Indian Kanoon - Search engine for Indian Law

9.3 Therefore, in view of the judicial pronouncements in the context of facts of the case, the payment cannot be held to be Royalty. Accordingly, the disallowance made by AO is erroneous u/s 40(i)(a) of the Act. Therefore, the grounds are allowed."

20. The impugned issue is covered in favour of the assesee in umpteen number of cases. In MOL Corporation's case (supra), the Delhi Tribunal held as under:-

"8 It was submitted for the assessee that Ld. Tax Authorities below have failed to appreciate the functional aspects of Cloud base service while holding the subscription to cloud base service as royalty. In this context, the co-ordinate bench judgment, in which one of the members of this bench was also a member, in M/s. Salesforce.com Singapore Pte. Vs. Dy. D.I.T. Circle-2(2) ITA No. 4915/DEL/2016 [A.Y 2010-11] with six other connected was relied to contend that subscription to the cloud computing services do not give rise royalty income. He also relied the Mumbai Bench judgement in the cases of Rackspace , Us Inc., Usa vs Dcit (It) - 4(1)(1) ITA no 1634//mum/2016, I.T. A Nos.6195 & 4920/Mum/2018 and 5250 (MUM)of 2019 for the same proposition. A The Ld DR supported the findings of Tax authorities below.

8.1 Giving thoughtful consideration to the matter on record, the bench is of considered view that the cloud base services do not involve any transfer of rights to the customers in any process. The grant of right to install and use the software included with the subscription does not include providing any copy of the said software to the customer. The assessee's cloud base services are though based on patents / copyright but the subscriber does not get any right of reproduction. The services are provided online via data centre located outside India. The Cloud services merely facilitate the flow of user data from the front end users through internet to the provider's system and back. The ld. AO has fallen in error in interpreting it as licensing of the right to use the above Cloud Computing Infrastructure and Software (para 10.5 of the Ld. AO order). Thus the subscription fee is not royalty but merely a consideration for online access of the cloud computing services for process and storage of data or run the applications.

8.2 While dealing with similar question in regard to the case of M/s. Salesforce.com Singapore Pte. (supra) where the said assessee was provider of comprehensive customer relationship management servicing to its customer by using Cloud Computing Services / Web Casting Services, the Bench in its order dated 25.03.2022 held as under :

"28. Considering the facts of the case in totality, in light of the Master Subscription Agreement, we are of the considered view that 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.