The long-standing dispute of whether payments made by Indian customers to non-resident software suppliers for use or resale of software should be treated as “royalty” taxable in India, or as business profits not taxable in the absence of a Permanent Establishment, has attained finality.

The Revenue had consistently argued that software licence payments amounted to royalty, irrespective of the limited rights granted to customers, thereby triggering TDS obligations under Section 195 of the Income Tax Act 1961 (the Act) for Indian purchasers and distributors. A batch of appeals eventually reached the Hon’ble Supreme Court (SC) owing to conflicting High Court rulings. In its landmark judgment dated March 2, 2021, in Engineering Analysis Centre of Excellence, the SC ruled in favour of taxpayers and held that End User Licence Agreements (EULAs) merely impose restrictive conditions on the use of software and do not transfer any copyright rights contemplated under Sections 14(a) and 14(b) of the Copyright Act 1957. Consequently, payments made by Indian end-users or distributors to non-resident software manufacturers/suppliers for resale or use of software under EULAs or distribution agreements do not amount to royalty and are therefore not taxable in India. The SC also clarified that the 2012 amendment expanding the domestic definition of royalty could not be applied retrospectively and, in any event, DTAA provisions would prevail over domestic law.

The Revenue Department thereafter filed Review Petitions (C) Nos. 1422–1497/2021 seeking reconsideration of the judgment dated 2 March 2021. Vide order dated May 11, 2026, a 3-Judge Bench comprising Hon’ble Justices Sanjay Kumar, K. V. Viswanathan, and K. Vinod Chandran dismissed the review petitions. The Bench noted that earlier review petitions arising from the same judgment had already been dismissed on grounds of delay as well as on merits by another coordinate Bench on April 23, 2024, and therefore declined to reopen the settled issue.

With this, the legal position now stands conclusively settled, as the judgment in Engineering Analysis has attained finality.

The respondent, Engineering Analysis Centre of Excellence, was represented by DMD Advocates led by Anuradha Dutt (Founder & Managing Partner, Delhi), Vijaylakshmi Menon (Senior Partner), Tushar Jarwal (Partner), Rahul Sateeja (Partner), Sherry Goyal (Associate Partner), and Viyushti Rawat (Principal Associate).