01 March 2021

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Tomorrow Supreme Court of India will pronounce its judgment on the decade old Software Royalty issue. Three-Judges-Bench headed by Justice Rohinton Fali Nariman had reserved their judgment on 18th Feb 2021 after hearing the batch of 87 appeals for five days from 9th to 18th Feb 2021.

It may be recalled that Karnataka High Court (in CIT v. Samsung Electronics Co. Ltd.) had held that the payment made towards purchase of shrink wrapped software was in the nature of Royalty within the meaning of Explanation 2 to Section 9(1)(vi) of Income Tax Act and Article 12 of DTAA with the respective countries as well.

Tomorrow’s judgment is likely to have a huge impact as it is likely to result in ‘refund’ or ‘collection’ of a very large sum of taxes (depending on who wins).

It is interesting to note that the Tax Dept had raised tax demand on software royalty issue for the first time in F.Y.2000-01 in the case of Samsung Electronics Co Ltd and the same is getting closed tomorrow i.e. after almost two decades. Many appeals in the batch of 87 had been pending even before Supreme Court since 2011.​