Delhi HC quashes Order Levying TDS of 2% on Salesforce’s ₹633 Cr Revenue [Read Order]

The Delhi High Court recently set aside an order by the Revenue Department imposing a Tax Deducted at Source (TDS) of 2% on ₹633.34 Crore in revenue earned by SFDC Ireland Limited (Salesforce) from conducting product reselling in India through its Indian affiliate.

SFDC Ireland Limited (Salesforce), a tax resident of Ireland, had entered into a Reseller Agreement with its Indian affiliate, SFDC India, appointing it as a non-exclusive reseller of its customer relationship management (CRM) software products. As part of the terms of the agreement, SFDC India procured Salesforce products to conduct resale to customers in India. Consequently, for the financial year 2024-25, Salesforce estimated a total receipt of ₹633.34 crore from SFDC India.

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SFDC later applied for a certificate under Section 197 of the Income Tax Act, seeking exemption from TDS on these payments. While a similar exemption had been granted in the previous assessment year, the Assessing Officer (AO) rejected the application for the current financial year, directing SFDC India to withhold 2% TDS on payments made to Salesforce.

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The Revenue further issued a certificate under Section 197 authorizing SFDC India to make payments on account of the petitioner after deducting withholding tax at the rate of 2%. Challenging this order, Salesforce argued that its income from SFDC India should be categorized as business profits under Article 7 of the India-Ireland Double Taxation Avoidance Agreement (DTAA) and that the company does not have a Permanent Establishment (PE) in India.

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Ajay Vohra, Aniket D. Agarwal and Samarth Chaudhari, appearing for the petitioner contended that SFDC India operates as a reseller on a principal-to-principal basis and has no authority to bind Salesforce to any contractual obligations. They further argued that the Reseller Agreement does not indicate any technology transfer or provision of technical services that would render the revenue taxable as Fees for Technical Services (FTS) or Royalty under the Income Tax Act, 1961.

A Division Bench comprising Justice Vibhu Bakhru and Justice Tushar Rao Gedela analyzed the provisions of the Reseller Agreement and the India-Ireland DTAA and observed that SFDC India functions as an independent reseller and does not exercise any authority to conclude contracts on behalf of Salesforce.

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The Bench further noted that pricing discussions between either parties does not automatically establish a dependent agent PE while noting that Salesforce does not maintain a fixed place of business in India.

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While allowing the Petition, the Delhi High Court held that Revenue failed to furnish sufficient material to justify the TDS imposition Salesforce’s income from SFDC India does not attract taxation in India under the DTAA. Additionally, the Court directed the AO to issue the certificate under Section 197 of the Income Tax Act, allowing nil withholding tax on the payments.

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Affirming that the observations in the present order were confined to the issue of withholding tax and would not preclude the AO from conducting an independent assessment as per law, uninfluenced by the present Order.

To Read the full text of the Order CLICK HERE

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