Consideration for Software Resale/Use via EULAs Not Royalty, No TDS Liability u/s 195: Delhi HC [Read Order]
The consideration paid by Indian distributors or end-users to non-resident software suppliers is not royalty, since such agreements only grant limited rights to use copyrighted material and not the copyright itself
![Consideration for Software Resale/Use via EULAs Not Royalty, No TDS Liability u/s 195: Delhi HC [Read Order]](https://images.taxscan.in/h-upload/2025/08/20/2078597-foreign-consulates-un-agencies-exempted-income-tax-tds-taxscan.webp "Consideration for Software Resale/Use via EULAs Not Royalty, No TDS Liability u/s 195: Delhi HC [Read Order]")
The Delhi High Court has held that payments made for the resale or use of software through End-User Licence Agreements (EULAs) or distribution agreements cannot be treated as “royalty” under Section 9(1)(vi) of the Income Tax Act, 1961, or the relevant Double Taxation Avoidance Agreement (DTAA). While dismissing the Revenue’s appeal, the Court held that such transactions...
The Delhi High Court has held that payments made for the resale or use of software through End-User Licence Agreements (EULAs) or distribution agreements cannot be treated as “royalty” under Section 9(1)(vi) of the Income Tax Act, 1961, or the relevant Double Taxation Avoidance Agreement (DTAA).
While dismissing the Revenue’s appeal, the Court held that such transactions do not give rise to income taxable in India and consequently, no tax is deductible at source (TDS) under Section 195.
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The respondent, XIOCOM (NZ) Ltd, a New Zealand-based company engaged in providing wireless broadband solutions, had licensed “off-the-shelf” software to Zylog Systems (India) Ltd. The Assessing Officer, for AY 2010 - 11, treated the license fee of ₹19.24 crore as royalty income taxable in India.
However, both the CIT(A) and the ITAT rejected this view, relying on precedents such as DIT v. Infrasoft Ltd. and the Supreme Court decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT (2021).
The Supreme Court in Engineering Analysis had conclusively held that consideration paid by Indian distributors or end-users to non-resident software suppliers is not royalty, since such agreements only grant limited rights to use copyrighted material and not the copyright itself.
Following this ratio, the Delhi High Court reiterated that amendments to Section 9(1)(vi) introduced by the Finance Act, 2012 with retrospective effect could not override treaty provisions in the India - New Zealand DTAA.
The Bench comprising Justice V. Kameswar Rao and Justice Vinod Kumar dismissed the Revenue’s appeal holding that “consideration for the resale/use of computer software through EULAs/distribution agreement is not Royalty for the use of copyright of the software and the same does not give rise to any taxable income in India and as a result, the persons referred to under Section 195 of the Act were not liable to be deduct any TDS under Section 195 of the Act.”
Accordingly, the court dismissed the appeal filed by the revenue.
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