The second requirement of s. 41(1) is also not satisfied because in paying the NPV of the sales-tax liability, the assessee has paid the equivalent of the Future Value of the sum. As the sum of Rs. 3,37,13,393 is the NPV of the future sum of Rs.7,52,01,378 and its payment discharges the full liability, there is no remission or cessation of liability by the State Govt. It is a simple case of collecting the amount at net present value which is due later on (principles of s. 63 of the Contract Act applied)

The argument of the revenue that the abnormal debt-equity ratio attracts the “Thin Capitalization Rule” and that the “debt” should be characterized as “equity” for purposes of considering whether interest is deductible is not acceptable. Several countries have detailed “thin capitalization rules” (e.g. Belgium). However, there are no such rules in India though the DTC 2010 has proposed this vide s. 123(1)(f). In the absence of specific “thin capitalization” rules, it is not open to the revenue to characterize debt as equity and disallow the interest (principles in Azadi Bachao Andolan 263 ITR 706 (SC) followed)

The income received for supply of software is assessable as “royalty” under s. 9(1)(vi) as a copyright subsists in a computer programme and it is also a literary as also a scientific work. A computer programme is also a patent, invention or process. As end-users have made payment for transfer of rights (including the granting of a license) in respect of copyright, patent, invention, process, literary or scientific work, the payment would be in the nature of royalty