TaxTMI 
TaxTMI 
2026 (6) TMI 327
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.... 2. That, on the facts and circumstances of tire case and in law, the Ld. AO has erred in characterizing the receipts on account of product analytics services as equipment royalty, taxable both under the provisions of the Act as well as under the India-USA DTAA. 2.1 That, on the facts and circumstances of the case and in law, the Ld. AO has egregiously erred in holding that Explanation 5 to s. 9(1)(vi) of the Act stood incorporated in Article 12 of the India-USA DTAA. 3. That, on the facts and circumstances of the case and in law, the Ld. AO has erred in characterizing the receipts on account of product analytics services as Fee for Technical Services("FTS") / Fee for Included Services ("FIS"), taxable both under the provisions of the Act as well as under the India-USA DTAA. 4. That, without prejudice to the above ground(s), on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in applying a higher tax rate of 40% instead of the tax rate of 10% prescribed under s. 115A the Act for taxation of royalty/ FTS/ FIS. 5. That, on the facts and circumstances of the case and in law, the Ld. AO has erred in: a) in....
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....e Act stood incorporated in Article 12 of the India-USA DTAA. 4. That, on the facts and circumstances of the case and in law, the Ld. AO has erred in characterizing the receipts on account of product analytics services as Fee for Technical Services ("FTS")/Fee for Included Services ("FIS"), taxable both under the provisions of tire Act as well as under the India-USA DTAA. 5. That, on the facts and circumstances of the case and in law, the Ld. AO has erred in denying the exemption of Rs. 30,24,17,192 claimed by the Appellant under s. 10(50) of the Act, without appreciating the factual matrix of the case. 6. That, without prejudice to the above ground(s), the Ld. AO has erred in not granting the credit of equalization levy paid by the Appellant. 7. That, on the facts and circumstances of the case and in law, the Ld. AO has erred in incorrectly levying / computing interest under s. 234B of the Act and further incorrectly computing total interest and fee payable as Rs 62,59,260. 8. That, on the facts and circumstances of the case and in law, the Ld. AO has erred in not granting entire TDS credit claimed by the Appellant. 9. That, on....
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....r concluding as under: "25.3 From the perusal of the above, it is amply clear that the applicant is not merely providing content services to the customers in India but is also providing a whole range of "User Services" which involve a high degree of human intervention. It is also important to note that there is no separate consideration for such user services to assessee company. 25.4 It is imperative to mention that the applicant had evaded the query raised in questionnaire dated 06.12.2022 wherein the assessee was asked to "Explain in detail the 'SaaS' Model and how the company provides product analytics services to Indian Customer. Support your answer with documentary proof." 26. In view of the observations made above, the contention of the applicant that the services provided by it are automated and do not involve any human intervention, is hereby rejected. It is amply clear that the services provided by the applicant (Content services and User services) are technical in nature and there is human intervention involved in the rendering of these services. In view of the same, the consideration received for such services is held to be FTS / FIS both unde....
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....er: "1. The appellant is a tax resident of USA as per the provisions of India-USA DTAA. The appellant does not have a Permanent Establishment ('PE') in India. 2. Admittedly, the appellant provides product analytics services to its customers that helps companies to analyze their customer behavior within digital products, under the Software-as-a-service (SaaS) model on subscription basis. 3. Under the SaaS model, the service provider hosts software applications for consumers to use as and when required. The SaaS vendors will host their Software either on their own data center or with any other third-party service providers and provide the service to the customer on a user-based model. The ultimate customer would not have any right to manage or control the software. The license for the software would be owned by the vendor and would not be transferred to the end customer. 4. The Appellant delivers its own software application over the internet as a subscription service to the customers. The customers access Amplitude's software application (hosted on Amazon Web Services CAWS') server) through a subscription-based log-in account and avail....
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....limited to the legal concepts of rent or lease, which do require obtaining the power to dispose over an item and to use it exclusively. This was also the notion adopted by AAR in its ruling Dishnet Wireless Limited, AAR no. 863 of 2010 where it was seen as sufficient - in order to qualify as 'use'- to access a particular segment of a larger system and to use the capacity of this system. 12. In fact, equipment can be used in many different ways and behind every use of equipment is the desire to use its capacity and functions. Logically, the use of equipment cannot be separated from the use of its capacity and functions. In some cases, the use of an item's capacity and function will require physical possession of the item (e.g. in order to use a car's transportation function, the physical possession of the car is required), but in other cases, an item and thus an item's capacity and functions can be used without physical possession of the item, as in the case with satellites. Hence, the use of equipment's capacity and functions equals the use of 'equipment '. 13. The word "use" in relation to equipment occurring in clause (iv a) of explanation 2 to s....
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....ludes and has always included consideration in respect of any right, property or information, whether or not: a. the possession or control of such right, property or information is with the payer; b. such right, property or information is used directly by the payer; c. the location of such right, property or information is in India. 22. In view of the above, the legislature has made its intention amply clear that the control or possession is irrelevant in case of evaluation of the term right to use. Hence, the receipts of the assessee would clearly fall under the ambit of royalty. 23. Further, reliance is placed on the Position stated by India on Article 12 of the OECD Model Convention. It is stated in the stated Positions to the Model Convention, that India reserves the right to: tax royalties and fees for technical services at source; define these, particularly by reference to its domestic law; define the source of such payments, which may extend beyond the source defined in paragraph 5 of Article 11 and modify paragraphs 3 and 4 accordingly. In view of the above India's position on the OECD Model has always been clear that India does ....
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....page 3 and 4 of factual paperbook) and also that there is no whisper of such an allegation in the show cause notice issued by the Id. AO on 15.12.2022 (and hence this is clearly an afterthought by the Id. AO). Therefore, the said allegation of the AO is baseless and incorrect. 13. The Id. DRP upheld the allegations of the AO that Product analytics services are taxable as Equipment Royalty and FTS. It is submitted that the DRP avoided the adjudication of the issue and held that the issue of Equipment Royalty and FTS/ FIS is not covered by the decision of Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra), which was not germane to the issue. KEY TERMS OF THE AGREEMENT WITH CUSTOMER 14. The Appellant has entered into a Master Service Agreement with its customers in India to provide product analytics services under SaaS model. On sample basis, the Master service agreement entered into with Hungama Digital Media Entertainment Pvt. Ltd (one of its customers in India) was submitted (please refer to page 31 to 48 of Paper Book). The key clauses of the agreement are as under: "1.2. Amplitude hereby grants to Cus....
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....tomer's Account As part of the registration process, Customer will identify an administrative username and password ("Administrator Credentials"). Customer may use the Administrative Credentials to create standard Users (each with their own separate usernames and passwords) ("User(s)"), in accordance with the provisions of the applicable Order Form or SOW. Customer is responsible for maintaining the security of the Administrator Credentials and the usernames and passwords for all of its Users. Customer may permit its Users to use the Amplitude Services, provided their use is for Customer's benefit only and they remain in compliance with the Agreement. Customer shall be responsible for all acts or omissions taken under the Administrator Credentials and those taken under the usernames and passwords of all Users. "User" means an individual Customer invites to use the Amplitude Services pursuant to the Agreement, including employees, contractors, agents and consultants of Customer. 15.2 - License Restrictions Customer will not (and will not allow any User or third party to) directly or indirectly: (a) reverse engineer, decompile, disassemble or otherwise ....
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....2 of India-USA DTAA, by following the principles laid down by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited [2021] 125 taxmann.com 42 (SC) for the following reasons: • No transfer of copyright to the customer in the Appellant's Software (through which product analytics services are being rendered); • No right granted to the Indian customers to directly or indirectly reverse engineer, decompile, disassemble or otherwise attempt to discover the source code, object code or underlying structure, ideas or algorithms of the Software or Service; • No right granted to the Indian customers to modify, translate, or create derivative works based on the Software; • No right was granted to the Indian customer to copy, rent, distribute or commercially exploit the Software; and • Indian customers merely using the software to be able to access and use the Software through which services are provided by Amplitude. 17. In this regard, reliance is placed on the decision of this Hon'ble ITAT in the case of Microsoft Regional Sales Pte. Ltd vs. Deputy Commissioner of Income-tax (In....
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...., knowhow or processes enabling the subscriber acquiring the services to apply the technology contained therein. The explanation of the assessee, and which has gone unrefuted even before us, was that the customer is merely accorded access to the application and it is the subscriber which thereafter inputs the requisite data and takes advantage of the analytical attributes of the software. This would clearly not fall within the ambit of Article 12(4)(b) of the DTAA ". 23. Reliance is also placed on the Delhi High court decision in the case of Asia Satellite Telecommunications Co. Ltd. (2011) (332 ITR 340), wherein in para 68 and 69 (at page 61 of case law paper book Vol 1), the Hon'ble Delhi High Court has discussed that the user should have effective control and possession over the equipment in order to constitute the same as 'Equipment Royalty'. 24. Further, the Hon'ble Delhi High Court in the case of Director of Income-tax v. New Skies Satellite BV [2016] 68 taxmann.com 8 (Delhi) has applied the concept of control and possession while interpreting the definition of Royalty (para 60 of the judgement at 244 of case law paper-book Vol II). 25. Reliance is ....
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....ee. The customers do not have physical control or possession over the servers and right to operate and manage this infrastructure / servers vest solely with the assessee. The agreements entered into the service level agreements. The agreement is to provide hosting services simpliciter and is not for the purpose of giving the underlying equipment on higher or lease. The customer is not even aware of the specific location of the server in the Data Centre where the customer application, web mail, websites etc. In view of these facts, we are of the view that income from cloud hosting services has erroneously held as royalty within the meaning of explanation (2) to section 9(1)(vi) of the Act as well as Article 12(3)(b) of the Indo-USA DTAA by the AO and DRP. (para 16 of the judgement at pg 286 of case law paperbook Vol II) 27. Hon'ble Delhi ITAT in the case of Amazon Web Services, Inc. vs. ACIT [2023/153 taxmann.com 45 (Delhi - Tribunal) held as under (Refer page no. 228 of Case law Paper book Vol I): "13 On perusal of the terms of the above Customer Agreement, Trademark Guidelines and Support Services Guidelines, it is clearly evident that the prerequisites ....
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....of the said treaty differs from the amended Section 9 of the Act. It is categorically held in CIT Vs. Siemens Aktiongesellschaft, 310 ITR 320 (Bom) that the amendments cannot be read into the treaty" (pg 172 of case law paper book Vol 1) 31. To sum up: a) The rendition of a service using an equipment and the customer being only a recipient of service would not attract equipment royalty as the transaction would not fall within the expression "use or right to use". b) A mere receipt of service using equipment under the control, possession and operation of the service provider will be only a transaction of a service and not "use or right to use" an equipment which would not attract royalty. c) The expression "use or right to use" demands possession, active usage and control of the equipment in the hands of the customer. d) In the present case, the equipment / process is under control, possession, operation and use of the Appellant and the customers are not concerned about the same. e) There is no case made out that any particular network or equipment is specifically identified for a customer nor is there any handing over of any equ....
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....elling or advisory services. 34. Given the peculiar nature of the product analytics services, they are clearly neither managerial nor consultancy services. Further, the services cannot qualify as 'Technical Services' also on account of following reasons: • • Product analytics services are in the nature of a standard service, not requiring customization for each of the customers; • Product analytics service is a 'standard facility' provided by Amplitude to all the users; and • No human intervention is required in provision of product analytics services. 35. In this regard, the Hon'ble SC in the case of CIT vs. Kotak Securities Ltd. (2016) 67 taxmann.com 356 (SC) held that: "... Technical services " like "Managerial and Consultancy service " would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed a....
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....nder Article 12 of India-USA DTAA. 40. Recently, the coordinate bench in the case of Mixpanel Inc. USA vs. ACIT, ITA No:- 1996/Del/2022 held that similar services i.e. product analytics services provided through software is not taxable as FIS under India-USA DTAA as the same do not satisfy the condition of make available' under Article 12(4)(b) of India-USA DTAA. 41. It is further submitted that judiciary at various occasions have held that such cloud based services under the SaaS model do not constitute FTS/FIS under s. 9(1)(vii) of the Act as well as under Article 12 of India-USA DTAA: • • Hon'ble Delhi ITAT in the case of Blackline Systems Inc. vs ACIT ITA No. 3798/Del/2023 wherein it is held that - "Further, various judicial precedents have also dealt with the issue as to what constitutes make available, especially in light of the provisions of the India-USA DTAA and the MOU to the India-USA DTAA. As per the judicial precedents, services are said to be made available when as a result of provision of such services, the recipient of the services is enabled to perform such services in the future on its own without recourse t....
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....urisdictional High Court as well as co-ordinate benches. In particular, we find that on similar facts and circumstances, in the case of CIT Vs. Amazon Web Services (2025) 174 taxmann.com 1188 (Del.), after taking into account the judicial pronouncement on the issue including that of the Hon'ble Apex Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. Vs. CIT (2011) 125 taxmann.com 42, the Hon'ble jurisdictional High Court have held as under: "47. We find no merit in the contention that the amount received by the Assessee for providing services would be taxable as equipment royalty. As noted before, the Assessee's customers do not acquire any right of using the infrastructure and software of the Assessee for the purposes of commercially exploitation. The charges paid by the Assessee's customers are for availing services, which the Assessee provides by using its proprietary equipment and other assets. No part of its equipment or IPRs are alienated by the Assessee in favour of its customers for their use. Therefore, the payments received cannot be considered as royalties within the meaning of Article 12(3) of the India US DTAA. This question is al....