No TDS on amount paid by resident to non-resident for resale of computer software through EULA agreements

Igroup Infotech India Pvt Ltd Vs ACIT (ITAT Delhi)

ITAT Delhi held that amounts paid by resident Indian to non­resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty and hence not taxable in India. Hence, TDS u/s. 195 not deductible.

Facts- The present issue relates to the treatment of products, namely, turnitin and Ithenticate which are software solutions and not journals as mentioned in Form No. 15CA filed and claimed by the assessee.

AO was of the opinion that as per the provisions of section 9(1)(vi) of the Income-tax Act, 1961, consideration for software constitutes ‘Royalty’ under the Act and such royalty is taxable in India and hence the company was required to deduct TDS on payments made to Innovative Education Services PTE Ltd, Singapore. According to AO, provisions of India-Singapore DTAA will govern the taxability of such payments.

Conclusion- Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence held that the amounts paid by resident Indian end-users/distributors to non­resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act.

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