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TMI Blog2022 (8) TMI 1418X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 - 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.the Bench is of considered view that the ld. Tax Authorities below had fallen in error in considering the subscription received towards Cloud Services to be royalty income. Hence respectfully following the precedent from coordinate Bench, we set aside the order of Revenue authorities and decide the issues in favour of the assessee. - SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI YOGESH KUMAR US, JUDICIAL MEMBER For the ASSESSEE : Shri Nageshwar Rao, Advocate For the REVENUE : Ms. Sapna Bhatia, CIT DR ORDER PER SHAMIM YAHYA, ACCOUNTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax Act, 1961 (' Act') or India - USA DT AA. 2.6 Without prejudice to other grounds, Ld. DRP and Ld. AO failed to appreciate that in any case income is not chargeable in appellant's hands under the Act! India-USA DT AA as the same was earned outside of India. 3. Taxability of consideration from cloud services 3.1 That on the facts and in the circumstances of the case and in law, the Ld. DRP and the Ld. AO have erred in holding that the revenue earned by MRS from cloud services amounting to INR 1,3.1,33,29,189 is taxable as Royalty in India in the hands of the Appellant without appreciating that the same is not in the nature of Royalty under the Act or India - USA DTAA. 3.2 Ld. DRP and Ld. AO erred in failing to appreciate that receipt of INR 1,31,33,29,189 is not taxable as 'Royalty' or 'otherwise' in the hands of Appellant, under the Act or India - USA DTAA. Other Grounds 4. That on the facts and in the circumstances of the case and in law, the Ld. AO has grossly erred in not transferring the TDS credit claimed by MRS to MOLC despite the directions of Ld. DRP. 5. That on the facts and in the circumstances of the case and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er :- Issue of taxability of revenue from sale of software 6. On behalf of the assessee in regard to ground no 1 it was submitted that Ld. Tax Authorities have failed to follow the ratio and principles of law in regard to the sale of software products not giving rise to royalty income as held by Hon ble Delhi High Court in DIT vs. Infrasoft Ltd. (2014) 220 Taxman. 273. It was submitted that Hon ble Supreme Court of India in its judgment dated 02.03.2021 in Engineering Analysis Centre of Excellence (P) Ltd. vs. Commissioner of Income Tax (2021) 125 taxmann.com 42 (SC) has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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. 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 subscr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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