Case Law Details

Case Name : Engineering Analysis Centre of Excellence Private Limited Vs CIT (Supreme Court of India)
Appeal Number : Civil Appeal Nos. 8733-8734 of 2018
Date of Judgement/Order : 02/03/2021
Related Assessment Year :

Engineering Analysis Centre of Excellence Private Limited Vs CIT (Supreme Court of India); Civil Appeal Nos. 8733-8734 of 2018; Dated: 02/03/2021

Issues Involved :

1. The amounts paid by the residents in India to non-resident, foreign software suppliers; amounts to royalty, there by necessitating withholding of taxes under section 195 of Income Tax Act.

2. Whether such is income taxable in india or takes the shape of royalty income in india.

Sections Involved :

Section 195, Section 9(1)(vi) and Relevant Articles of DTAA

Four Corners of the Filed Appeals :

The appeals before us may be grouped into four categories:

i) The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer.

ii) The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users.

iii) The third category concerns cases wherein the distributor happens to be a foreign, non-resident vendor, who, after purchasing software from a foreign, non-resident seller, resells the same to resident Indian distributors or end-users.

iv) The fourth category includes cases wherein computer software is affixed onto hardware and is sold as an integrated unit/equipment by foreign, non-resident suppliers to resident Indian distributors or end-users.


1. Analysing the definition of royalties contained in Article 12 of the DTAAs, there is no obligation on the persons mentioned in section 195 of IT Act to deduct tax at source, as the distribution agreement / EULAs in the facts of these cases do not create any interest or right in such distributors/ end users, which would amount to the use of or right to use any copyright.

2. The amounts paid by resident Indian end users/ distributors to non-resident computer software manufacturers/ suppliers, as consideration for the resale/ use of the payment software thru EULAs/ agreements, is not the payment of royalty for the use of copyright in the computer software.

3. The same does not give rise to any income taxable in India.

4. The persons referred in section 195 are not liable to deduct any TDS u/s 195 of IT Act.

5. The above answers will apply to all four categories of the cases enumerated above.

6. The appeals from the impugned judgements of Karnataka HC are allowed and the aforesaid judgements are set aside. The ruling of the AAR in Citrix Systems is set aside. The appeals from the impugned judgements of Delhi HC are dismissed.

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April 2021