Financial planning

Cloud Computing Royalty India ITAT
Compliance and filing guide

Expert brief on Cloud Computing Royalty India ITAT for businesses, promoters, and individuals. Reconcile with latest notifications before filing.

Last fact-checked: 2026-06-25

Duplicate checked

Official-source cautious

India specific

Dispute Details

Facts & Lower Court History

Facts: Indian companies paid foreign suppliers for software licenses, and the Revenue demanded tax deduction at source (TDS) claiming the payments were 'Royalty'.
Lower Court History: The ITAT and High Courts had divergent views. The Supreme Court in Engineering Analysis Centre consolidated all cases.
Key Issues: Whether payment for off-the-shelf software constitutes royalty for the use of copyright, or business income exempt under the DTAA.

Court Ratio

Copyrighted Article vs Copyright: The Supreme Court held that buying software is a purchase of a copyrighted article, not a transfer of copyright. Thus, it is not royalty.
DTAA Primacy: Under DTAA, business profits are taxable in India only if the foreign supplier has a Permanent Establishment (PE).
Secondment PE: In secondment cases, if the foreign parent retains employment control over deputed staff, it creates a Service PE in India.

Key Evidence

End User License Agreement (EULA): Terms proving that the buyer only got a right to use the software and no copyright transfer occurred.
Secondment Contract: Agreement detailing the role, control, salary reimbursement, and reporting of deputed employees.
Tax Residency Certificate (TRC): Foreign supplier residency documents for DTAA benefits.

Action Points

Review Software Contracts: Ensure agreements specify that the purchase is for a copyrighted article and no copyright is transferred.
Structure Secondment Contracts: Design secondment contracts to show that the Indian subsidiary acts as the real employer of the deputed staff.
Apply DTAA Cautiously: Obtain a TRC and Form 10F from the foreign software supplier before releasing payments without TDS.