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2024 (7) TMI 31 - AT - Income TaxIssues Involved: 1. Whether the assessee satisfies the "make available" clause as per the India-US DTAA. 2. Nature and taxability of the services provided by the assessee under the SaaS model. 3. Determination of whether the receipts can be considered as royalty under Article 12 of the India-US DTAA. Issue-wise Detailed Analysis: 1. "Make Available" Clause as per India-US DTAA: The primary issue for adjudication is whether the services provided by the assessee satisfy the "make available" clause under the India-US DTAA. The assessee provides cloud-based services under a SaaS model, including implementation services and user training. The Assessing Officer (AO) held that the "make available" clause was met, as the services provided were automated and involved minimal human intervention, except during implementation and training. The AO issued a draft order based on this premise. The Dispute Resolution Panel (DRP) upheld the AO's view, concluding that the services rendered by the assessee were customized and involved human intelligence, thus satisfying the "make available" clause. The DRP noted that the services included ongoing technical support and on-demand professional support, which are technical in nature and qualify as Fees for Included Services (FIS) under Article 12(4) of the India-US DTAA. 2. Nature and Taxability of Services Provided: The assessee provides cloud-based services that automate finance and accounting requirements. These services are completely automated, with no human intervention in their provision. The implementation services are used to onboard new customers and set up the cloud-based services, while user training is provided to help end-users access the services. The AO sent notices under Section 133(6) to several companies, including Cipla Ltd., which confirmed that the services provided by the assessee were cloud-based and helped automate finance and accounting reports. The AO concluded that the services were not a standard facility and involved human elements, thus meeting the "make available" clause. The DRP also noted that the services were customized and involved human intelligence, further supporting the AO's conclusion. The DRP held that the services provided by the assessee included technical support and upgradation, making them taxable as FIS under the India-US DTAA. 3. Consideration of Receipts as Royalty: The Tribunal examined whether the receipts from the cloud-based services could be considered as royalty under Article 12 of the India-US DTAA. The Tribunal referred to the definition of "fees for technical services" and the meaning of "make available" as per the Memorandum of Understanding (MOU) of the India-US DTAA. The Tribunal noted that for services to qualify as FIS, they must enable the recipient to perform the services independently in the future without recourse to the service provider. The Tribunal relied on the judgment of the Hon'ble Delhi High Court in DIT vs. Guy Carpenter & Co. Ltd., which held that the mere provision of technical services does not suffice for them to qualify as FIS. The services must transfer technology, enabling the recipient to perform the services independently. The Tribunal also referred to the Hon'ble Supreme Court's decision in Engineering Analysis Centre of Excellence Private Limited vs. CIT, which held that payments made to non-resident vendors for software subscriptions do not constitute royalty under the relevant DTAA. The Tribunal concluded that the receipts from the cloud-based services provided by the assessee do not qualify as royalty under Article 12 of the India-US DTAA. Conclusion: The Tribunal held that the receipts from the subscription of cloud-based services are not taxable under Article 12(4)(b) of the India-US DTAA. The appeal of the assessee was allowed, and the addition made by the AO was deleted. The Tribunal emphasized that the services provided by the assessee did not "make available" any technical knowledge, experience, skill, know-how, or processes to the recipients, enabling them to perform the services independently in the future.
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