not trigger withholding under section 195.

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