Software Payment to Non-Resident Suppliers is Not Royalty: Delhi HC
The Delhi High Court has upheld the Supreme Court’s ruling regarding the taxability of payments made by indian customers to non-resident software manufacturers to buy software.
The main issue before the Court was whether income earned from the supply of software embedded in hardware equipment or otherwise to customers in India should be treated as a “royalty” under Section 9(1)(vi) of the Income Tax Act, 1961 and under Article 12 of the India-France Double Taxation Avoidance Agreement (DTAA).
The Court noted that this issue has already been solved by the Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. V. Commissioner of Income Tax and Anr. In that judgement, it was held that such software payments are not considered royalty. It was held by the Supreme Court that residents/distributors are not required to deduct tax at source (TDS) under Section 195 while buying software from foreign suppliers.
The court granted relief on this judgement and rejected the appeal filed by the Revenue.
Case Citation: CIT-International Taxation- 1 Vs Alcatel Lucent France (Delhi HC); ITA 259/2026 CM APPL. 19472/2026; 27/03/2026
