Cross-border payment for software not royalty, SC ends two-decade old tax dispute
SC says there is no obligation on a person to deduct tax at source, as the end-user licence agreements in these cases do not create any interest or right in such end-users, which would amount to the use of or right to use any copyright
Dipak Mondal | March 3, 2021 | Updated 13:35 IST
Tax experts hailed the SC order, saying the judgment would have a far-reaching impact
The Supreme Court has put an end to an over two-decade-old software royalty tax dispute after it ruled that cross-border payments made for the sale of software to a non-resident are not to be taxed as royalty .
SC rules in taxpayers favour in software royalty case; ends two-decade old dispute businesstoday.in - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from businesstoday.in Daily Mail and Mail on Sunday newspapers.
No TDS required on import of shrink-wrapped software: Supreme Court
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No TDS required on import of shrink-wrapped software: Supreme Court
Lubna Kably / TNN / Updated: Mar 3, 2021, 08:10 IST
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MUMBAI: The Supreme Court (SC) on Tuesday ruled that payments made by resident Indian end-users or distributors (such as technology companies) to overseas suppliers on import of ‘shrink-wrapped’ software – generally known as off-the-shelf software, is not a ‘Royalty’ payment. Thus, no withholding tax obligations arise in India, against such payment.
During assessment and at various levels of judicial appeals, payments made for import of shrink-wrapped software to overseas suppliers was held assessable to tax as ‘Royalty’ under section 9(1)(vi) of the I-T Act and Article 12 of the respective tax treaties. This classification as ‘Royalty’ required tax to be deducted at source (TDS) when making payment to the overseas suppliers.
Payments by Indian firms for foreign software not taxable: Supreme Court business-standard.com - get the latest breaking news, showbiz & celebrity photos, sport news & rumours, viral videos and top stories from business-standard.com Daily Mail and Mail on Sunday newspapers.
Finance Minister Nirmala Sitharaman
Sitharaman promised on February 1 to simplify tax administration, ease compliance, and reduce litigation over the coming year.
“It has been the resolve of this government to reduce litigation, which mars the present taxation system,” she said while presenting her budget proposals to Parliament on February 1.
After introducing faceless assessments and appeals, Sitharaman said the next step is to do the same with the Income Tax Appellate Tribunal.
“We shall establish a National Faceless Income Tax Appellate Tribunal Centre,” she said. “All communication between the tribunal and the appellant shall be electronic. Where personal hearing is needed, it shall be done through video-conferencing.”