Section 195(2) of the Income Tax Act
Income-tax Act, 2025: s.393
Section 195(2) falls under section 195 of the Income-tax Act, 1961, which corresponds to section 393 (Tax to be deducted at source) of the Income-tax Act, 2025.
Read section 393 of the 2025 Act
Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.
The decision most relied on for Section 195(2) is CIT v. Synopsis International Old Ltd. (212 Taxmann 454), cited in 177 of the 118 judgments on BharatTax that turn on this section.
Leading authorities on Section 195(2)
Payments for computer software are treated as royalty income under Section 9(1)(vi) of the Income-tax Act, particularly concerning the expanded definition provided by Explanation 2 and Explanation 4.
Payments made for mere information, not involving the imparting of secret, confidential, or specialized technical, industrial, commercial, or scientific knowledge, experience, or skill, do not qualify as 'royalty' under Section 9(1)(vi) of the Income Tax Act or relevant DTAA articles. Not every piece of commercial information constitutes royalty; expertise or skill in providing it is required.
Payments are liable for deduction of tax at source when they are in the nature of royalty. The withholding tax liability can be worked out by applying a proportion to the total remittance.
Payments for software licenses that do not involve a transfer of copyright or proprietary interest, but merely authorize end-user access and use, do not constitute 'royalty' income. Additionally, IT support services are not taxable as Fees for Technical Services (FTS) or royalty.
Payments for the use of copyrighted articles, including computer software, constitute royalty income under Section 9(1)(vi) of the Income Tax Act, and are therefore subject to withholding tax under Section 195.
Payments for strategic counselling and advisory services are not royalty if they do not involve imparting information concerning industrial, commercial, or scientific experience, but rather are for business promotion, marketing, publicity, or financial advisory services.
The case elucidates the meaning of 'management services', detailing its components and considering whether such services qualify as 'technical services' for income tax purposes, particularly in relation to fees for technical services.
Payments for technical or consultancy services are considered 'fees for included services' and are taxable in India under the DTAA if they involve the transfer of technical knowledge, skill, or process, or the development or transfer of technical plans or designs. However, payments for general management, financial, legal, or public relations services do not qualify.
Payments for services do not constitute fees for technical or managerial services or royalties under Article 12(3) of the India-Australia DTAA, nor do they fall under 'make available' clauses, if the services do not transfer technical knowledge, skills, or experience to the recipient. Such payments are generally considered business support services and not taxable as fees for technical services.
