Software access for subscription and training services doesn't qualify as fee for technical services without technology transfer

ITAT Delhi ruled that subscription, professional and training services provided by the assessee through software access do not constitute fee for technical services (FTS) under either the Income Tax Act or Double Taxation Avoidance Agreement. The tribunal held that merely granting access to software without technology transfer does not qualify as FTS, citing SC precedent in Kotak Securities Ltd where common services required for trading were distinguished from specific technical services. The income was held not taxable in India, and the assessee's grounds were allowed.

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Issues Involved:
1. Validity of DRP directions without a valid computer-generated DIN.
2. Validity of the final assessment order based on invalid DRP directions.
3. Addition of income on account of subscription, professional, and training services as Fees for Technical Services (FTS).
4. Assumption of "make available" technical knowledge without evidence.
5. Applicability of the Most Favored Nation (MFN) clause in the India-Netherlands DTAA.
6. Granting of TDS credit.
7. Charging of interest under sections 234C/234D.
8. Consequential interest under sections 234A and 234B.
9. Initiation of penalty proceedings.

Summary:

1. Validity of DRP Directions Without a Valid Computer-Generated DIN:
The assessee argued that the DRP directions dated 19 April 2023 were invalid due to the absence of a valid computer-generated DIN, as required by Circular No. 19 of 2019 by the CBDT. However, this ground was not pressed by the assessee during the hearing and was dismissed.

2. Validity of the Final Assessment Order Based on Invalid DRP Directions:
Similarly, the assessee contended that the final assessment order dated 31 May 2023 was null and void due to the invalid DRP directions. This ground was also not pressed and dismissed.

3. Addition of Income on Account of Subscription, Professional, and Training Services as FTS:
The main contention was the addition of INR 171,92,37,658 for A.Y. 2020-21 and INR 248,32,06,556 for A.Y. 2021-22, treated as FTS under the India-Netherlands DTAA. The Tribunal found that the issue was covered by its earlier decision in the assessee's own case for A.Y. 2019-20, where it was held that the services did not fall within the definition of FTS as per the DTAA. The Tribunal reiterated that the services provided were mere access to software without any transfer of technology, thus not taxable in India.

4. Assumption of "Make Available" Technical Knowledge Without Evidence:
The Tribunal noted that there was no material evidence to substantiate that the assessee made available technical knowledge to the service recipient. The Tribunal referred to the Karnataka High Court's decision in CIT vs. De Beers India Minerals (P) Ltd, emphasizing that mere access to software does not constitute making available technical knowledge.

5. Applicability of the MFN Clause in the India-Netherlands DTAA:
The Tribunal held that the services did not fall within the purview of FTS under Article 12 of the India-Netherlands DTAA by virtue of the MFN clause read with the India-Finland DTAA. Consequently, the addition was deleted.

6. Granting of TDS Credit:
The issue of TDS credit required factual verification. The Tribunal directed the AO to grant TDS credit after due verification in accordance with the law.

7. Charging of Interest Under Sections 234C/234D:
The charging of interest was deemed consequential. The AO was directed to recalculate the interest while giving effect to the appellate order.

8. Consequential Interest Under Sections 234A and 234B:
The interest under sections 234A and 234B was also considered consequential and would change based on the relief provided in the grounds of appeal.

9. Initiation of Penalty Proceedings:
The initiation of penalty proceedings under section 274 read with section 270A was considered premature and required no adjudication.

Conclusion:
The appeals for A.Y. 2020-21 and A.Y. 2021-22 were partly allowed, with significant relief granted on the addition of income treated as FTS and directions for factual verification of TDS credit. The Tribunal's decision was consistent with its earlier rulings in the assessee's own cases for previous years.

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