The Delhi bench of the Income Tax Appellate Tribunal has held that the subscriber fee would not be taxable as “royalty” as per the India-Singapore Double Taxation Avoidance Agreement (DTAA) or under section 9(1)(vi) of the Income Tax Act, 1961.
The assessee, Salesforce.com, is engaged in providing comprehensive Customer Relationship Management (CRM) services that enable customers and subscribers to systematically record, store and act upon business data, and to help businesses manage customer accounts, track sales, lead, evaluate marketing campaigns, and provide better post-sales service. The Assessing Officer and the first appellate authority held that the services rendered by the assessee are in the nature of imparting of information concerning commercial expediency.
The Tribunal bench comprising Shri N.K. Billaiya, Accountant Member and Shri Anubhav Sharma, Judicial Member observed that in light of the Master Subscription Agreement, the customers do not have any access to the process of the service provider i.e. the assessee, and the assessee does not have any access except otherwise provided in the master subscription agreement to the data of the subscriber.
Holding in favour of the assessee, the Tribunal held that “In our considered opinion, all the equipments and machines relating to the service provided by the assessee are under its control and are outside India and the subscribers do not have any physical access to the equipment providing system service which means that the subscribers are only using the services provided by the assessee. In light of the above discussion, we have no hesitation to hold that the subscriber fees received by the assessee do not fall within the ambit of royalty u/s 9(1)(vi) of the Act nor under Article 12 of the India – Singapore DTAA. The Assessing Officer is accordingly directed to delete the impugned additions.”
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