The taxation of income from the sale of computer software in cross-border transactions has been a contentious issue in India for many years, with the key question being whether such income should be characterized as royalties (triggering an Indian withholding tax) or as sales/business income (triggering no Indian tax in the absence of a permanent establishment).
In a landmark ruling1, the Supreme Court of India (“SC” or “India Apex Court”) while ruling in favour of the taxpayers has put to rest the controversy on characterization of payments made by Indian residents for use / resale of computer software. The SC held that the amounts paid by resident Indian endusers / distributors to non-resident computer software manufacturers / suppliers, as consideration for the resale / use of the computer software through End-user
Licensing Agreements (“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.