Taxability of Royalty Paid to Foreign Companies: Supreme Court Upholds Legality of Engineering Analysis Case, Dismisses SLP [Read Judgement]

Dismissing a Special Leave Petition (SLP), the Supreme Court of India upheld the legality of the Engineering Analysis case in the matter of taxability of the royalty paid to foreign companies.

The Counsel appearing for the petitioner submitted that a review petition as against the aforesaid judgment is pending before the Supreme Court and that the matter is to be heard in open Court. Therefore, this matter may be kept pending and later disposed of in terms of the order passed in the review petition.

The Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT holds that payments made to non-resident computer software manufacturers/ suppliers for the resale/use of the software not taxable as Royalty

Under section 195 of the Income Tax Act, an obligation is cast on a person making payment to a non-resident of any sum, which is chargeable under the provisions of the Income Tax Act, to deduct tax at the rates in force at the time of payment of such sum or at the time of credit thereof to the account of the payee, whichever is earlier.

A Two Judge Bench of the Supreme Court comprising Justices BV Nagarathna and Prashant Kumar Mishra observed that “if once a judgment is passed by a Court following another judgment and subsequently the latter judgment is overruled on a question of law, it cannot have an effect of reopening or reviving the former judgment passed following the over ruled judgment nor can the same be reviewed.”

“In view of the above, we hold that as on today the judgment of a Three Judge Bench of this Court in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Another is holding the field and therefore the said judgment would have to be followed in the instant case. In view of the above, the special leave petition stands dismissed” the Bench held.

The Court further noted that the decision in Engineering Analysis Centre of Excellence Private Limited is holding the field. In the event, the aforesaid decision is overruled, that cannot have a bearing on the present case, as it will have an impact only on the judgment passed in Engineering Analysis Centre of Excellence Private Limited (supra) and the cases to be decided thereafter.

To Read the full text of the Order CLICK HERE

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