Legal Correspondent: Aastha Jain
August 4, 2021: A recent Supreme Court ruling has laid down that the payments made by local users for purchase of software from foreign companies or distributors cannot be taxed as royalty. After pronouncement of the said ruing, several multinationals and Indian technology companies are in a standoff over the applicability of tax on copyright and related issues.
The main and basic subject matter related to the case is whether Indian companies that use, sell, or market software either directly or installed in their cell phones, computers etc. “should deduct tax on royalty or copyright money they pay to multinationals.”
Around 10% tax on copyrights and royalties have been deducted by the Indian companies over the years. But according to the MNC’s, after the new ruling, as ruled out by Supreme Court, the whole system shall inculcate a new change and process involved.
Rohit Jain, companion with legislation agency ELP stated that "Indian companies that use imported software still want to continue withholding the tax at 10% but the latter claims that following the SC ruling on copyright, no withholding should apply. Many Indian companies don't want litigation and are asking the multinationals to get a nil certificate from the tax authorities if they want to avail the benefit of SC ruling,".
Indian companies are now concerned over the fact that altering stance based mostly on the SC ruling may land them in authorized hassle. As a statement of advice made by a senior lawyer to few companies, that now they might be slapped with notices and queries in the events related to the new ruling. He said, "Every ruling has several interpretations Indian companies do not want to get caught in the crosshairs of multinationals and taxmen on this issue."
Many Indian companies have asked multinationals to get a "nil certificates” from the taxman whereas MNC’s have claimed in thousands of crores as a refund from Indian companies after the SC ruling on Microsoft.
The ruling by a bench of Justices RF Nariman, Hemant Gupta and BR Gavai mainly states about royalty and taxation subjects. Most of the multinational companies uses a reseller mannequin in India and as per the Apex Court ruling, the payments can’t be termed as royalty where the software program is brought as a finished product by the Indian or oversea entities.
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