Case Study
Engineering Analysis Centre Royalty Sc 2021 Deep
Landmark Court Judgment Analysis
Engineering Analysis Centre Royalty Sc 2021 Deep needs detailed legal review and fact-matching before you rely on it. Compare top compliance and legal experts on the WorkIndex work index.
Post Your Requirement - FreeLast 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
Legal Principles & Ratio Decidendi
- 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
Agreements & Filings Evaluated
- 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
Practical Mitigation & Compliance Steps
- 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.