Software licence payments not treated as royalty where no copyright rights pass, so no tax withholding under section 195.

Consideration paid for resale or use of computer software under a licence or distribution arrangement, where no interest or right in the copyright itself is conferred, is not royalty under section 9(1)(vi) of the Income-tax Act. On that basis, such remittances to non-resident suppliers in DTAA countries do not give rise to income taxable in India, and the payer is not required to deduct tax at source under section 195. The Bombay HC applied the Supreme Court's ruling in Engineering Analysis Centre of Excellence and held that the software payments in the appeals were of the same nature, leaving no surviving question of law for the Revenue.

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Issues: Whether payments made for obtaining computer software were taxable in India as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and whether tax was deductible at source under section 195 of that Act.

Analysis: The dispute concerned remittances for purchase of computer software from non-resident suppliers situated in DTAA countries. The governing legal position had already been settled by the Supreme Court in Engineering Analysis Centre of Excellence, which held that where the distribution agreement or EULA does not create any interest or right in the copyright itself, the consideration paid for resale or use of software is not royalty. In such cases, the payment does not give rise to income taxable in India under section 9(1)(vi), and the payer is not obliged to deduct tax at source under section 195. The transactions in the present appeals were found to be of the same nature, and the Revenue's challenge did not raise any surviving question of law.

Conclusion: The payments were not liable to be taxed as royalty, and no obligation to deduct tax at source arose under section 195.

Ratio Decidendi: Consideration paid for resale or use of computer software under a licence or distribution arrangement, without conferring any copyright interest or right to use copyright, is not royalty and does not attract tax deduction at source under section 195.

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