TaxTMI 
TaxTMI 
2026 (7) TMI 1325
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....th effect from 1 April 2024. Pursuant to the merger, the Appellant filed a revised Form No. 36 before the Tribunal on 22 October 2024. 1.1 The assessee in this appeal has challenged the action of the AO in taxing the receipts of Rs 73,41,69,869/-received by the assessee on account of sale of shrink-wrapped/off-the-shelf/electronically downloadable Tableau software and Provision of Software as a Service('SaaS') to customers in India @ 10% on gross receipts as per section 115A of the Act and under the Article 12 of the India-Ireland DTAA. The said receipts were claimed as exempt by the assessee on the ground that the company had not allowed the use or granted any right to use the copyright in the software to the Indian customers, but the same was limited to only sale of the copyrighted article. This dispute arose for the first time in AY. 2018-19 and it was also in AY. 2019-20 which has also been noted by the Ld. DRP in para nos. 5.6 of its order dated 25.05.2023 for the present assessment year. However, in appeal the Co-ordinate Bench of the Tribunal in the case of the assessee by its respective orders dated 07.11.2023 and 29.12.2023 in ITA Nos. 1874-1875/Del/2022 quashed the imp....
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....5,21,125 TOTAL (Rs.) 73,41,69,869 2.3 Further, it was also noted by the AO that the assessee claimed the said receipts to be exempt on the ground that the company had not allowed the use or granted any right to use the copyright in the software to the Indian customers, but the same was limited to only sale of the copyrighted article. According to the assessee, the said revenue earned by the assessee company from supply of software products in India was not taxable in India as 'Royalty' under the beneficial provisions of Article 12 of DTAA. 2.4 However, the AO noted that in all the responses filed during the course of the assessment proceedings, the assessee had not given a description of the exact nature of its products/services, which was material in deciding the taxability of the assessee's receipts from India. The AO noted that hence he was relying upon the information available on the assessee's own website to understand the real nature of what was being sold by the assessee in India. Thereafter, the AO discussed about the example of the actual products provided by the assessee in the case of the end user in two companies namely Sysco, an A....
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....dered has been decided by the ITAT Agra Bench in the case of Metro & Metro Vs Additional Commissioner of Income-tax (International taxation) in ITA no.393/Agra 2012 vide order dated 31.10.2013 and the issue was identical to the instant case. The AO noted that the Tribunal in this case did not find any difference whether the services are rendered through human involvement or through automated means and held that automated services would be taxable as FTS under section 9(1)(vii) of the Income-tax Act. 2.8 The AO also held that even if the services are rendered in automation mode but if the nature of services falls within the letter and intent of FTS under section 9(1)(vii) of the Act, the same would be liable for taxation in India. The AO also observed that without prejudice to his findings that the technical services was provided in automation mode, material on record and in the public domain clearly suggests that there was substantial human involvement on the part of the assessee to render the services in question. The AO also noted that in the instant case the consultancy services are of technical nature, therefore, such services are technical services as per the DTAA and the t....
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....subsidiary i.e. Tableau Software India Pvt. Ltd. ("Tableau India"). It follows a standard fixed pricing model that is decided by the group as a whole, leaving no room for discretion. Thus, there is a fixes income stream once a market is established. (v) The assessee offers a plethora of tutorials, instructional material and support resources at all-time end user of its software services. (vi) Not only has the assessee company made available solutions, knowledge. information, technology, skill, know-how and process to the end-user for independent use of Tableau software by such user, but it appears that the assessee company has made an all-out effort to do so. (vii) The digital services in the form of software have clearly been made available to the end-user without explicitly providing for the same in the "legal" relationship established with it. Instead, such responsibility or function of making the services available to the end-user has been entrusted with the independent agent, thereby averting the possibility of taxation in the source country i.e. India. 5.2 In para 6 onwards, the AO has discussed the legal aspects of the taxability of the re....
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....the point no. 3.2 of the EULA, it is stated that the Tableau grants the user a limited license to modify any sample source code from the software provided to the user for the purpose of designing, developing, testing and otherwise facilitating the use of the software under the EULA. Therefore, it is clear that the Tableau provides a sample source code and user can modify that sample source code for further designing/developing/testing/facilitating the software as per the requirements of the user. The same was concluded by the AO in the assessment order wherein the AO states that assessee is not selling a "standard off-the-shelf customized/electronically downloadable software" and instead, it is offering comprehensive service experiences or solutions with the help of the technology embedded in its software. Further, the AO has also stated that the technology is visibly made available to the end user in the instant case so as to ensure independent usage of the same by such user. Whether, the software has been purchased directly by the user or purchased through any reseller, these terms and conditions will remain same. Further, the assessee has relied on the decision....
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....ion, deployment, and usage and (b) training in use of the Software, You shall have a license right to use any deliverables (including any documentation, code. Software, training materials or other work product) delivered as part of the Professional Services ("Deliverables") solely in connection with your licensed use of the Software, subject to all the same terms and conditions as apply to your Software license including in Section 3.9 (License Restrictions)), and subject to any additional terms and conditions provided with the Deliverables, You may order Professional Services under an Ordering Document or a mutually executed Statement of Work ("SOW") describing the work to be performed, fees, and any applicable milestones, dependencies and other technical specifications or related information. You will reimburse Tableau for reasonable travel and lodging expenses as incurred." In view of the above, it is noted that the AO has also discussed the same in the assessment order wherein it is stated that the assessee company has explicitly provided a provision for professional and support service. (iii). Similar to the above, the AO has also quoted the point no. 11 of t....
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....ived at a categorical finding on the same in the DAO as well as the Remand Report. As rightly observed by the AO, the assessee company is not selling a standard, off the shelf, non-customizable software to the customers but also allows the users of software, a limited right to modify the source code as per the requirements of the user. The assessee also offers a plethora of tutorials instructional material and support resources at all-time end user of its software services as evidenced by the assessee company's own website. In that sense the assessee has made available to the end-user to make independent usage of the same by customization of software as per their needs. Thus the underlying information, technology and services made available by the assessee to the end customers are not 'standard' and non-customizable as claimed by the assessee. In view of the above the panel is of the considered view that the reliance placed by the assessee upon the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. is clearly misplaced. The AO has also established that the nature of income in the hands of the assessee is clearly ....
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....) r.w.s. 144C(13) of the Act is erroneous and bad in law being passed on: 4.1 An incorrect appreciation of facts, 4.2 Reference/conclusions that are contrary to the documentation/material on record, 4.3 Reference/conclusions based on material available in public domain that is not relevant to the facts of the case, 4.4 Moreso, the Ld. AO has erred in erroneously concluding that the Appellant is economically not taxed in its country of residence (i.e., Ireland). 5. On the facts and circumstances of the case and in law, the Ld. AO/Ld. Panel grossly erred in observing that the consideration received by the Appellant amounting to INR 73,41,69,869 from its customers is in the nature of 'Fees for Technical Services' ('FTS') as per the provisions of the Act and under Article 12 of the Double Taxation Avoidance Agreement entered between India and Ireland ('DTAA') without appreciating that same is in the nature of business income and thus, not taxable in India in the absence of Permanent Establishment ('PE'). In doing so: 5.1 the Ld. AO/Ld. Panel grossly erred in not appreciating that the substantial consi....
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....anually without a valid, computer-generated Document Identification Number (DIN). However, the above grounds of appeal were not pressed by the assessee at the time of hearing before us. Hence, these grounds of appeal are dismissed as not pressed. 5. Ground Nos. 4 to 4.4 and 5 to 5.6 of the appeal are against the action of the AO in treating the receipts of Rs. 73,41,69,869/- as fees for technical services and taxable in India @ 10% on gross receipts as per section 115A of the Act and under the Article 12 of the India-Ireland DTAA. The same was claimed to be received by the assessee primarily on account of sale of non-customised shrink-wrapped/off the shelf/electronically downloadable software (such as Creator, embedded Analytics, Explorer etc.) and provision of software upgrades to fix security issues, bugs etc. at periodic intervals being incidental to sale of software amounting to Rs. 64,16,22,654/- and Provision of software as a Service ('SaaS')-standard services (such as Tableau online, creator Online, explorer Online, etc.), which was claimed to be fully automated standard facility amounting to Rs. 6,53,66,384/-. In this regard, the ld AR of the assessee filed a det....
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....ner fee. It was further submitted that the business activities/sale operations of the assessee in case of supply were carried out through its employees/personnel who were based outside India and the assessee distributed the software to its Indian customers on a principal-to-principal basis outside India. Further, it was submitted that the contract for distributing the software to the Indian customers was entered by the assessee outside India. Further, drawing attention to the specific contents of EULA/ Reseller agreement, the Ld. AR submitted that it was evident from the nature of the transaction that it is a case of an outright sale of software where the end user is granted a limited, non-transferable, non-sublicensable, non-exclusive license to use the software sold. Accordingly, the Ld. AR submitted that given the fact that the assessee was entitled to the beneficial provisions of the India-Ireland DTAA and in the absence of a PE in India, the impugned receipts were not liable to be taxed in India. 5.2 Further, the Ld. AR submitted that the Hon'ble Delhi High Court in the case of DIT vs Infrasoft Ltd. (Supra) analysed and evaluated the key contents of the Infrasoft Ltd. EULA ....
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.... India-Sweden DTAA as in the case of India-Ireland DTAA referred to the observations of the Co-ordinate Bench of the Tribunal in the case of Volvo Information Technology AB v. DCIT (International Taxation) (supra) to support his contention and relied upon the findings of the Tribunal's order in para nos. 14,15,16 and 17. The relevant extracts of the order of the Tribunal are reproduced as under: "5. Briefly the facts relating to this issue are, the assessee is a non-resident corporate entity incorporated in Sweden and a tax resident of that country. As observed by the Assessing Officer, the assessee is a part of the Volvo Group and is engaged in providing Information Technology ('IT') solutions, particularly catering to IT needs of automotive industries. For the assessment year under dispute, the assessee filed its return of income on 11.12.2020, declaring nil income claiming refund of TDS, amounting to Rs. 11,43,58,540/- In course of assessment proceedings, the Assessing Officer called upon the assessee to furnish the details of receipts earned from India corresponding to the TDS. He also called for various other details. On examining the materials on record, he o....
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.... IT related issues from end users. Under the Volvo Corporate Network, assessee provides a secured access to Volvo Network, which is prerequisite for use of any business application other IT services provided by the assessee. The assessee also provides Business Consultancy Services in terms of which it renders consultancy services with respect to IT services provided by it. 15. Though, the assessee has claimed that these are standard and routine services, however, fact remains that the assessee has provided managerial, consultancy and technical services. Copies of invoices placed in the paper-book do not provide the description/details of services provided. At this stage, we may look into the definition of FTS under Article 12(3)(b) of India -Sweden DTAA, which reads as under: "Article 12(3)(b)- The term 'fees for technical services, means payment of any kind in consideration for rendering of any managerial, technical or consultancy services including the provisions of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention." 16. As could be seen, the definition of FTS under....
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....f DIT v. Infrasoft Ltd.(supra) particularly the findings in para no. 88 of the order submitted that receipts in these types of transactions would be dealt with as business income in accordance with Article 5 of the India-Ireland DTAA and in the absence of its PE in India the same would not be taxable in India. The relevant Para no. 88 is reproduced as under: "88. The license granted by the Assessee is limited to those necessary to enable the licensee to operate the program. The rights transferred are specific to the nature of computer programs. Copying the program onto the computer's hard drive or random access memory or making an archival copy is an essential step in utilizing the program. Therefore, rights in relation to these acts of copying, where they do no more than enable the effective operation of the program by the user, should be disregarded in analyzing the character of the transaction for tax purposes. Payments in these types of transactions would be dealt with as business income in accordance with Article 7." 7.1 The ld AR also submitted that the above findings of the Hon'ble Delhi High Court were confirmed by the Hon'ble Supreme Court in the case of En....
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....tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof ; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. 4. For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make ....
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....s these were simpliciter sales, which in the absence of a PE in India was not taxable in India is not acceptable as the issue in the present case is with respect to taxing the said receipts as "fees for technical services" and not as "Royalty" income. As already discussed above the scope of "fees for technical services" and "Royalty" income under the India-Ireland DTAA are distinct and different. 7.5 Further, we note that the AO in para no. 8.8 of the draft assessment order had relied upon the order of the Hon'ble Apex Court in the case of Kotak Securities Ltd 383 ITR 1 (SC) to support his finding that human involvement was not required if the result of providing technical services with the human intervention is satisfied with the automated process also. 7.6 In this regard, the relevant findings of the Hon'ble Apex Court in para nos. 6 to 11 are reproduced as under: "6. What meaning should be ascribed to the word "technical services" appearing in Explanation 2 to clause (vii) to Section 9(1) of the Act is the moot question. In CIT v. Bharti Cellular Ltd. [2011] 330 ITR 239/[2010] 193 Taxman 97 this Court has observed as follows: 'Right from 1979, various....
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....service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression "technical services" appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act. 9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant-assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the servi....
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....ecord as to whether the "technical services" provided by the assessee to its customers in this case in automation mode as stated by the AO has blurred the requirement of specific human element to qualify such services as "technical services" under Article 12(3)(b) India-Ireland DTAA. However, we are also very much mindful of the observations of the Hon'ble Apex Court in this case, in distinguishing the nature of such services provided to the customers as to whether there was any exclusivity to the services rendered by the assessee to its customers or whether each and every customer had to necessarily avail of such services in the normal course of utilizing the said software. In this regard the Hon'ble Apex Court held that such later services would undoubtedly be appropriate to be termed as facilities provided by the assessee on payment but would not amount to "technical services" provided by the assessee, as the same was not being services specifically sought for by the user or the consumer. In this regard, the Hon'ble Apex Court observed that, unless the services are specifically sought for by the user or the consumer it will not amount to "technical services" as appearing in Expl....
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....he Finance Act, 2004 defined it as follows: "(11) The amount of income-tax as specified in sub-sections (4) to (10) and as increased by a surcharge for purposes of the Union calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the "Education Cess on income-tax", so as to fulfil the commitment of the Government to provide and finance universalized quality basic education, calculated at the rate of two per cent of such income-tax and surcharge." (Emphasis supplied by us) It is thus clear that the education cess, as introduced in India initially in 2004, is nothing but in the nature of additional surcharge and shall be covered within the ambit of Article 2(4) of India - Ireland DTAA. In this regard, the Appellant places reliance on the decision by Hon'ble Delhi HC in the case of EPCOS Electronic Components S.A. v. Union of India [2019] 107 taxmann.com 227 (Delhi) The relevant extract of the decision is reproduced hereunder: "20. The Petitioner has sought a clarification regarding the erroneous payment of the surcharge. Indeed, the Court finds that the payment of t....
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....g of the treaty. In the present context, it is not in dispute that 'education cess' introduced by the Finance Act, 2004 is akin to surcharge and the Kolkata Bench of the Tribunal in the case of DIC Asia Pacific Pte. Ltd. (supra) held the same to be in the nature of an additional surcharge. Now, since clause (1) of Article 2 provides that the taxes governed would include taxes and surcharge thereon, we find no reason for the Revenue to levy the surcharge and education cess, which is also in the nature of surcharge, over and above the cap of 10% prescribed in Article 13 as the tax rate for royalty income. In any case, the provisions of Article 13 of the India-France DTAA, prescribing a cap of 10% on the rate of tax, read with Article 2 thereof would prevail over the provisions of the domestic income-tax law and thus the tax liability on royalty income shall be capped at 10%." The Appellant further places reliance on the following decisions wherein it has been held that surcharge and education cess cannot be levied in respect of tax liability under the relevant DTAAs: • Sunil V. Motiani vs. Income-tax Officer [2013] 33 taxmann.com 252 (Mumbai Tribunal) ....