Income Tax Appellate Tribunal - Delhi
Blackline Systems, Inc., California, ... vs Acit, Circle 1(1)(2), International ... on 26 June, 2024
0IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D', NEW DELHI
Before Dr. B. R. R. Kumar, Accountant Member,
Sh. Anubhav Sharma, Judicial Member
ITA No. 3798/Del/2023 : Asstt. Year: 2021-22
BlackLine Systems Inc., Vs ACIT,
21300 Victory Bivd, 12 FL, Circle-1(1)(2),
Woodland Hills, California 91367, International Tax,
United States New Delhi
(APPELLANT) (RESPONDENT)
PAN No. AAHCB4520C
Assessee by : Sh. Nageshwar Rao, Adv.
Sh. Anshika, Adv.
Revenue by : Sh. Vizay B. Vasanta, CIT-DR
Date of Hearing: 04.04.2024 Date of Pronouncement: 26.06.2024
ORDER
Per Dr. B. R. R. Kumar, Accountant Member:
The present appeal has been filed by the as sessee against the order dated 30.10.2023 passed by the AO u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961.
2. The only issue to be adjudicated in this case is that whether the a ssessee is satisfying the re quirement of the clause of 'make available' as per the India-US DTAA.
2 ITA No. 3798/Del/2023Blackline Systems Inc.
3. To determine that, the services provided in lieu o f the receipt have been examined. The assessee has provide d the follow ing services:
a. The Company provides Software on cloud under SaaS mode l (referred to as "Cloud- based services" or "Subs cribed services") i. directly to end-users wherein it grants a non-e xclusive, non- transferable, worldwide right to use the Hosted Services, solely for their internal business purpo ses; and ii. through BPO partner wherein it grants non-e xclusive, non- transferable and non-sublicensable right to the B PO partner to resell the automated services to end-users in India.
b. T he Company also provides (i) certain implementation services to get the customer on boarded for the purpo se of provision of Cloud-based services; and (ii) use r trainings to enable the end-user access the Subscribe d services.
c. The Cloud-based service automates finance and accounting requirements of the subscribers to the services. Such services are completely auto mated and do not involve human inter vention in the pro vision of such services.
i. Such Cloud-ba sed services include service produc ts viz., Finance transformation, Reconciliation Manageme nt, On- demand Profe ssional and Close Process Manageme nt etc. which are standard products of the Company, the provision of which is fully automated.3 ITA No. 3798/Del/2023
Blackline Systems Inc. ii. The Software on cloud under SaaS model is a standard facility provided by the Company at a pre-defined tariff rate, on a no n-exclusive basis, to its custome rs/end- users .
iii. The ownership of the data that is input by the subscriber continues to vest in the subscriber/end- user/customer. The customer has the ability to access the reports automatically gener ated by the Software and no r ights in the copyright of the ware, provided on cloud, is granted to the BPO partner/end-
users /customers. Further, none of them have the right to co py, modify or cre ate a derivative work or reverse engineer any part of the Software.
iv. The processing of the customer data by the Software is carried out w ithout any human involve ment. The only huma n involvement is during provisio n of implementation services and in provisio n user training services to a minimal/limited extent (in web-base d user trainings/instr uctor led trainings).
v. The Software is used for processing of the customer data in an automated manner which is a standard processing of customer data by the Software housed cloud and no customization in this regar d is required to the Software. The Software, as a standard product, has inbuilt functionality to generate reports in varied formats. The functionality for the forma t, as des ired by the client/customer is only enabled by the Company 4 ITA No. 3798/Del/2023 Blackline Systems Inc. during implementatio n and there is no specific custo mization which is required to accommodate to the custo mer's desired format of the end output i.e., the reports.
d. T he implementatio n services are services o ffered by the Company for a new system implementation i.e., implementation services to get the customer set up for BlackLine Cloud-based services. This includes activities viz., i. Imple mentatio n kick-o ff (includes project kick-off call to discuss the data colle ction te mplates, project overview and targeted go-live date);
ii. Data collection (wherein the Company provides data templates and step-by-step instructio n guide on the infor mation needed from the Customer's systems);
iii. Application configuration and data import (includes deter mining currency requirements , reconciliation thresholds, email alert configuration, data import from data collection phase, etc.); and iv. Data validatio n (to ensure that the data that has been imported into the BlackLine application is correct and to verify that all the application settings have been reviewed).
v. Imple mentatio n services are utilized at the time of on-
boarding of a new customer or deployment of another standard Software pro duct/ano ther Software mo dule for 5 ITA No. 3798/Del/2023 Blackline Systems Inc. an existing customer and such services are not rendered throughout the perio d of provision of Clo ud-based services. Once provision of implementation se rvices is completed, the Hosted Services (i.e., the Clo ud-based Softw are) are deploye d for the customer which functions automatically without any human intervention.
e. The Company provides on-demand recorded trainings or perio dic live web- based training sessions to enable usage of Cloud-based services by the end-user customer. Such User trainings help the end-users access the Subscribe d Cloud- based services and view the automated reports. Time is generally spent in explaining the end-user on ho w to ge nerate re ports from the Clo ud-based service without a tec hnical content there in.
i. The provision of User training does not require any expertise in technology and merely involves proce dural/operational training relating to use of the services.
ii. The training is operational in nature and does not involve any technical knowledge relating to Software but merely trains the users on how to access the Subscribed service and view the reports.
iii. The trainings do not involve any technical content which could be considered as technical training.6 ITA No. 3798/Del/2023
Blackline Systems Inc.
4. The AO issued notices u/s 133(6) of the Income Tax Act, 1961 was issued to Accenture Solutions Pvt. Ltd., Cipla Ltd., Infos ys Ltd. and Infosys BPM Ltd. with same questions on 9 t h December, 2022.
5. M/s Cipla Ltd. replied that they have subs cribed for the cloud services provide d by Blackline w hich auto mates finance and accounting analytical reports for interna l use by our company. Payment to Blackline is processed annually towards procurement of aforesaid softw are license. It was replied that the services for cloud based services offered under a "software as a service" model and it he lps them in automating various finance and accounting report generation whic h is otherwise required to be prepared manually. The reply from the other companies were also o n the similar lines.
6. Based on the above functio ns and the work performed, the Assessing Officer held that the "make available" clause has been met by the assessee and issued a draft order to that extent.
7. Aggrieve d, the assessee filed appeal before the ld. DRP.
8. The ld. DRP directions are as under:
"4. The Gro unds o f Objectio ns No. 1 to 5 are taken together as the y are s imilar and co nnecte d.
4.1 The Panel has heard the assessee, taken the document submitted on record. The Pane l has also gone through the Draft Assessment Order . The AO has pro po sed addition o f Rs.5,45,42,749/- to assessee inco me in the subject assessment year. The propose d addition is on acco unt of fo llo wing receipts.
7 ITA No. 3798/Del/2023 Blackline Systems Inc. Particulars Amount (in INR)
1A. So ftware ( Pro duct subscription unde r S aaS model; 5,30,91,593 also refe rre d to as Clo ud-based services) 1B. Ancillary/ incidental services to the subscription of 8,02,094 Softw are under Sa aS model 6,49,062 Implementation se rvices to get the customer set up in BlackL ine Hosted Services User T raining Total 5,45,42,749 4.2 The assessee has objected to the a bove proposed addition and his o bjections a re summarize d as below:
"(i) N ature of ser vices pro vided during the year a. The Compa ny provides Software o n clo ud under 5aa5 mode l (refer red to as " Cloud- base d se rv ices" o r "S ubscribed services") i. direc tly to end-users whe rein it gr ants a no n-exc lus ive, non-
transfe ra ble, worldwide right to use the Hosted Services, so lely for their internal business purposes; and ii. through BPO par tner where in it grants no n-exclusive, non- transfe ra ble and non-sublice nsable right to the B PO partne r to rese ll the automated services to end-users in India.
b. The Company also provides ( i) cer tain implementatio n services to get the c ustom er onboa rded for the purpose of pro vis ion of C loud- based ser vices; a nd (ii) user tr ainings to ena ble the end-user access the Subsc ribed services.
(ii) Clo ud-based service s The Cloud- base d services a uto mates finance and acco unting requirements o f the subscr ibe rs to the ser vice s. Such services are 8 ITA No. 3798/Del/2023 Blackline Systems Inc. completely automated a nd do not involve human inte rventio n in the provisio n o f such service s.
Such C loud-base d services include service products viz., Fi nance transfo rmation, R econciliation Management, On-demand Professional and Close Proce ss Management etc. which are standard products of the Company , the provisio n of which is fully automate d.
The Software on cloud under S aaS model is a s tandar d facility provide d by the Company at a pr e-defined tariff rate, o n a non- exclusive basis, to its customers/end-users.
The owne rship of the data that is input by the subsc ribe r co ntinues to vest in the subscr iber/end-user/ customer. The customer has the ability to access the repo rts automatically ge nerated by the Software and no ri ghts in the co pyright o f the Software , provided o n clo ud, is granted to the BPO partne r/end- users/customers. Furthe r, no ne o f them have the right to co py, modify or create a der ivative wo rk or reverse enginee r any pa rt of the So ftware .
The process ing of the customer data by the So ftware is carr ied out without any hum an involvement. The only human involvement is during provisio n of implementation services and in provisio n user training se rv ices to a minimal/limited extent ( in web-base d user trainings/ ins tructor led trainings).
The Software is used for processing of the customer data in an automa ted manner whi ch is a standard process ing of customer data by the So ftw are housed on cloud and no customizatio n in this regar d is required to the Softw are . The S oftware , as a standard product, has inbuilt func tio nality to ge nerate reports in varied formats. The func tio nality fo r the fo rmat, as desir ed by the client/c ustomer is o nly enabled by the Company dur ing implementation and there is no 9 ITA No. 3798/Del/2023 Blackline Systems Inc. specific cus tomizatio n which is r equired to accom modate to the customer's des ired fo rmat of the end output Le, the re ports .
(iii) I mplementation service s The implementatio n services are services offered by the Company for a ne w s ystem implementation i.e., implementation s ervice s to ge t the customer se t up fo r BlackLine Clo ud-based services. This includes ac tivities viz., a. Implementation k ick-off (includes project k ick-off call to discuss the data collection template s, project o verview and tar geted go-live da te):
b. Data collection (w herein the Company provides data templates and step-by-ste p instructio n gui de on the information nee ded from the Customer's s ystems);
c. Applicatio n configuration and data import (includes determining curre ncy requirements, reco nciliatio n thresho lds , email alert configuration, data import from data collection phase , etc.); and d. Data validatio n (to ensure that the data that has been importe d into the Blackline applicatio n is co rrect and to verify that all the applic ation settings have been re vie wed).
These services ar e anci llary or inc idental to the subscription to the Cloud- based se rv ices by the customers/end-users .
Implementation se rvices are utilize d at the t ime of on-boarding of a new c ustomer or de ployment of another standard Software product/ another S oftware module fo r an existing customer and such services a re not rendered throughout the pe rio d of provisio n o f Cloud-based se rv ices. Once prov ision of implementation services is completed, the Hosted Services (ie ., the C loud- base d So ftw are) are 10 ITA No. 3798/Del/2023 Blackline Systems Inc. deplo yed for the customer w hich functions automatically w ithout any human interventio n.
(iv) User Training The Company pro vides on-demand recorded trainings o r per iodic live web- based training sessions to enable usage of Cloud-based services by the end user cus tomer. Such User trainings help the end-
users acce ss the Subscr ibe d Cloud- base d services and view the automa ted reports. Time is gene ra lly spent in explaining the end- user on ho w to generate repo rts from the Cloud-base d service without a tec hnica l content there in.
The provisio n of User tra ining does no t require any expertise in techno logy a nd merely involves proce dural/o peratio nal training relating to use o f the services.
The training is o pera tio nal in nature and does not invo lve any technica l kno wledge relating to Software but merely trains the users on ho w to access the Subscribe d se rvice and vie w the repor ts .
The trainings do not involve any technical conte nt whic h could be conside red as tec hnical training.
A gis t of the so lutions provided by BiackL ine and activities carrie d out during implementation stage is enclosed as Anne xure 1 for your kind perus al.
iv . Erroneo us presumptio n on existe nce of certain non-exis tent facts due to e rroneo us interpre tation of the submission o f the Company or
(ii) that of the respo nses filed by the customers of the Company under Section 133(6) or ( iii) witho ut prov iding any bas is whatsoever, leading to the pressed adjustment 11 ITA No. 3798/Del/2023 Blackline Systems Inc. The Le arned AO passed the Draft A ssessment Order on the premise of fo llo wing inco rrect facts eithe r due to m isinterpre ting the submiss ion ma de by the Company, or wro ng inferenc e drawn from Cipla's response unde r Section 133(6) , or erroneous pres umptions , assumptions as regards fac ts A. Cloud-based Softw are is not a standard facility The Clo ud-base d Softwa re is no t a standard facility and its company/ individual specific, that is customize d fo r e ach company. (Reference is made to Para No. 7 o n Page No . 7 of the Draft Order) The Clo ud- base d Software provided are cus tomize d and optimized services and is not gener al o ff the shelf facility since data inputs whic h are receive d as par t of SaaS are customer specific and also the format of o utput (re ports) are also pro duce d in the format desired by the par ticular customers. (Reference is made to Para No. 1 on Page No. 15 of the Dr aft Order) Company's submission-The Company humbly submits that it is an Enterpr ise Softw are Company hav ing standard Software products whic h are offered to customers under Saas mode l. The Software , as a s tandard product, has inbuilt func tionality to generate repo rts in varied forma ts . T he functionality for the fo rmat, as desired by the client/cus tomer is o nly e nable d by the Co mpany during implementation a nd the re is no specific c ustomizatio n which is required to accommodate to the customer's desired fo rmat o f the end output i.e., the re ports.
B. The Cloud- base d services invo lve human element The services re ndered involved human element as there is substitution of biological human by machine w hic h is e quippe d to work like a huma n. (Refe rence is made to Par a No . 2 o n Page No. 15 and Para 10.3 o n Page No. 23 of the Draft Order) 12 ITA No. 3798/Del/2023 Blackline Systems Inc. Company's s ubmission-The aforesaid is presumed by the Le ar ned AD without prov iding any basis fo r stating so in the Draft Order.
The fees c harged is also based upon time spe nt by Company's personnel. Thus , it is clear that human element is also involved in the ser vice rende red by the Company. (Re ference is made to Para No. 3 o n Page No . 15 of the Draft Or der) Company's s ubmission - The subscriptio n fee towards the Software provide d on c loud is not ba sed on the time spent as there is no time spent in pro vis ion of Clo ud-based ser vices. The So ftware subsc riptio n fee is ac tually based on the number of users subsc ribed for and has no rela tion whatsoever to the time spent by the Company's personnel in provisio n of implementation se rvice-rele vant snapshots o f the invo ices ra ised by the Company w ith respect to C loud-based services is c apture d belo w:............ .........
Thus, the Company humbly submits tha t the Le arne d AO has erred in concluding the below, bas is incorrect linking of respo nses submitte d by C ipla to the receipts from C loud-based Softw ar e subscription earne d by the Co mpany:
Cloud-based Softw are subscription (i.e., Cloud- base d s ervice) is not a s tandard facility Human e lement is involved.
The fee charge d for C loud-based S oftware subscription is basis the time s pent by the Company personnel."
4.2 During the assessment proceedings, the AO had sent notices under sec tion 133 (6) of the Act to one of the vendors M/s CIPLA LTD. who is av ailing of the service s re ndered by the asse ssee. On perus al of the response of M/s CIPLA LT D., which is quoted at page 13 and 14 o f the draft assessment or der. It is see n that:13 ITA No. 3798/Del/2023
Blackline Systems Inc. "1. No t a s tandard facility: Data inputs which are rece ived as part o f Saas are customer specific ( in the case of C ipla as it is take n from ERP, not a standa rd ERP) have been taken by the ass essee company and also the format o f o utput (Reports) are also produced in the format desired by the pa rticula r customers. I t is c lear that it is a customized and o ptimize d service including On Demand Professional"
for C ipla and not a ge neral o ff the shelf facility as is be ing argued by the assessee .
2. Further its seen that from it is not a standardize se rvice and human element is invo lve d as there is substitutio n of biological human by the machine which is equipped to wo rk like a human.
"To quote furthe r from the reply received from Cipla for notice u/s 133(6) as re pro duced below:- "The fee charged by Blackline Sys tem Inc. in re lation to the time spent by Blackline team to check the applic ation settings and the data import format so that they are aligned to the Black line Service s configuration for automated process ing of the data."
3. The fees c har ged by the assessee company is also based upon the time spent by the B lack line team (human element). Thus it is clear that human element is also involve d in the se rvice rendered by the assessee company.
"To quote furthe r from the reply received from Cipla for notice u/s 133(6) as reproduced below:-"Separately, we s ubm it that online training on ho w to use the so ftware is prov ided e ither by Blackline personnel to users or asked to vie w the relevant standard videos available in their website. Briefly it is o perational training on lis t o f available modules in the Black line software and information on purpose o f these module in regular business compliances is pro vided by Blackline team."14 ITA No. 3798/Del/2023
Blackline Systems Inc. "Var iance Analysis refers to the Variance analys is module in the Blackline s ystem where the B lack line team helped C ipla to implement the module integrated with SAP is analyze variances between various financ ial repo rting paramete rs fo r co mpara ble pe rio ds. Their services include d implementation consulting testing and operational training."
4. Pro vis ions o f o nline training by the asse ssee again po ints to invo lvement of human e lement as well as s atisfac tion of Make available c lause.
In v iew of the above discussion, it is established that Hum an Element and Ma ke av ailable assessee co mp any has used it to personnel for providing these services and has provided train ing to the personnel of its c lients (as stated by CIPL A and seen from invo ices of Infosys). Thus m ake available is satisfied in this case. In th is c as e assessee h as also prov ided consultancy serv ices 4.3 It is also cle ar from the natur e of service rendered by the assessee to CIPLA that at every stage there was a personnel from M/s Blackline Systems Inc involved in impart ing the operat ional training and how to use the software, thus p rovid ing the mak e av a ilable of the softw are.
4.4 The nature of services provide d by the assesssee are customized, in dividualized an d d ifferent iated in its services to the customer. The service ren dered includes cap ab ility to mimick ing human ability, and human intelligen ce. Assessee also prov ides ongoing technic al support and on demand professiona l sup port to the vendors. Such services are purely technica l in nature and as per the source rule under Section 5(2), 9(1)(vii) of the Act read w ith Article 12(4) of India USA DTAA partak es the nature FIS/FTS. The vendor has also deducted TD S at the rate 10% under Sect ion 195 on the 15 ITA No. 3798/Del/2023 Blackline Systems Inc. payment of Rs.5,44,28,015 /- in lieu of p ayment for such services as Royalty/FIS. Further, since such tech nical servic es are made available to the ser vice r ec ipient for continuous technica l suppor t and upgr ad ation, such receipts ar e liable to be t axed as FIS per India USA DTAA. Assesse's obje ctions on the above issue are rejected.
16. In view of the above discussio n a nd direc tions u/s 144C(5) issued by the DRP vide its o rde r dated 21.09.2023 received on 22.09.2023, the amount of Rs . 5,44,28,015/- is held to be income from Fee for Included Services and is taxable in India as per provisio ns o f Article-12 o f the India-USA DTAA and as per the provisio ns of section 9 ( 1) (vii) of Income Tax Ac t, 1961 and is adde d back to taxable amount of assessee for the subjec t AY. Further, I am sa tisfied that the assessee has unde r reported his income w hic h is in conse quence of m isrepo rting thereof (as discusse d in the above paragra phs). He nce, penalty proceedings are propose d to be initiated under section 270A o f the Income Tax A ct, 1961."
9. On going through the order of the ld. DRP, we find that the ld. DRP came to a conclusion that the "make available" clause has been satisfied owing to the nature of the ser vices pro vided by the assessee which are customized and differ entiated in its services to different customer s. The ld. DRP held tha t the services rendered includes capability to mimicking human ability and human intelligence. The ld. DRP also held that the pro vision of services of on-go ing technical support and on-demand profe ssional support satisfies the criteria technical suppor t and hence FIS.
10. Aggrieve d, the assessee filed appeal before the Tribunal.
16 ITA No. 3798/Del/2023Blackline Systems Inc.
11. Before us, the ld. AR reiterated the arguments taken before the ld. DRP and the ld. DR supported the directio ns of the ld. DRP both of w hich are part of the order of the ld. DRP mentioned abo ve.
12. Heard the arguments of both the parties and peruse d the material available on record. Similar issue has also been examined in the ca se of SNC Lavalin Inc. in ITA No. 3691/Del/2023 by ITAT Delhi.
13. Article 12(4) of the India-US DTAA defines Fee for Technical Services as:
"For the purposes of this Article , ' fees for Technical services' means payments of a ny kind to any person in co nsideration for the rende ring o f any technical or co nsultancy services (including through the prov isio n of services of technical o r othe r pers onnel) if s uch services
a) are anc illa ry a nd subsidiary to the applicatio n or enjo yment of the right, pro perty or info rmation for which a payment descr ibed in paragraph 3 is received; or
b) make ava ilable technical kno wle dge, experie nce, skill, know-how or processes, or consist of the development and transfe r of a technical plan o r technical design.
14. Further, as per the above definition, FIS means pa yment for technical or consultancy services which additionally s atisfy the conditions specified under clause (b). In view of the conditions as per clause (b), as per the India-US DTAA, FIS means any pa yment for technical or consultancy services which make available technical knowledge, skill, know-how or process.
17 ITA No. 3798/Del/2023Blackline Systems Inc. Meaning of 'make ava ilable'
15. The meaning of the term make available has been explained as per the Memorandum of Understanding of the India-USA DTAA concerning FIS in Article 12 ('MOU'). "Generally speaking, technology w ill be co nsidered "made available" when the person acquiring the ser vice is enabled to apply the technology. T he fact that the provisio n of the service may require technical input by the person providing the service does not per se me an that technical knowledge, skills, etc., are made available to the person purchasing the servic e, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to "make the technology available." The conce pt of 'make available' has been interprete d as transmitting the technical know ledge so that the recipient of service c an derive an enduring bene fit and utilize the technical knowle dge or s kill in future on his own without the aid of the service provider. In other words, to fit into the terminology "make available", the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end.
16. Further, various judicial precedents have also dealt with the issue as to what constitutes make available , especia lly in light of the provisions of the India-USA DTAA a nd the MOU to the India-USA DTAA. As per the judicial precedents, services are s aid to be made available when as a result of provis ion of such services, the recipient of the services is enabled to perform such services in the future on its own without recourse 18 ITA No. 3798/Del/2023 Blackline Systems Inc. to the service provider. Mere provision of technical services shall not suffice for consideratio n for ser vices to qualify as FIS.
17. In this regard, the reliance is being placed on the judgment of the Hon'ble Jurisdictional Delhi High Court in the case of DIT vs. Guy Carpenter & Co. Ltd. (2012) 346 ITR 504 (Delhi) where it has been held as under:
"We find tha t the common thread in al l these tax treaties is the requirement o f ' make available' clause. As le arne d counsel rightl y puts it, its not s imply the rendition o f a technic al service whic h is suffic ient to invo ke the taxability of technic al services unde r the make a va ilable clause. Additionally, there has to be a transfe r of techno logy in the sense that the user o f se rvice should be e nabled to do the s ame thing ne xt time w ithout re course to the service provide r. The serv ices prov ide d by non residents did not involve any transfe r of technology. It is not even the case o f the Assessing Office r t hat the services were such that the recipient of ser vice was enabled to perform these se rv ices on its own without any furthe r recourse to the service provider . It is in this context that we have to examine the scope of expression 'ma ke a vaila ble' ."
18. Basis the above, it can be held that the assessee do not "make available" any technical knowle dge, experience, skill, know -how or processe s to group companies which may e nable them to apply any technology contained therein w ithout recourse to the Appella nt.
19. We have considered as to whether the receipts ca n be considered as royalty as per Ar ticle 12 India-US DTAA has also been examine d.
19 ITA No. 3798/Del/2023Blackline Systems Inc.
20. We find that the facts of the assessee are covered by the decis ion of Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Private Limited vs . CIT (CA Nos. 8733-8734 of 2018), the Hon'ble Supreme Court, after deter mining various clauses of EULA/ Distribution agreement held that payments made by the Appellant to non-re sident vendors shall not be taxable as Royalty under the relevant DTAA, the rele vant extract of decision is as under :
"Gi ven the definition of royalties contained in Article 12 of the DTAAs mentioned in pa ra graph 41 o f this judgment, it is clear that there i s no o bligatio n on the persons mentio ned in sectio n 195 of the Income Tax Act to deduct ta x at source , as the distribution agreements/EULAs in the facts o f these cases do not create any interest or right in such distributors/end-use rs, whic h would amount to the use of or right to use any co pyr ight The pro vis ions contained in the Income Tax Ac t (section 9( 1)(vi), along with explanations 2 and 4 thereof), w hich de al with ro yalty, no t being more be neficial to the appellant ha ve no application in the facts o f these cases.
Our answe r to the ques tio n posed be fore us , is that the amounts paid by resident Indian e nd- users/distributo rs to non- resident computer softwa re manufacture rs/suppliers, as co nsideration for the resale/use of the computer software through EULAs/distribution agreements , is not the payment of ro yalty for the use o f co pyright in the computer so ftware, and that the same does no t give rise to any income ta xable in India, as a result of which the persons referre d to in section 195 o f the Income Tax A ct were not liable to de duct an y TDS under sec tion 195 o f the Income Tax Act."20 ITA No. 3798/Del/2023
Blackline Systems Inc.
21. Reliance is being placed on the following case laws:
CIT vs . Re lx Inc., ITA .630/2023 (Delhi HC) CIT vs . S a lesforce.com S ingapore Pte. Ltd., ITA 144/2023 (Delhi HC) SDFC Ire land Ltd. vs. CIT and Anr., W.P. (C) 14636/2023 (De lhi HC) Mic rosoft Regio nal Sa les Pte. Ltd. vs. D CIT, ITA 1553/ Del/ 2016 Mic rosoft Regio nal Sa les Pte. Ltd. vs. D CIT, ITA 1135/ Del/ 2017 Racks pace , US Inc. vs. DCIT , [2020] 113 taxmann.com 382 (Mumba i) Racks pace , US Inc. vs. DCIT, [ 2021] 124 taxmann.com 92 (Mumba i) Racks pace , US Inc. vs. DCIT , ITA No . 1634/Mum/2016
22. Hence, we hold that the receipt from subscription of cloud base d services is not taxable under Article 12(4)(b) of India-US DTAA.
23. In the re sult, the appeal of the assessee is allowed. Order Pronounced in the Open Court on 26/06/202 4.
Sd/ - Sd/-
(Anubhav Sharma) (Dr. B. R. R. Kumar)
Judicial Member Accountant Member
Dated: 26/06/2024
*Subodh Kumar, Sr. PS*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR