Cloud-based software receipts and the 'make available' test under the India-US DTAA excluded fees for included services.

Cloud-based software subscription receipts were examined under the India-US DTAA to determine whether the SaaS model and allied support services made available technical knowledge, experience, skill, know-how or processes under Article 12(4)(b). The services were treated as standard automated functionality, with only implementation and user-training support from personnel, and the customers were not enabled to apply any technical process independently in future. Mere use of software or provision of technical input was found insufficient without transfer of the underlying technology or skill. The arrangement was also considered against royalty characterisation, but no right in copyright or use of copyright was conferred. The receipts were therefore not taxable as fees for included services.

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Issues: Whether the receipts from cloud-based software subscription and allied services were taxable in India as fee for included services under Article 12(4)(b) of the India-US DTAA on the ground that the services made available technical knowledge, experience, skill, know-how or processes to the customers.

Analysis: The dispute turned on the scope of the "make available" requirement under Article 12(4)(b) of the India-US DTAA. The cloud-based services were found to operate as standard automated SaaS functionality, with human involvement limited to implementation and user-training support. The nature of the service did not show that the customers were enabled to apply any technical knowledge or process on their own in future without recourse to the service provider. Mere use of software embodying technology, or the provision of technical input by the provider, was held insufficient unless the recipient acquired the underlying technology or skill. The receipts were also examined in the context of royalty, but the software subscription arrangement did not confer any right in copyright or amount to use of copyright.

Conclusion: The receipts from subscription of cloud-based services were not taxable as fee for included services under Article 12(4)(b) of the India-US DTAA, and the addition was unsustainable.

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