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Issues: Whether payments made for obtaining computer software were liable to be taxed 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 the Income-tax Act, 1961.
Analysis: The appeals involved a common question already settled by the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. The governing principle applied was that where distribution agreements or end-user licence arrangements do not create any interest or right in copyright in favour of the Indian payer, the consideration paid for resale or use of computer software does not constitute royalty. In that situation, the non-resident recipient does not derive income taxable in India on that account, and the payer has no obligation to deduct tax at source under Section 195. The existence of applicable DTAAs was also recognised as supporting this conclusion.
Conclusion: The software payments were not royalty and no TDS liability arose under Section 195; the Revenue's appeals failed.
Ratio Decidendi: Consideration paid for computer software under a licence or distribution arrangement is not royalty unless it confers a right or interest in copyright, and in the absence of such a right there is no obligation to deduct tax at source under Section 195.
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