THE PR. COMMISSIONER OF INCOME-TAX-1 vs. M/S. IBM SINGAPORE PVT. LTD.

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ITA/668/2023HC KarnatakaKAHC01057648202306 August 2026Author: S.G.PANDIT,K.MANMADHA RAO6 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the questions raised in the appeal were no longer res integra and were covered by the decision of the Hon'ble Apex Court in the case of ENGINEERING ANALYSIS CENTRE OF EXCELLENCE PRIVATE LIMITED (supra). The Court also referred to its own judgment dated 12.08.2025 in ITA.No.681/2023 and connected appeals, which followed the Apex Court's decision. Consequently, the present appeal was also dismissed on the same grounds. The specific findings on each of the five questions raised by the Revenue were not elaborated upon individually, as the Court found the entire matter to be settled by the aforementioned judicial precedents. The ratio decidendi is that if the issue concerning the taxability of software payments as royalty and the applicability of Section 195 is covered by the Supreme Court's decision in Engineering Analysis Centre of Excellence, then the appeal on such grounds would not survive.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income-Tax and the Deputy Commissioner of Income-Tax, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 03.05.2023 passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal pertains to Assessment Year 2015-16 and concerns the treatment of payments made by the assessee, M/s. IBM Singapore Pvt. Ltd., to non-resident entities for software purchases. The Assessing Officer had treated these payments as royalty, making the assessee liable for tax deduction at source. The ITAT, following its previous orders for the assessee for earlier assessment years, directed the deletion of the addition made as royalty.

What were the issues?

1. Whether the ITAT's order is perverse in holding that payments for software purchases to non-resident entities were not royalty, did not give rise to taxable income in India, and thus did not necessitate tax deduction at source under Section 195 of the Income Tax Act, 1961? 2. Whether the ITAT's order is perverse in holding that payments made to non-resident entities were not royalty as defined in Explanation 2 to Section 9(1)(vii) of the Act and the Double Taxation Avoidance Agreement (DTAA)? 3. Whether the ITAT's order is perverse in holding that the sale of a software license did not include a right or interest in copyright, thus not constituting royalty income deemed to accrue in India under Section 9(1)(vi) of the Act, requiring tax deduction at source? 4. Whether the ITAT's order is perverse in not considering that the development of advanced cloud-based computer software by the assessee would not come under copyright as envisaged in Section 14(a)/14(b) of the Copyright Act? 5. Whether the ITAT's order is perverse in not appreciating that the conditions for applying Explanation 2(v) to Section 9(1)(vi) of the Act were satisfied, as payments were made to a non-resident by way of royalty for the use of or right to use a copyright, especially considering a pending review petition before the Supreme Court in the case of Engineering Analysis Centre of Excellence (reported in 432 ITR page 471)? Revenue's Contention: The Revenue argued that the ITAT's order was perverse and that the payments constituted royalty, necessitating TDS. They relied on the pending review petition in the Engineering Analysis Centre of Excellence case. Assessee's Contention: The assessee contended that the issue was covered by the Supreme Court's decision in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income-Tax and Another (2021) 432 ITR 471.

Which sections of the Income-tax Act were involved?

Section 260A,Section 195,Section 9(1)(vii),Section 9(1)(vi),Section 14(a),Section 14(b)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 6TH DAY OF AUGUST, 2026 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE DR. JUSTICE K.MANMADHA RAO INCOME TAX APPEAL NO. 668 OF 2023 BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME-TAX-1, (INTERNATIONAL TAXATION) KORMANGALA, BENGALURU.

THE DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION CIRCLE 1(2), KORMANGALA BANGALORE. …APPELLANTS (BY SRI. E I SANMATHI, ADV.)

AND:

M/S. IBM SINGAPORE PVT. LTD., NO.12, SUBRAMANYA ARCADE, BANNERGATTA MAIN ROAD BANGALORE-560029 PAN NO. AACCI2917B. …RESPONDENT (BY SRI MS. MANASA ANANTHAN, ADV. FOR MS. TANMAYEE RAJKUMAR, ADV.)

THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961, ARISING OUT OF ORDER DATED 03.05.2023 PASSED IN IT(IT)A NO.177/BANG/2023, FOR THE ASSESSMENT YEAR 2015- 16 PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH ORDER QUESTIONS OF LAW AS MAY BE FORMULATED

Digitally signed by NANJUNDACHARI Location: High Court of Karnataka

BY THE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 03.05.2023 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT-ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN IT(IT) A NO.177/BANG/2023 FOR A.Y. 2015-16 (ANNEXURE-A) AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.

THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR. JUSTICE S.G.PANDIT AND HON'BLE DR. JUSTICE K.MANMADHA RAO

ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE S.G.PANDIT)

The above appeal by the Revenue filed under Section 260A of the Income Tax Act, 1961 is directed against order dated 08.05.2023 in ITA.No.177/Bang/2023 for the assessment year 2015-16 (Annexure-A) passed by the Income Tax Appellate Tribunal ‘C’ Bench, Bengaluru, raising the following substantial questions of law: “1. is perverse in nature in by holding that the payment made to non-resident entities in respect of purchase of software was not royalty

and that the same did not give rise to income taxable in India and therefore, the petitioners were not liable to deduct tax at source under Section 195 of the Act?

is perverse in nature in holding that the payments made to non-resident entities were not in the nature of royalty as defined in Explanation 2 to section 9(1)(vii) of the Act and the Double Taxation Avoidance Agreement as well?

3.

Whether on the facts and I the is perverse in nature in holding that the sale of software license did not include a right or interest in copyright, which thus did not give rise to payment of royalty and would be an income deeded to accrue in India under Section 9(1)(vi) of the Act, requiring the deduction of tax at source?

is perverse in nature in not considering the fact that the development of advanced cloud-based computer software by the assessee would not come under copyright as envisaged in Section 14(a)/14(b) of the Copy Right Act?

5.

is perverse in nature in not appreciating that conditions for holding applying Explanation 2(v) to Section 9(1)(vi) of the Act were fully satisfied in present case as payments were made to a non-resident by way of royalty for use of or the right to use any copy right and Review Petition filed by Revenue is pending for adjudication before Supreme Court in case Engineering Analysis Centre of Excellence (reported in 432 ITR page 471)?”

The Assessing Officer had treated the payment received by the respondent/assessee for the sale of software as Royalty. The respondent/assessee was before the Tribunal and the Tribunal followed the order passed in ITA.Nos.1311 to 1313/BANG/2018 for the assessment

years 2009-10, 2010-11 and 2012-13 of the respondent/assessee, wherein it was ordered to delete the addition made as Royalty. It is also submitted that the issue involved in the above appeal is covered by the decision of the Hon'ble Apex Court in the case of PRIVATE LIMITED VS. COMMISSIONER OF INCOME-TAX AND ANOTHER (2021) 432 ITR 471.

3.

The order passed by the Tribunal in ITA.Nos.1311 to 1313/2018 was the subject matter of ITA.No.681/2023 and connected appeals. This Court by judgment dated 12.08.2025, by following the judgment in PRIVATE LIMITED (supra) held that the questions raised for consideration are no longer res integra and stands covered by the decision of the Hon'ble Apex Court in PRIVATE LIMITED (supra).

4.

In the light of the above, we are of the considered view that in the present appeal also, the questions raised would no more survive for consideration. By following the decision of the Hon'ble Apex Court in PRIVATE LIMITED (supra) and the judgment dated 12.08.2025 in ITA.No.681/2023 and connected appeals, the present appeal also stands dismissed.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (DR.K.MANMADHA RAO) JUDGE

NC CT:bms

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