Packaged software may get costlier in India | Samsung High court judgment impact on Software cost

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Recent Karnataka High Court order on an appeal filed by Samsung Electronics and other software companies,the court held that payment to foreign suppliers for such software is royalty as defined under the provisions of the Double-taxation Avoidance Agreement (DTAA) between India and the US,and also under the Income-Tax Act.Tax is to be paid in India for the income classified as royalty,the court ruling added.Under Article 12 of the India-US DTAA,payments of any kind in consideration for the use of,or the right to use,any copyright of a literary,artistic or scientific work is deemed to be royalty.A software program constitutes a copyright under the Copyright Act of 1957.
If the order is implemented in full and there is no appeal or if Supreme Court upholds the lower courts decision,software companies such as Microsoft,Oracle and Adobe who sell packaged software in the country may have to raise prices if they do not want higher tax outgo to eat into their profitability.Adobe,and Microsoft did not respond to queries from ET.In case of higher tax burden,it is likely that the firms may choose to pass on the same to customers in the form of higher prices or make alternate arrangements to ensure that their profitability is not adversely impacted.
Indian is witnessing legalization of software used in the system from past 1 year and this kind of judgment will make the provider to increase the software cost which in turn will increase software piracy.
The software provider should make the software available in India freely either online or through software dealer which will facilitate buying of needed software easily and can avoid the use of pirated software.
Recent case of VAT applicability on off the shelf software has given a big blow to many IT companies catering to Indian market and has led to increased cost of developing a customized website or portals.
Looking at the e-commerce development and IT development in India The government should form certain policy to make the point clear on taxation of software (on the shelf or off the shelf).
If one wish to stop using pirated software and use legal software there has to be good facility to buy the same online or at the vendor.
 
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