TaxTMI 
TaxTMI 
2026 (6) TMI 823
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....y way of this common order for the sake of convenience and brevity. 2. Ground of appeal filed by the assessee (ITA No.- 825/Del/2023) are reproduced as under: "Ground 1: Erroneous tax treatment of consideration received from software offerings (la, sale and right to use of software licenses/subscription etc, and related support), as Fee for Technical Services (FTS) 1.1 That the assessment order dated 30 January 2023 passed by the Assistant Commissioner of Income Tax, Circle International Tax-1(3)(1) under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (the Act), is bad in law and on facts and liable to be quashed 1.2 That on the facts and in the circumstances of the case and in law, the Ed. AO has erred in not applying the decision of the Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt Ltd vs CIT [2021] 125 taxmann.com 42 (SC) and also erred in holding that the consideration received from software offerings (ie, sale and right to use of software licenses/subscription etc. and related support) is taxable in India as fees for technical services at per Article 12(3)(b) of the India-Ireland tax treaty and s....
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....d the limb under which penalty is initiated i.e. whether under-reporting of income or misreporting of income. Ground No. 6: Relief 6.1 The Appellant prays that the Ld AO be directed to grant all such relief arising from the preceding grounds as also all relief consequential thereto. 6.2 The above grounds (including sub-grounds) are independent of, and without prejudice to one another. 2.1 ITA No.-3701/Del/2023 "1. Non-quoting of valid computer-generated DIN on the body of DRP directions dated 21 September 2023 passed under section 144C(5) of the Act. 2. Erroneous tax treatment of consideration received from software offerings (i.e., sale and right to use of software licenses/subscription etc. and related support), as Fee for Technical Services ('FTS') 3. Non-applicability of Equalisation levy provisions 4. Levy of interest under section 234A, 234B and234C of the Act." 3. At the outset, the Ld. AR has submitted that the additional grounds related to DIN are not being pressed. ITA 825/Del/2023 for A.Y. 2020-21 is taken as the lead case. 4. Brief facts of the case are that: The assessee is a company inc....
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....ual machine-based threat Analysis. (d) Machine-learning detection engines, behavior and rules-based detection modules. (e) Multiple Al and machine-learning capabilities, including integrated reasoning, dynamic scoping and reprioritization, and probabilistic mathematics, to mimic security experts' judgement at machine-speed in the investigation, scoping and prioritizing of security alerts. (f) Dynamic, contextual, and strategic threat intelligence. From the above discussion on the nature of services provided by the assessee under the FireEye and Mandiant brands, it is clear that 'FireEye' is not a set of static, standardized services. It can be seen that under the umbrella of SaaS, a variety of services were offered to the customers. DEPA Clearly, the set of services being provided are customized, individualized, and specific to the customers. They are a set of differentiated services. A further appreciation for these services can be gleaned from the definition of the constituent descriptions. In particular, considerFireEyeSecurity Control Products, Helix Security Operations Platform, Cloudvisory, Advanced Threat Detection and....
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....nflow Technologies Private Limited and iValue Info Solutions Private Limited, amongst others. The Appellant submits that the customer typically downloads the software or accesses the software on a cloud platform. ...... 13) The Ld. AO in the assessment order for AY 2020-21 has grossly erred in making factual inaccurate statement in holding that software sale consideration as FTS, which has been followed and copied in AY 2021-22 also by him. The Ld. AO has made the following incorrect statements in the assessment order: "Needless to point out that, in the case of FireEye, the technologies cater the specific needs of the customer. The data is provided by the users seeking specific solution such as targeting valued customers, inventory management, accessing potential customers or market etc. Therefore, the contention of the assessee that the cloud services were rendered for standard facility has no basis) The services under consideration here are nothing but special, exclusive, and customized to the end-user. The implicit value for the service seeker lies in the customizability. uniqueness, and personalization of the end-result These services are not common ....
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....ll intellectual property rights in the Offerings, shall at all times remain the property of FireEye or FireEye's licensors." 3.2 Restrictions. Distributor shall not, and shall not permit any third party to, in any form or manner, copy, distribute, reproduce, incorporate, use or allow access to the Offerings or modify, prepare derivative works of, decompile, reverse engineer, disassemble or otherwise attempt to derive source code or object code from the Offerings. except as explicitly permitted under this Agreement or to the extent such a restriction is expressly limited or prohibited by applicable law." Clause 14 Assignment "Distributor shall not assign, transfer, or sublicense any obligation or benefit under this Agreement and any attempt to do so shall be void. Subject to the foregoing, this Agreement shall be binding on and inure to the benefit of the parties' respective successors and permitted assigns. FireEye may assign this Agreement in whole or in part ii) EULA Clause 1 Grant of License and Restrictions "Subject to the terms hereof, payment of all fees, and any applicable user/use limitations, FireEye grants Cust....
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....ucts. Therefore, support should be given the same treatment as sale of software products. 26) In this regard, the Appellant places reliance on the decision of the Delhi High Court in the case of SFDC Ireland Limited v. CIT W.P.(C) 14636/2023, wherein the Hon'ble High Court stated that any training and assistance is linked (i.e., concomitant) to the sale of the principal product - "41. The technical assistance and training imparted to SFDC India staff appears to be aimed at enabling them to understand the various attributes and capabilities of SFDC Products so as to be informed when interacting with prospective customers in the territory. The technical assistance and training which is spoken of in Section 4.3 of the Reseller Agreement does not appear to bear the characteristics of a conferral of specialised or exclusive technical service. In any case, the training and assistance proffered by SFDC was a concomitant to the sale of its principal products in the territory and fundamentally aimed at readying SFDC India to undertake the marketing of those products." 4.5 Finally, Ld. AR has referred to the relevant clauses of the DTAA as well as proviso to section ....
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....chnical' has been defined in the Concise Oxford Dictionary -Indian Edition as 'relating to a particular subject, art or craft, or its techniques requiring special knowledge to be understood. (Refer page 404 of Case Law Paper book) d) In the instant case, the Appellant submits that the sale of standard FireEye software products are in the nature of service but sale of software and does not qualify as FTS as it is not managerial, technical, nor consultancy in nature. .... ..... ..... However, the Appellant submits that in its return of income filed for both AY 2020-21 and AY 2021-22, income derived from consulting services amounting to INR 22,07,61,866 and INR 10,95,03,133, respectively was offered to tax as FTS under 12(3)(b) of the DTAA. .... ... Reference to Intellectual Property: The Ld. AO has made few observations in the order such as Intellectual Property ('IP') rights/trademarks "(ii) Based on the distributor/ re-seller agreement, the end-user enters into an End-User License Agreement with the assessee" .. This value is embedded in the unique Intellectual Propert....
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....gh distributors and direct sales to customers, ie., consulting services, sale of hardware, and sale and right to use licenses, and also related support. The assessee has offered consulting services as income, while the sale and right to use the software license/subscription have been claimed exempt based on the engineering analysis and Supreme Court judgement, and also the sale of accessories has been held to be exempt based on Ishikawajima Harima Heavy Industries holding that the sale did not happen within India. In AY 2020-21 and AY 2022-23, two years are involved. However, the additions are common, and hence the AY 2020-21 is considered for discussion. 2. The assessee's business is described on page 7 of the assessment order, and the conclusion drawn on page 12 clearly mentions that the FireEye software is a software as-a-service platform wherein the entire equipment, servers, and software configuration are all provided by the assessee. The services provided include advanced machine learning, behavioral analysis technologies, contextual threat intelligence, advanced threat analytics, machine-based threat detection, and behavioral analysis. Machine learning can mimic....
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.... The above wordings in the act and the India-Ireland DTAA are identical, and any consideration for the rendering of any managerial, technical, or consultancy services is sufficient to bring the fee for technical services under taxation. There appears to be no difference between the definitions in the act and the DTAA. So the test is to see whether the fees are for the rendering of any managerial, technical, or consultancy services. There is no need to ascertain whether services make available technical knowledge, experience, skill, know-how, or process. Now, in order to understand whether there is rendering of technical or managerial or consultancy services, it is a question of fact, and the same are enumerated below: 1. Page 13 of 29 of the assessment order clearly mentions that they use an XDR technology that uses multiple Al and machine learning capabilities, including integrated reasoning, dynamic scoping and reprioritization, and probabilistic mathematics to mimic security experts' judgment at machine speed in the investigation, scoping, and prioritizing of security alerts. So clearly the platform provides threat intelligence that drives risk asse....
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....: By focusing on behavioural analysis rather than relying solely on known threat signatures, Al-powered XDR can detect never before-seen (zero-day) attacks that traditional secunty tools would miss. b. Advanced threat correlation and analysis-Al and ML. enable XDR to connect seemingly unrelated alerts from different security layers into a single, cohesive narrative of an attack. 1 Automated correlation: Instead of security analysts manually sifting through thousands of individual alerts, Al automatically stitches together event data from endpoints, networks, cloud applications, email, and more. 11. Full attack story: By mapping the entire attack chain, XDR provides a rich, contextual understanding of the threat, including its origin, propagation, and potential impact. This gives security teams a clear, actionable picture of the incident. c. Intelligent alert prioritization-By analysing threat data with AI, XDR reduces the problem of alert fatigue, which is common in Security Operations Centres (SOCs) that use traditional security tools. i. Risk-based scoring: The platform prioritizes incidents based on their severity and relevance to the....
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....r issue regarding chargeability of receipts under Article 12(3) of India-US DTAA was involved. The Hon'ble High Court have held as under: "8. The principal issue that arises in the present appeals is whether the amounts received by the Assessee from Indian entities for providing its services are taxable under the Act. The AO had initiated the reassessment proceedings pursuant to the information received that M/s Snapdeal Private Limited (erstwhile Jasper Infotech Private Limited) had made foreign remittances to the Assessee towards "Hosting and Bandwidth Charges" without deducting any withholding tax. It is the Assessee's case that it provides standardised and automated cloud computing services to its customers. Any person desiring to avail of the services is required to enter into a standardized contract electronically, in respect of the said services. The AO had, in the aforesaid context, examined the said Standard Agreement [the Agreement] and on the basis of the same, concluded that some of the receipts were taxable as royalties and also taxable as FIS. ............... 10. The AO examined certain clauses of the Agreement and concluded that Assesse....
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....licensable, non-transferrable license to do the following during the Term: (i) access and use the Services solely in accordance with this Agreement; and (ii) cow and use the AWS Content solely in connection with your permitted use of the Services. Except as provided in this Section 8.4, you obtain no rights under this Agreement from us or our licensors to the Service Offerings, including any related intellectual property rights. Some AWS Content may be provided to you under a separate license, such as the Apache Software License or other open source license. In the event of a conflict between this Agreement and any separate license, the separate license will prevail with respect to that AWS Content. 8.5 License Restrictions. Neither you nor any End User may use the Service Offerings in any manner or for any purpose other than as expressly permitted by this Agreement. Neither you nor any End User may, or may attempt to, (a) modify, alter, tamper with, repair, or otherwise create derivative works of any software included in the Service Offerings (except to the extent software included in the Service Offerings are provided to you under a separate license that expressly permit....
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....ndia-US DTAA. ... ... 29. The fact that the Assessee lends certain support and assistance to its customers for availing of the services does not in any manner support the view that the Assessee makes available technology or technical skills, know-how or the other process to its customers within the scope of Article 12(4)(b) of the India-US DTAA. The Assessee also addresses various requests of its customers including answering best practice questions, guidance of configuration amongst others only as a support for availing of its services. .... .... .... ... .... 35. The aforesaid explanation clearly indicates that the services offered by the Assessee does not entail transferring of any skill, knowledge, technology or process to its customers. The cloud computing models indicate that the Assessee has developed an infrastructure and permits the customers to access the hardware and software for developing their own content. 36. There is no cavil that the customers do not control the cloud computing hardware or software. They also have no right to commercially exploit the same. 37. The exp....
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....upport Services Guidelines, it is clearly evident that the prerequisites for the impugned receipts to be treated as royalty income in terms of Article 12(3) of the India-USA DTAA are not met as the customer do not receive any right to use the copyright or other IP involved in AWS Service; the customers are granted only a non-exclusive and non-transferable licence to access the standard automated services offered by the assessee without the source code of the licence being shared with the customer, the customers have no right to use or commercially exploit the IP; there is no equipment of any nature or at any time placed at the disposal of the customers by the assessee. Further, it is to be noted that under the Trademark Guidelines customer has been granted a limited, nonexclusive, revocable, non-transferable right to use AWS marks only to the limited extent for identification of the customer who is using AWS Services for their computing needs. Similarly, under the Support Service Guidelines, only incidental/ancillary support is provided to the customers which includes answering queries/troubleshooting for use of AWS Services subscribed by them. The Support Service Guidelines specif....