A bench of Justices BR Gavai, BV Nagarathna and Pankaj Mithal rejected a batch of review petitions filed by the Commissioner of Income Tax both on merits as well as on the grounds of delay. This means tax liability of foreign software seller without a permanent establishment in India would reduce to the 2% equalisation levy introduced via Finance Act 2020 from the 10%-15% royalty tax, which the Indian buyer has hitherto been liable to withhold.

The Supreme Court has rejected the income tax department’s petition seeking review of its March 2021 judgment in Engineering Analysis Centre Of Excellence Private Limited vs. CIT (2021) 432 ITR 471 that held that payments made to non-residents for software purchase can’t be taxed as royalty.

The revenue authorities had termed these cross-border payments made to foreign software companies and distributors for the software purchase as royalty.

The rationale being that when software is sold, the incorporated programme is licensed to the end user. The taxman had also contended that since the Indian entity is granted the rights to exploit the software copyright, the payments for such purchases amount to royalty income for the seller, a stand the apex court rejected again.

A bench of Justices BR Gavai, BV Nagarathna and Pankaj Mithal rejected a batch of review petitions filed by the Commissioner of Income Tax both on merits as well as on the grounds of delay.

“There is an inordinate delay of 515 days in filing the review petitions, which has not been satisfactorily explained. Even otherwise, having gone through the review petitions and the connected papers, we do not find any justifiable reason to entertain the review petitions,” it said.

This means tax liability of foreign software seller without a permanent establishment in India would reduce to the 2% equalisation levy introduced via Finance Act 2020 from the 10%-15% royalty tax, which the Indian buyer has hitherto been liable to withhold.(From the ET)