Commissioner of Income Tax Vs GE India Technology Centre Private Limited ETC. (Supreme Court of India)
The Supreme Court’s decision marks a pivotal moment in the taxation of cross-border software purchases in India. With the rejection of the review petitions, the tax liability of foreign software sellers without a permanent establishment in India is reduced from the previous 10%-15% royalty tax to a 2% equalisation levy introduced via the Finance Act 2020.
The court’s ruling builds upon its earlier judgment in Engineering Analysis Centre Of Excellence Private Limited vs. CIT (2021) 432 ITR 471, wherein it held that payments made to non-residents for software purchases cannot be taxed as royalty. The revenue authorities had contended that such payments constituted royalty income for the seller due to the licensing of software copyright to the end user. However, the apex court rejected this argument, emphasizing the distinction between software sale and royalty income.
Furthermore, the rejection of the review petitions is based not only on the merits of the case but also on the grounds of delay. The court noted an inordinate delay of 515 days in filing the review petitions, with no satisfactory explanation provided. Consequently, the review petitions are dismissed both on grounds of delay and merits.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
