Software Payments Not Taxable As Royalty: Delhi HC

The Delhi High Court has dismissed appeals filed by the Income Tax Department against Singapore-based company Veritas Storages Singapore Pte. Ltd., while reiterating the legal position that consideration received for resale or use of computer software cannot automatically be treated as “royalty” taxable in India. A Division Bench comprising Justice Dinesh Mehta and Justice Vinod Kumar has observed that although the Tribunal’s reasoning primarily focused on software royalty issues, the remaining issues involving maintenance support services and training services had not been specifically analysed by the Tribunal. The Court noted that the Tribunal’s approach in setting aside the entire demand solely on the basis of Engineering Analysis was technically erroneous. The department had challenged orders of the Income Tax Appellate Tribunal (ITAT) that had granted relief to the assessee in disputes concerning taxation of payments arising from software-related transactions. The Assessing Officer had originally made additions on four counts, namely sale of hardware appliances, sale of software licences, maintenance support and other services related to software licences, and education and training services. Before the High Court, the Revenue argued that the Tribunal had incorrectly disposed of the entire appeal merely by relying upon the Supreme Court’s landmark ruling in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT. According to the Department, the Supreme Court judgment dealt specifically with software licence payments and did not directly examine issues relating to maintenance support services or education and training services. The Department therefore sought remand of the matter back to the Tribunal for fresh adjudication on the remaining issues concerning maintenance support and education and training services. It, however, did not dispute that no separate addition could survive in relation to sale of hardware appliances. Senior Advocate Tarun Gulati, appearing for the assessee, submitted that the Tribunal may have inadvertently referred only to the Engineering Analysis judgment, but the remaining issues were also covered by the Delhi High Court’s earlier decision in Commissioner of Income Tax – International Taxation-3 v. TSYS Card Tech Ltd. The assessee further pointed out that for subsequent assessment years beginning from AY 2020-21 onwards, the Assessing Officer himself had accepted the legal position and had not made additions on the disputed counts. While examining the dispute, the High Court reproduced significant portions of the Supreme Court’s ruling in Engineering Analysis, where the apex court had categorically held that payments made by Indian end-users or distributors to non-resident software manufacturers for resale or use of software through End User Licence Agreements (EULAs) or distribution agreements do not amount to royalty for use of copyright. The Supreme Court had also clarified that such payments do not create any taxable income in India in the absence of a Permanent Establishment (PE). However, the Bench held that remanding the matter would serve no practical purpose because the remaining issues already stood covered in favour of the assessee by the Delhi High Court’s earlier ruling in TSYS Card Tech Ltd. The Court accordingly dismissed the department’s appeals and disposed of all pending applications. Case Details Case Title: The Commissioner Of Income Tax - International Taxation -3 Versus Veritas Storages Singapore Pte Ltd Citation: JURISHOUR-1272-HC-2026(DEL) Case No.: ITA 307/2025 CM APPL. 50511/2025 CM APPL. 50512/2025 Date: 12.05.2026 Counsel For Petitioner: Ruchir Bhatia SSC Counsel For Respondent: Tarun Gulati, Sr. Adv. Click Here To Read Order Read More: Students Shifted From Failed Private Medical College Cannot Claim Government-Rate MBBS Fees Indefinitely: Supreme Court

Software Payments Not Taxable As Royalty: Delhi HC

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