The Income Tax Appellate Tribunal (ITAT) Delhi bench held that Receipts of subscription, professional and training services of software from Indian Customers could not be taxed as Royalty/Fee for Technical Service (FTS) under India-Netherlands Double Taxation Avoidance Agreement (DTAA).
Assessee, Service Now is a foreign company incorporated under the laws of the Netherlands, engaged in the business of providing enterprise cloud computing solutions that define structure, manage and automate services for global enterprises.
The assessee had filed its revised return of income for the Asst Year 2019-20 by declaring total income of Rs 125,75,01,160/- and claimed exemption on the entire income based on India-Netherlands Double Taxation Avoidance Agreement (DTAA).
During the year under consideration, the assessee has rendered subscription professional and training services to various customers in India from which it has earned income of Rs 125,11,22,698/-.
Accordingly the assessee claimed that income from subscription services is for use of software professional and training services rendered by the assessee applications do not fall with royalty as per Article 12(4) of India – Netherlands DTAA also professional and training services rendered by the assessee does not fall within the definition of ‘fees for technical services.
However, the AO concluded that the receipts in question are services of a technical nature and hence taxable as FTS.
Assesee challenged the action of assessing officer before the Dispute Resolution Panel (DRP) who directed against assessee and accordingly the AO passed draft assessment order made an addition of Rs. 125,11,22,698/- as FTS from subscription, professional and training services taxable at the rate of 10%.
Aggrieved by the order assessee filed appeal before the tribunal.
During the proceedings before the bench Ajay Vohra, counsel for assessee submitted that professional and training services rendered by the assessee, the technical knowledge, knowhow etc is not made available to the customers.
Therefore, such services do not fall within the definition of ‘fees for technical services’ as per Article 12(5) of India Netherlands Tax Treaty.
Vizay B. Vasanta, Counsel for the revenue supported the decision of the lower authorities and argued that No documentary proof has been submitted by the assessee that the software services were rendered from Netherlands.
It was observed by the tribunal that the assessee has only access to software. There is no transfer of technology by the assessee. Thus assessee had merely granted only access to software and there is no transfer of technology by the assessee.
After considering the facts submitted by both parties, the two member bench of M. Balaganesh(Accountant Member) and Kul Bharat (Judicial Member) held that subscription, professional and training services rendered by the assessee does not fall within the definition of FTS both under the Income Tax Act as well as under the DTAA and accordingly the same cannot be taxed in India.
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