ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED versus THE COMMISSIONER OF INCOME TAX & ANR.

Citation: [2021] 2 S.C.R. 321 · Decided: 02-03-2021 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Disposed off

cites 11 · see the full citation network in Lexace

Judgment (excerpt)

[2021] 2 S.C.R. 321
321
ENGINEERING ANALYSIS CENTRE OF EXCELLENCE
PRIVATE LIMITED
v.
THE COMMISSIONER OF INCOME TAX & ANR.
(Civil Appeal Nos. 8733-8734 of 2018)
MARCH 02, 2021
[R. F. NARIMAN, HEMANT GUPTA AND B. R. GAVAI, JJ.]
Income Tax Act, 1961: s.195 – Amount paid by resident in
India to non-resident foreign software suppliers – Liability to deduct
tax at source – Held: In view of the definition of royalties contained
in Article 12 of the DTAAs, there is no obligation on the persons
mentioned in s. 195 of the Income Tax Act to deduct tax at source,
as the distribution agreements/EULAs in the facts of these cases do
not create any interest or right in such distributors/end-users, which
would amount to the use of or right to use any copyright – The
amounts paid by resident Indian end-users/distributors to non-
resident computer software manufacturers/suppliers, as
consideration for the resale/use of the computer software through
EULAs/distribution agreements, is not the payment of royalty for
the use of copyright in the computer software, and same does not
give rise to any income taxable in India, as a result of which the
persons referred to in s.195 of the Income Tax Act are not liable to
deduct any TDS under s.195 of the Income Tax Act.
Income Tax Act, 1961: s.194E and s.195 – Distinction between
– Held: s.194E of the Income Tax Act belongs to a set of various
provisions which deal with TDS, without any reference to
chargeability of tax under the Income Tax Act by the concerned
non-resident assessee – This section is similar to s.193 and s.194 of
the Income Tax Act by which deductions have to be made without
any reference to the chargeability of a sum received by a non-resident
assessee under the Income Tax Act – On the other hand, at the
heart of s.195 of the Income Tax Act is the fact that deductions can
only be made if the non resident assessee is liable to pay tax under
the provisions of the Income Tax Act in the first place.
A
B
C
D
E
F
G
H
322
SUPREME COURT REPORTS
[2021] 2 S.C.R.
Income Tax Act, 1961: Applicability of Income Tax Act, 1961
when DTAA applies – Held: Once a DTAA applies, the provisions of
the Income Tax Act can only apply to the extent that they are more
beneficial to the assessee and not otherwise – Further, by explanation
4 to s.90 of the Income Tax Act, it has been clarified by the
Parliament that where any term is defined in a DTAA, the definition
contained in the DTAA is to be looked at – It is only where there is
no such definition that the definition in the Income Tax Act can then
be applied.
Income Tax Act, 1961: s.90 – Royalty – Meaning of – Held:
As is now reflected by explanation 4 to s.90 of the Income Tax Act
and under Article 3(2) of the DTAA, the definition of the term
“royalties” shall have the meaning assigned to it by the DTAA,
meaning thereby that the expression “royalty”, when occurring in
s.9 of the Income Tax Act, has to be construed with reference to
Article 12 of the DTAA – This position is also clarified by CBDT
Circular No. 333 dated 02.04.1982 – Thus, by virtue of Article 12(3)
of the DTAA, royalties are payments of any kind received as
consideration for “the use of, or the right to use, any copyright” of
a literary work, which includes a computer programme or software.
Income Tax Act, 1961: s.9(1)(vi) explanation 4; s.195 – The
question whether persons liable to deduct TDS under s.195 can be
held liable to deduct such sums at a time when explanation 4 was
factually not on the statute book, all deductions liable to be made
and the assessment years in question being prior to the year 2012 –
This question is answered by two latin maxims, lex non cogit ad
impossibilia, i.e., the law does not demand the impossible and
impotentia excusat legem, i.e., when there is a disability that makes it
impossible to obey the law, the alleged disobedience of the law is
excused – The “person” mentioned in s.195 cannot be expected to
do the impossible, namely, to apply the expanded definition of
“royalty” inserted by explanation 4 to s.9(1)(vi) of the Income Tax
Act, for the assessment years in question, at a time when such
explanation was not actually and factually in the statute.
Copyright Act, 1957: Copyright – Meaning of – Though the
expression “copyright” has not been defined separately in the
“definitions” section of the Copyright Act, yet, s.14 makes it clear
that “copyright” means the “exclusive right”, subject to the
A
B
C
D
E
F
G
H
323
provisions of the Act, to do or authoris

Excerpt shown. Read the full judgment & AI analysis in Lexace.