TaxTMI 
TaxTMI 
2026 (8) TMI 1105
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...., they are taken together and decided by a common order. 3. First we take up the assessee's appeal for Assessment Year 2021-22 in ITA No. 3599/Del/2023. ITA No.3599/Del/2023 [Assessment Year 2021-22] 4. Brief facts of the case are that the assessee, Branch Metrics Inc., is a company incorporated in the United States of America and a tax resident thereof holding a valid Tax Residency Certificate. It is a cross linking and attribution platform provider. It provides Software as a Service ('SaaS') based products in the form of a Software Development Kit ('SDK') which help its customers in generating links that enable seamless mobility from one mobile application to another and help in tracking the efficiency of those links. The customers, on purchase of the product, themselves install and integrate the SDK into their own mobile applications or websites, generate links therefrom and view the reports on a dashboard which forms part of the product. The products are sold to the Indian customers directly, on the basis of the standard Terms and Conditions published by the assessee read with an Order Form executed by the customer. 5. The assessee e-filed its return of income for t....
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.... facilitate your continued use of Branch products', and premium support (an upgraded support plan). 7. On the basis of the said enquiries, a show cause notice dated 25.12.2022 was issued proposing to treat the amount of Rs.24,16,28,878/- as Fees for Technical Services ('FTS'), which the assessee objected to vide its reply dated 27.12.2022. The AO, in the draft assessment order dated 31.12.2022 passed under section 144C(1) of the Act, rejected the objections, by holding that (i) the facility is not standard, as the data inputs received from the customers are customer specific and the output reports are produced in the formats desired by the particular customers, making it a customized and optimised service; (ii) the human element is involved; (iii) the fees charged include technical account management; and (iv) the personnel of the assessee are involved in face to face meetings with the customers. The AO further held that rendering IT based services confers an enduring benefit, since the recipient's personnel enhance their knowledge and skills and would not need recourse to the service provider for the same problem again, and that the services therefore make available knowledge a....
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....nd the United States of America ('India-USA DTAA'). b. On the facts and circumstances of the case & in law, the Ld. DRP / AO grossly erred in not appreciating that the consideration received by the Appellant pertains to sale of non-customized, standard off the shelf Software Development Kit which provides access to standard facility which is not taxable in India. c. On the facts and circumstances of the case & in law, the Ld. DRP / AO grossly erred in not appreciating that the Appellant does not make available any technology, knowhow to the service recipient." 10. The ld. AR has not pressed Ground of appeal No. 1 which is general in nature, and Ground of appeal No. 3 which challenges the validity of the DRP directions with reference to the Document Identification Number, thus they are dismissed. 11. The learned AR took us through the standard Terms and Conditions, the Order Forms, the replies received under section 133(6) of the Act and the orders of the lower authorities, and raised the following issues. Firstly, the receipts are consideration for the sale of a standard, non-customized, off the shelf product. An identical SDK is provided to every customer, ....
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....available. The technology underlying the SDK remains exclusively with the assessee; the Terms and Conditions prohibit sublicensing, transfer and circumvention of security features; and the customers renew their subscriptions year on year, which itself shows that nothing has been made available to them. Reliance was placed, inter alia, on CIT vs. De Beers India Minerals (P.) Ltd. [2012] 346 ITR 467 (Karnataka), DIT vs. Guy Carpenter & Co. Ltd. [2012] 346 ITR 504 (Delhi), US Technology Resources (P.) Ltd. vs. CIT [2018] 407 ITR 327 (Kerala) rendered under this very DTAA, and Engineering Analysis Centre of Excellence (P.) Ltd. vs. CIT [2021] 432 ITR 471 (SC), as also on the examples appended to the Protocol, the assessee's case being far removed from Example 5 (development and transfer of a computer programme) and supported by the analysis in Examples 2, 4 and 7. 11.3 Fourthly, Ld. AR stated that the technical account management and premium support are ancillary to the sale of the product, being described in the Order Form itself as support 'to facilitate your continued use of Branch products'; and no separate consideration is charged for them and they transmit no technology. 11....
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....ng answers the description of FTS. 13. We have heard the rival contentions and perused the material on record, including the standard Terms and Conditions, the Order Form, the replies under section 133(6) of the Act, the orders of the lower authorities, the DTAA with its Protocol and the precedents cited by both the parties. The question under Ground No. 2 is whether the receipts of Rs.24,16,28,878/- from the Indian customers on sale of SaaS based products constitute 'fees for included services' under Article 12(4) of the DTAA read with section 9(1)(vii) of the Act. At the outset, the status of the assessee as a tax resident of the United States of America holding a valid Tax Residency Certificate is not in dispute, and by virtue of section 90(2) of the Act the beneficial provisions of the DTAA apply to it. It is not the case of the Revenue that the assessee has a Permanent Establishment in India, nor has any part of the receipts been characterised as Royalty under Article 12(3), and no case under Article 12(4)(a) has been set up. The case of the Revenue thus rests entirely on Article 12(4)(b) of the DTAA. 13.1. The Terms and Conditions with the customers are standard terms, ....
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....ourt in CIT vs. Kotak Securities Ltd. (supra) between a 'service provided' and a 'facility offered' squarely applies. Equally apposite are the observations of the Hon'ble Delhi High Court in SFDC Ireland Ltd. vs. CIT (supra) that even the offering of a comprehensive service experience with the help of technology embedded in the software 'would remain a facet or attribute of the software application available to any customer' and falls within the standard scope of service as opposed to an individualization of the application. We accordingly hold that what the assessee offers is a standard, non-customized, off the shelf SaaS product, and the receipts are consideration for the use of such standard facility. For the same reason, the automated facility, involving no human intervention in its rendition to any customer, would not answer the description of technical, managerial or consultancy services under Explanation 2 to section 9(1)(vii) of the Act in view of order of hon'ble Apex court in CIT vs. Bharti Cellular Ltd. (supra) and GVK Industries Ltd. vs. ITO (supra); however, the issue determinative of this appeal is the make available condition under the DTAA, to which we turn. 13.3....
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....ed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider.... In other words, payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." 13.5. To the same effect are DIT vs. Guy Carpenter & Co. Ltd. [2012] 346 ITR 504 (Delhi), US Technology Resources (P.) Ltd. vs. CIT [2018] 407 ITR 327 (Kerala), rendered under this very DTAA, and International Management Group (UK) Ltd. vs. CIT [2024] 466 ITR 514 (Delhi), which holds that the condition postulates a discernible intent of the recipient to absorb and internalise the knowledge and skill of the provider. Tested on these principles, the receipts fail the make available condition: the customers are enabled to use the platform, but are at no point enabled to apply the technology underlying it, and the Revenue has not brought on record a single instance of transmission of any technical knowledge, experience, skill, know-how or process to any Indian customer. 13.6. Example 2 of the Protocol establishes that the character....
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....agreed to by the Contracting States. The expression 'made available' in section 80-O of the Act, a deduction provision in a different context; the expression in Article 12(4)(b) must be interpreted as agreed to by the Contracting State. The deduction of tax at source by the customers, often made out of abundant caution, can neither confer a character upon the receipt nor operate as an estoppel; taxability is determined by law and not by the conduct of the payers. 13.8. It is observed that the DRP fell into a fundamental error in building its conclusions upon the clauses of the 'marketing and sales support services agreement', including access to marketing tools, participation in trade shows, personal visits and secondment of technically qualified personnel. As observed above, that agreement is between the assessee and its Indian subsidiary, Branch India, which renders marketing and sales support services to the assessee against consideration separately taxed in its hands and the Indian customers are not parties to it, and their relationship with the assessee is governed only by the standard Terms and Conditions and the Order Forms, which contain no such stipulations. The 'two wa....