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of <h1>Payments for off-the-shelf or embedded software are not 'royalty' under tax law; Section 195 withholding applies only with taxable nexus</h1> Supreme Court rulings held that payments for off-the-shelf/shrink-wrapped software or hardware-embedded software, where only a non-exclusive, limited licence or mere sale of a copyrighted article is granted, do not constitute 'royalty' under domestic law or typical DTAAs and therefore do not trigger withholding under section 195 unless the non-resident's income is otherwise taxable in India (e.g., via PE or a statutory transfer of copyright). The Court prioritized substance over form, applied copyright law and OECD guidance, rejected retrospective application of the 2012 explanatory amendment against payors, and affirmed DTAA primacy where more beneficial.
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