Supreme Court Set To Resolve A 20-Year Old Software Tax Dispute

What’s Been The Judiciary’s View So Far?

Several judges across Income Tax Appellate Tribunals, the Authority for Advance Ruling and high courts have ruled on this issue. But the two most important, and conflicting, rulings have come from the Karnataka and Delhi High Courts.

In the 2009 Samsung Electronics’ case, the Karnataka High Court ruled in favour of the tax department. The high court noted that the case involves transfer of copyright. It said if the end user doesn’t get the permission to copy and download the software, the CD is of no use. If such a license is not granted by the foreign seller, the actions of the end user will amount to violation of copyright. And so, payments made in respect of computer program would constitute royalty.

But in Ericsson Radio System’s case, the Delhi High Court took a contrary view. It made a distinction between payment for a “copyrighted article” vs “copyright right”. For a payment to qualify as “royalty”, it must be established that the Indian company has obtained all or any of the copyright rights, the court said.