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TMI Blog2022 (12) TMI 864X X X X Extracts X X X X X X X X Extracts X X X X ..... uded 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. While dealing with similar question in regard to the case of M/s. Salesforce.com Singapore Pte. [ 2022 (4) TMI 327 - ITAT DELHI ] where the said assessee was provider of comprehensive customer relationship management servicing to its customer by using Cloud Computing Services / Web Casting Services held that all the equipments and machines relating to the service provided by the assessee are under its cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration (MOLC) was also wholly owned subsidiary of MS Corp. in which Gracemac Corporation was merged on 02.10.2006 in pursuance of which rights which earlier belonged to Gracemac were assigned in favour of MOLC. Microsoft operations Pte. Ltd. ( MO ) was a company incorporated under the laws of Singapore and was a wholly owned subsidiary of MS Corp. MOLC has granted Microsoft Operations Ltd. Singapore the non exclusive right to manufacture MS Retail Software Products in Singapore and distribute such products in Asia (with restrictions in China, Korea and Taiwan), Japan, South East Asia and South Pacific as per the distribution agreement. This corporation MO further entered into a non-exclusive distribution agreement with the assessee M/s. Microsoft Regional Sales Corporation to distribute MS Retail Software Products in a jurisdiction to which MO was allowed. 2.1 Assessee had filed a return of income declaring Nil income on 31.10.2017 claiming TDS of Rs. 9,28,94,483/- and a revised return declaring the same Nil income claiming TDS of Rs. 9,74,72,239/- was filed on 29.03.2019. 2.2 The case was selected for scrutiny. Following previous years assessments, the consideration receive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue from sale of software is taxable as royalty in India, which is contrary to the Supreme Court decision in the case of Engineering Analysis Centre of Excellence Private Limited vs. CIT (Civil Appeal 8733-8734 of 2018). 2.5 That on the facts and in the circumstances of the case and in law, Ld. DRP and Ld. AO erred in failing to appreciate that MRS is merely a distributor of software and income from sale of software cannot be taxed as royalty in the hands of distributor. 2.6 Ld. DRP and Ld. AO erred in failing to appreciate that receipt of INR 44,17,46,478 is not taxable as Royalty or otherwise in the hands of Appellant, under the Income-tax Act, 1961 ( Act ) or India-USA DTAA. 3. Taxability of consideration from cloud services 3.1 That in the facts and in circumstances of the case and in law, Ld. DR.P and the Ld. AO have erred in not holding that receipt of INR 131,33,29,189 earned by MRS from cloud services is not taxable as Royalty in India both under Act and/ or India - USA DTAA. 3.2 That on the facts and in the circumstances of the case and in law, Ld. DRP and Ld. AO erred in failing to appreciate that MRS is merely a distributor of clo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the Hon ble Delhi High Court judgment. It was submitted that in the case of Gracemac Corporation which stands amalgamated with MOL Corporation for the assessment year 2005-06, 2006-07 and 2007-08 the Co-ordinate Bench B at Delhi by order dated 16.12.2020 has allowed the appeals which have been further upheld by Hon ble Delhi High Court by judgment dated 07.03.2022. The Ld DR supported the findings of Tax authorities below. 6.1 Giving thoughtful consideration to the matter on record, the Bench is of considered opinion that the revenue has been following a persistent approach in regard to assessee and its sister assessee subsidiaries of MS Corp holding sale of MS Retail Software Products to Indian Distributors as royalty under the Act as well as under DTAA between India and US. The assessment in the hands of present assessee was made on protective basis while the substantive assessment was in the hands of MOLC. The assessment in the hands of Gracemac which stands amalgamated with MOLC stands set aside in regard to assessment years 2005-06, 2006-07 and 2007-08 by the co-ordinate Bench s judgment dated 16.11.2020 which have been further upheld by Hon ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 7.2 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. 29. In our considered opinion, all the equipments and machines relating to the service provided by the assessee are under its control and are outside Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X
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