Software supply payments not taxable as royalty under Section 9(1)(vi) following established precedents

The Bombay HC ruled in favor of the assessee regarding royalty receipts from software supply. The revenue contended that payments received from Reliance for copyright software under a Wireless Software Assignment and License Agreement constituted taxable royalty income in India. The assessee argued it was business income not taxable in India absent a Permanent Establishment. The HC held that following precedents from Commissioner of Income Tax v. Reliance Industries Ltd. and Engineering Analysis Centre of Excellence, remittances for computer software purchases are not liable to tax as royalty under Section 9(1)(vi), rejecting the Assessing Officer's approach as legally incorrect.

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Issues Involved:
1. Whether payments received by the assessee for the supply of software to Reliance Infocomm Limited constitute "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.
2. Whether the payment made to the assessee amounts to income by way of "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

Issue 1: Whether payments received by the assessee for the supply of software to Reliance Infocomm Limited constitute "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.

The Revenue questioned whether the payments received by the assessee for supplying software to Reliance Infocomm Limited (now Reliance Communication Limited) should be classified as "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961. The Assessing Officer initially held that the payments were for the license to use the software, thus taxable as royalty. The CIT (A) overturned this decision, stating that the payments did not constitute "royalty" under Section 9(1)(vi). The Tribunal upheld the CIT (A)'s decision.

In the hearing, it was noted that a similar issue had been decided by the High Court in the case of Commissioner of Income Tax (LTU) vs. Reliance Industries Ltd., where it was determined that such payments were not taxable as "royalty." The court referred to the Supreme Court's ruling in Engineering Analysis Centre of Excellence (P.) Ltd. vs. Commissioner of Income Tax, which held that payments for software do not constitute "royalty" under Section 9(1)(vi) of the Act.

Issue 2: Whether the payment made to the assessee amounts to income by way of "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.

For the other appeals (Income Tax Appeal No. 611 of 2020, Income Tax Appeal No. 621 of 2020, Income Tax Appeal No. 612 of 2020), the question was whether the payment made to the assessee amounted to income by way of "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961. The CIT (A) and the Tribunal had previously ruled in favor of the assessee, stating that these payments were not "royalty."

The court reiterated its earlier decision in Commissioner of Income Tax (LTU) vs. Reliance Industries Ltd., and the Supreme Court's ruling in Engineering Analysis Centre of Excellence (P.) Ltd., emphasizing that payments for software do not amount to "royalty" under Section 9(1)(vi) of the Act. Consequently, the court found no fault in the Tribunal's orders and dismissed the appeals, stating that they did not give rise to any open question of law.

Conclusion:
The court dismissed all the appeals, affirming that the payments received by the assessee for supplying software to Reliance Infocomm Limited and other similar transactions do not constitute "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961. The decisions were based on the authoritative pronouncements of the Supreme Court and previous rulings of the High Court, which clarified that such payments are not taxable as "royalty."

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