2025 (5) TMI 1963 - HC - Income Tax

Global online learning platform receipts not taxable as technical or included services fees under Section 9(1)(vii)

Commissioner Of Income Tax, International Taxation-1, New Delhi Versus Coursera Inc.

Delhi HC upheld ITAT's decision that receipts from a global online learning platform's services were not taxable as fees for technical services or fees ... Accrual of income in India - global online learning platform providing online courses and degrees from leading universities and companies - scope of “Make Available” - AO sought to tax the receipts from provision of said services as fees for technical services [FTS] within the meaning of Section 9 (1) (vii) and fees for included services [FIS] within the meaning of paragraph 4 of Article 12 of India USA Double Taxation Avoidance Agreement [Indo-US DTAA]. ITAT accepted the Assessee’s contention that the receipts from the services rendered are neither in the nature of royalty nor FTS (as it did not entail any included services) which are chargeable to tax under the Act - HELD THAT:- ITAT’s conclusion that the services provided by the Assessee did not include any element of included services and, therefore, the Assessee’s receipts were not chargeable to tax as FIS under the Indo-US DTAA, is based on the findings of fact in respect of the services rendered by the Assessee. We do not find that the said findings can be stated to be perverse by any stretch. There is no dispute that if the services provided by the Assessee are not of technical nature as stated by the learned ITAT, the Assessee’s receipts would not be chargeable to tax as FTS under the Act read with the Indo-US DTAA. In any event, the amount receipt is not chargeable to tax as FIS within the scope of Article 12 of the India US DTAA. No substantial question of law arises for consideration of this Court. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:A. Whether the customized services provided by the Assessee qualify as 'Make Available' under Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA), thereby constituting fees for included services (FIS) chargeable to tax.B. Whether the user services provided by the Assessee, which involved a high degree of human intervention and a training element, satisfy the 'Make Available' criterion under Article 12 of the India-USA DTAA.2. ISSUE-WISE DETAILED ANALYSISIssue A & B (Interrelated): Whether the services provided qualify as 'Make Available' under Article 12 of the India-USA DTAARelevant Legal Framework and Precedents:The legal framework revolves around Section 9(1)(vii) of the Income Tax Act, 1961, which deals with the taxation of fees for technical services (FTS), and Article 12 of the India-USA DTAA, which defines 'Royalties and fees for included services.' Article 12(4) defines fees for included services as payments for rendering technical or consultancy services, including through technical personnel, if such services either (a) are ancillary and subsidiary to the enjoyment of rights or property or (b) make available technical knowledge, experience, skill, know-how, or processes, or involve development and transfer of technical plans or designs.'Make Available' is a crucial concept, implying that the service provider transfers technical knowledge or skills enabling the recipient to use them independently without further assistance.Court's Interpretation and Reasoning:The Assessee, a US-incorporated company operating a global online learning platform, argued that its receipts were not taxable as royalty or FTS because it did not 'make available' any technical knowledge or skills. The Assessee's platform hosts courses created by third-party universities and companies; it merely facilitates access to content without creating or transferring technical know-how.The Assessing Officer (AO) contended that the Assessee provided two types of services: content services and user services. User services included customized landing pages, user engagement reports, payment solutions, enterprise-level support, and training for platform use. The AO argued these services involved a high degree of human intervention and were specific to users, thus constituting technical services making available technical knowledge or skills.The Dispute Resolution Panel (DRP) directed the AO to verify the Assessee's contentions with respect to the agreement with one educational institution (Gandhi Institute of Technology and Management), emphasizing a need for a reasoned order based on documents on record without fresh inquiry.However, the AO did not conduct a fresh factual examination but reiterated earlier findings and passed the final assessment order taxing the entire receipts as FTS.The Income Tax Appellate Tribunal (ITAT) found no merit in the Revenue's contention. It held that the Assessee acted solely as an aggregator or facilitator, providing access to course content developed by third parties. The ITAT noted that the AO himself acknowledged the Assessee was not a content creator but an aggregator. The AO's contradictory stance-that the Assessee was both an aggregator and a technical service provider-was not supported by evidence.The ITAT emphasized that even if the services were technical in nature, mere technical service provision does not suffice to attract tax under Article 12(4) unless the 'make available' condition is satisfied. The burden was on the Revenue to prove that the Assessee transferred technical knowledge or skills enabling independent use by the recipient. This burden was not discharged.Key Evidence and Findings:The Assessee's platform hosts courses created by universities and companies, not by the Assessee itself.The Assessee provides access to content, customized user interfaces, and user support but does not transfer technical know-how or skills.The agreement with Gandhi Institute of Technology and Management was not properly examined by the AO despite directions from the DRP.The AO's final order ignored DRP's directions and reiterated earlier observations without fresh factual verification.The ITAT found the AO's findings self-contradictory and unsupported by evidence.Application of Law to Facts:The Court accepted the ITAT's factual findings that the Assessee did not provide technical services that 'make available' technical knowledge or skills under Article 12(4) of the DTAA. Since the services did not satisfy the 'make available' condition, the receipts could not be taxed as fees for included services or FTS under the Income Tax Act or the DTAA.Treatment of Competing Arguments:The Revenue's argument that the user services involving human intervention and training constituted technical services making available technical knowledge was rejected due to lack of evidence and failure to comply with DRP directions. The AO's contradictory acknowledgment of the Assessee as an aggregator was noted. The Court upheld the ITAT's approach that the burden lay on the Revenue to prove the 'make available' element, which was not met.Conclusions:The Court concluded that the ITAT correctly held that the Assessee's receipts were not taxable as FIS under Article 12 of the Indo-US DTAA. The services provided did not amount to making available technical knowledge or skills. Therefore, no tax liability arose under the relevant provisions.3. SIGNIFICANT HOLDINGSThe Court preserved the ITAT's crucial legal reasoning verbatim:'The assessee acts as a mere facilitator between the concerned university/companies and the customers who want to undertake the courses of the concerned university/companies. The assessee merely provides access to the contents of the universities/companies through the platform on receipt of fees.''Even, assuming for argument's sake, the services provided by the assessee is of technical nature, that by itself would not be enough to bring such receipts within the purview of Article 12(4) of India - USA DTAA, unless the make available condition is satisfied. Burden is entirely on the Revenue to prove that in course of rendition of services, the assessee has transferred technical knowledge, know-how, skill etc. to the service recipient, which enables him to utilize such technical knowledge, know-how, skill etc. independently without aid and assistance of the service provider.'Core principles established include:Provision of a platform facilitating access to third-party content does not constitute provision of technical services making available technical knowledge under Article 12(4) of the DTAA.The 'make available' condition is essential to tax services as fees for included services; mere technical service provision is insufficient.The burden of proof to establish 'make available' lies on the Revenue.Failure of the Assessing Officer to comply with DRP directions and conduct a reasoned factual examination undermines the validity of the assessment.Final determinations on each issue:The customized services provided by the Assessee do not qualify as 'Make Available' under Article 12 of the India-USA DTAA.The user services involving human intervention and training do not satisfy the 'Make Available' criterion.The Assessee's receipts are not taxable as fees for included services or FTS under the Income Tax Act or the DTAA.No substantial question of law arises for the Court's consideration, leading to dismissal of the Revenue's appeal.