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11. After setting out the facts in one of the appeals treated as the lead matter, namely ITA No. 2808/2005 concerning Samsung Electronics Co. Ltd., and the relevant provisions of the Income Tax Act, India’s DTAAs with USA, France and Sweden respectively, the High Court of Karnataka, on an examination of the End-User Licence Agreement [“EULA”] involved in the transaction, found that what was sold by way of computer software included a right or interest in copyright, which thus gave rise to the payment of royalty and would be an income deemed to accrue in India under section 9(1)(vi) of the Income Tax Act, requiring the deduction of tax at source.

(v)” (w.e.f. 1-4-2002).

Substituted by the Finance Act 2000 (10 of 2000), sec. 4, for Explanation 3 (w.e.f. 1-4-2001). Explanation 3 before substitution, stood as under:

“Explanation 3.- For the purposes of this clause, the expression “computer software” shall have the meaning assigned to it in clause

(b) of the Explanation to section 80HHE”.

Inserted by the Finance Act 2012 (23 of 2012), sec 4(b) (w.r.e.f 1-6-1976). computer software (including granting of a licence) irrespective of the medium through which such right is transferred.

END-USER LICENCE AGREEMENTS AND DISTRIBUTION AGREEMENTS

44. Certain sample clauses of the EULAs that are illustrative of the transactions with which we are concerned in each category (outlined in paragraph 4 of this judgment), are set out hereinbelow:

44. i) Category 1:

The EULA between Samsung Electronics Co. and the end-user (updated on 16.11.2016) contains, inter alia, the following terms:

“This End User Licence Agreement ("EULA") is a legal agreement between you (either an individual or a single entity) and Samsung Electronics Co., Ltd. ("Samsung") for software, whether pre-installed or downloaded, owned by Samsung and its affiliated companies and its third party suppliers and licensors, that accompanies this EULA, which includes computer software and may include associated media, content and data, printed materials, or electronic documentation in connection with your use of Samsung Mobile Device, which will be defined below ("Samsung Software").

Considering the conflicting decisions of various courts in respect of income in nature of royalty and to restate the legislative intent, it is further proposed to amend the Income Tax Act in following manner:-

(i) To amend Section 9(1)(vi) to clarify that the consideration for use or right to use of computer software is royalty by clarifying that transfer of all or any rights in respect of any right, property or information as  mentioned in Explanation 2, includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.