TaxTMI 
TaxTMI 
2026 (1) TMI 876
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....is software are in the nature of fees for technical services (FTS) under the Act and secondly, both AO and DRP have heard that in law and on facts in not granting the benefit of make available clause under Article 12 of India Singapore DTAA and lastly, the AO and ld. DRP have erred in not appreciating that receipts are exempt u/s. 10(50) of the Act by disregarding the proof of payment of equalization levy furnished during the course of DRP proceedings. 3. Brief facts are that the assessee is a foreign company incorporated under the laws of Singapore on 4 November 2004 and is an undisputed tax resident of Singapore. It holds a valid Tax Residency Certificate issued by the Singapore tax authorities for the relevant calendar years and, therefore, is entitled to claim benefits under the India-Singapore Double Taxation Avoidance Agreement. The assessee forms part of the globally renowned Acronis Group, which is engaged in the development and provision of software solutions relating to data backup, cyber security, disaster recovery and allied services. These products are made available either as electronically downloadable software or as cloud-based software, commonly referred to as S....
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....der section 10(50) of the Act. 7. In the return of income, the assessee characterized the receipts as business income not chargeable to tax in India, as it admittedly did not have a permanent establishment in India within the meaning of Article 5 of the India-Singapore DTAA. Alternatively, and without prejudice, it was contended that once Equalization Levy had been paid, the income stood excluded from the total income by virtue of section 10(50) of the Act. 8. The case of the assessee was selected for scrutiny and notices under sections 143(2) and 142(1) were issued. While the assessee initially responded to the notice under section 143(2) and furnished computation and explanatory notes, there was a failure to comprehensively respond to subsequent notices under section 142(1), owing to internal administrative difficulties and change of personnel. It is also a matter of record that the assessee, being a foreign entity facing scrutiny proceedings in India for the first time, sought a brief adjournment to appoint professional representation, which could not be granted before the draft assessment order came to be passed. 9. In the draft assessment order dated 16 March 2024, th....
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....y Switzerland did not meet the "make available" condition, as they involved ongoing technical assistance and cloud hosting rather than the transfer of skills or knowledge. Moreover, under the India-Switzerland Tax Treaty, no such "make available" condition exists in paragraph 12(4) and paragraph 12(5) of the India - Swiss Confederation DTAA 4 Acronis Switzerland as the Actual Service Provider: The core technical services, including hosting, software maintenance, and updates, were provided by the Switzerland entity The Singapore entity's role was secondary, primarily to process payments and provide minimal marketing assistance. The shift to direct transactions with Switzerland in 2023 further supports this view. 5 Taxability of Receipts as Fees for Technical Services: The payments made for the services are taxable as FTS under Indian tax laws. The services provided are highly technical, cloud-based services originating from Switzerland. The benefits of the "make available" clause under the India-Singapore Tax Treaty are not applicable here, as Singapore did not provide the core services. Since the India-Switzerland Tax Treaty lacks the "make available" clause, ....
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....it would be appropriate to note that Ground No. 1 is general in nature and does not call for separate adjudication, and Ground No. 2 relating to limitation has been kept open by the assessee. 15. The core controversy in the present appeal revolves around the recharacterization of distribution revenue as fees for technical services, the applicability of the India-Switzerland DTAA to a Singapore resident assessee, the relevance of the "make available" clause, and the interplay between Equalization Levy and section 10(50) of the Act. 16. Having carefully considered the rival pleadings, the material placed on record, and the detailed submissions advanced before the authorities below as well as before us, the principal issue which arises for determination is whether the distribution revenue received by the assessee from Indian sub-distributors can, in law and on facts, be recharacterized as "fees for technical services", and further, whether the Revenue was justified in invoking the provisions of the India-Switzerland Double Taxation Avoidance Agreement in the hands of an assessee who is an undisputed tax resident of Singapore. 17. At the outset, it must be stated that the fact....
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....ducts be sold to customers in the Territory, WHEREAS, Distributor has a sales organization in the Territory; WHEREAS, Distributor desires to purchase Products for simultaneous resale to customers in the Territory and to otherwise act as a sales representative for Supplier; and, WHEREAS, Supplier desires that Distributor act as its sales representative for Products in the Territory;" (emphasis supplied) 20. The nature of relationship between the parties has been stated to be principal -to- principal basis which has been stated specifically in Clause 2.3 of the AIG Distribution Agreement which reads as under:- "2.3. Nature of Relationship. The relationship established between the Supplier and Distributor by this Agreement is that of supplier and representative. Distributor is an independent contractor under this Agreement and shall not have the right to assume or create any obligation of any kind, either express or implied, on behalf of Supplier, except as expressly provided for in this Agreement. Nothing in this Agreement shall be deemed to establish or otherwise create a relationship of principal to agent, employer and employee, or ot....
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....Parties to establish this Agreement to govern their respective rights, duties and obligations; 2.1 Distributor Authorization. Subject to the terms and conditions of this Agreement, Acronis hereby grants to Distributor the non-exclusive right to market and distribute such Products to Resellers and End Users within the Territory during the term hereof." 8.1 Distributor Price List. Acronis will invoice Distributor on the basis of the applicable price list set forth on Exhibit A hereto as may be updated by Acronis from time to time ('Distributor Price List), which list may be sub-divided by Product, as appropriate... 10. INTELLECTUAL PROPERTY RIGHTS 10.1 Ownership. All rights (including patents, copyrights, trademarks and all other Marketing Materials, Acronis Marks and any other materials or translations thereof provided by Acronis to Distributor during the terms of this Agreement, and any modifications or improvements to and derivative works based on any of the foregoing, however made, are owned by and remain the valuable exclusive property of Acronis, its affiliates or their licensors." 24. Further, the invoices raised by the assessee on th....
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....erty rights existing in SFDC products. According to the writ petitioner, SFDC India was also not transferred the right to manage, control, adapt, alter, modify, decompile, translate, disassemble or reverse engineer the content of SFDC products. 40. As we read the terms of the Reseller Agreement, its stipulations do not appear to contemplate any technology transfer to SFDC India. The Indian entity appears to have been designated merely onboard customers within the territory for use of SFDC products. As is evident fr rely to act as the Reseller which would engage with and oferings, applications, platforms, products and offerings exclusively for resale in the the definition often it speaks of customer relationship matug from ferritory. The obligation of SFDC Ireland as per section 4 of the Reseller Agreement was to provide SFDC products as notified from time to time. The price for those products was to be as per the stipulations contained in Exhibit A The aforesaid clauses merely speak of the Reseller being accorded the right to distinct from schat would constitute technical sell SFDC products service 47. More fundamentally, the allusion to "non-standardized software....
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....legally unsustainable, and contrary to the most elementary principles governing the application of tax treaties. 32. At the very threshold, it must be emphasized that the assessee before us is a juridical person incorporated in Singapore, carrying on business in its own right, employing its own personnel, maintaining its own books of account, and holding a valid Tax Residency Certificate issued by the Singapore tax authorities. The assessee has existed since 2004 and has been engaged in distribution activity for the Asia Pacific and Japan region since 2011. These facts have been expressly recorded by the learned DRP itself and remain wholly undisputed. 33. Once the tax residency of the assessee is not in dispute, the applicable tax treaty for determining the taxability of its income in India can only be the India-Singapore DTAA. The attempt of the Revenue to invoke the India-Switzerland DTAA in the hands of a Singapore resident assessee is contrary to the express language of Article 1 of the India-Switzerland DTAA, which governs the personal scope of the treaty. 34. Article 1 of the India-Switzerland DTAA provides that the agreement shall apply only to persons who are resi....
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....ty on the basis of ownership of the website and intellectual property. The Tribunal rejected the Revenue's approach, and the Hon'ble High Court upheld the Tribunal's findings, emphasizing the sanctity of the Tax Residency Certificate and the impermissibility of ignoring a legally existing resident entity. The relevant observations of the Hon'ble Bombay High Court, which decisively negate the Revenue's approach of disregarding treaty residence and legal personality, are reproduced hereunder. "13. We find, the ITAT, after hearing the rival submissions, has given extensive factual findings as to why the conclusion of the AO as well as DRP were erroneous 14. We have also considered the orders passed by the AO and the DRP. As correctly noted by the ITAT, the entire focus of the AO is that the website www.alibaba.com is registered in Hong Kong and is the trademark of Alibaba Hong Kong 40 has completely denied the existence of the assessee as an independent entity as if the assessee was only a front or a shadow entity of Alibaba Hong Kong. If the AO was so convinced that the entire activity in India to various subscribers was actually carried out by Alibaba Hong Kong and....
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....d. 40. In view of the foregoing discussion, we hold that the invocation of the India-Switzerland DTAA in the hands of the assessee is legally impermissible and wholly unsustainable. The assessee, being a tax resident of Singapore, is entitled to the protection and benefits of the India-Singapore DTAA, and the Revenue is bound to examine the taxability of the impugned receipts strictly within that treaty framework. 41. Having held that the provisions of the India-Switzerland Double Taxation Avoidance Agreement cannot be invoked in the hands of the assessee, we now proceed to examine the taxability of the impugned distribution revenue strictly within the framework of the India-Singapore DTAA, which alone governs the present assessee. 42. Under the India-Singapore DTAA, fees for technical services are dealt with under Article 12(4) which has "make available" clause. It is an admitted position on record, and has been expressly recorded by the learned Dispute Resolution Panel in its directions, that the distribution revenue received by the assessee does not satisfy the "make available" condition prescribed under Article 12(4) of the India-Singapore DTAA. This finding is not inc....
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...., since extensive arguments have been advanced on the applicability of section 9(1)(vii) of the Act, we proceed to examine the issue even on a without-prejudice basis under the domestic law. 46. Section 9(1)(vii) of the Act brings to tax income by way of fees for technical services if such services are rendered in India or are utilized in India. The judicial interpretation of this provision has consistently held that for a receipt to qualify as fees for technical services, there must be rendition of a service of a technical, managerial or consultancy nature to the payer, involving human intervention and application of specialised knowledge for the benefit of the recipient. 47. In the present case, the assessee has not rendered any service to the Indian sub-distributors. The receipts arise from sale of distribution rights and software products. The software products distributed by the assessee are standardised products, not customised for individual customers. Whether delivered as electronically downloadable software or accessed through a cloud-based platform, the functionality of the software is automated. Any coding, upgrades or maintenance activities result in enhancement o....
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.... 10. In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included- (50) any income arising from any- (1) specified service provided on or after the date on which the provisions of Chapter VIII of the Finance Act, 2016 (28 of 2016) comes into force; or (i) e-commerce supply or services made or provided or facilitated on or after the 1st day of April, 2020 but before the 1st day of August, 2024, and chargeable to equalisation levy under that Chapter Provided that the provisions of this clause shall not apply to any income of the previous year relevant to the assessment year beginning on or after the 1st day of April, 2026. Explanation 1. For the removal of doubts it is hereby clarified that the income referred to in this clause shall not include and shall be deemed never to have been included any income which is chargeable to tax as royalty or fees for technical services in India under this Act read with the agreement notified by the Central Government under section 90 or section 90A." 54. Section 10(50) of the Act provides that any income arising from e-....
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....rmissible and contrary to the express provisions of Article 1 of the India-Switzerland DTAA. The learned DRP‟s attempt to shift treaty applicability based on the alleged "origin" of services is fundamentally flawed and contrary to settled principles of international taxation. (iv) Under the India-Singapore DTAA, the distribution revenue does not qualify as fees for technical services, as the "make available" condition under Article 12(4) is admittedly not satisfied. In the absence of a permanent establishment in India, such income is not taxable in India as business profits under Article 7 of the DTAA. (v) Even on a without-prejudice examination under the domestic law provisions of the Act, the impugned receipts cannot be characterized as fees for technical services under section 9(1)(vii), as there is no rendition of services, no human intervention, and no consultancy or technical assistance provided by the assessee to the Indian sub-distributors. The receipts arise from sale of standard software products and distribution rights, and not from provision of services. (vi) Further, the assessee has duly discharged Equalization Levy at the prescribed r....