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TMI Blog2023 (8) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... of Article 12(5)(b) i.e it is not relevant for development and transfer of a technical plan or technical design. In our considered opinion, make available is for the entire expressions mentioned in Article 12(5)(b) of the India Netherlands Treaty. In the instant case, we find that the assessee had merely granted only access to software and there is no transfer of technology by the assessee. Hence we have no hesitation to hold that the services rendered by the assessee does not fall within the definition of FTS as per the Treaty. In any case, we find that the since assessee had merely granted access to software, it does not fall within the definition of FTS even as per the Act. In this regard, analogy could be drawn from the decision of Kotak Securities Ltd [ 2016 (3) TMI 1026 - SUPREME COURT] wherein it was held that service made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which transaction charges are paid by members of BSE are common services that every member of Stock Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange; such services do not amount to 'technical services' provided by Stoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer of all or any rights in respect of, or the use of or the rights to use underlying copyrights of such software application to the customers. Accordingly, it was pleaded that such software services do not fall within the definition of royalty as per Article 12(4) of India Netherlands DTAA. 3.2. As a part of professional and training services rendered by the assessee, the technical knowledge, knowhow etc is not made available to the customers. Also, the said services are ancillary to royalty. Therefore, such services do not fall within the definition of fees for technical services as per Article 12(5) of India Netherlands Tax Treaty. 3.3. Further, the company does not have a Permanent Establishment (PE) in India. Hence the aforesaid services rendered are not taxable as business profits as per Article 7 of India Netherlands Tax Treaty. Accordingly, income earned by the assessee from aforesaid subscription, professional and training services has not been offered to tax in the revised return of income filed by the company. 3.4. The details of total receipts of Rs 125,11,22,698/- are enclosed in Pages 1 to 6 of the paper book filed before us. Out of this, total rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee. It was clarified that the disputed receipts have no bearing whatsoever on the payments made by the assessee to its AE. 5.1. The entire understanding of the ld. AO in terms of the business model and the nature of services rendered in India is based on information available on the assessee s website which pertains to its activities the world over. The illustrations of Airbus and Weslayen University cited at para 7 on Page Nos. 5 6 of the order of the ld. AO have no link with the impugned receipts as both Airbus and Weslayen University were not Indian clinets to begin with. 5.2. It was submitted that the ld. AO completely misconstrued the nature of services / product developed by the assessee. In this regard, it was clarified that under this model, access to the application is provided to the customer over the assessee s cloud infrastructure. A customer in India can acess said applications via a web browser. In other words, there is no specific need to install and run the software application in a customer s own infrastructure / server. The assessee simply hosts the software application which can be used by the customer when required. The customer can access ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received by the company from its customers in India for provision of such services shall be deemed to arise in Netherlands and thus, should not be taxed in India. 6. The ld. DRP observed that the assessee had stated that since the subscription services were offered from Netherlands, it was not taxable in India even as FTS by virtue of the MFN clause of India Netherlands DTAA read with India Finland DTAA. The assessee is a tax resident of Netherlands but this fact alone does not prove that the cloud infrastructure supporting the software subscription services was hosted in Netherlands. No documentary proof has been submitted by the assessee that the software services were rendered from Netherlands. The ld. DRP further observed that analysis of the agreement between the assessee and its AE namely ServiceNow Software Development Indian Pvt Ltd shows that the latter provides marketing support, sales and customer services, IT support, finance and accounting, human resources, facilities and legal support and other related services. Thus the assessee very much has a ground presence in India. With these observations, the ld. DRP upheld the action of the ld. AO. The ld. AO by following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions set forth below in Section 4.7 (Certain Limitations) , the other terms conditions of this Agreement and the applicable Program Terms, ServiceNow hereby grants to Participant the following licenses and use authorizations with respect to ServiceNow Technology upon Participant s acceptance into any PartnerNow Progam: 4.1. Partner Instances . ServiceNow grants to Participant a limited, non-exclusive right and license to access and use the Partner Instances (if any) provided by ServiceNow , solely to: (a) configure and customize the Partner Instance to develop and test Partner Applications; (b) evaluate the Partner Instances; (c ) train Participant s employees in the use of the Partner Instances; (d) conduct demonstrations for existing and prospective Customers to promote the use of Partner Applications and the Subscription Service; and (e) any other purpose permitted in the applicable Program Terms. ServiceNow may determine the number of Partner Instances that Participant is permitted to access hereunder in ServiceNow s sole discretion, except as provided in an applicable Guide or Program Terms for a Program to which Participant was appointed. 7. INTELLECTUAL PROPERT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is received; or (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. 6 to 9. . 7.1. We find that Article 12(5)(a) above is not applicable in the instant case. Article 12(5)(b) insist on make available clause to fall within the ambit of FTS. In the instant case, the assessee has only access to software. There is no transfer of technology by the assessee. We are unable to persuade ourselves to accept to the argument of the ld. DR in this regard wherein it was argued that services provided by assessee are standard and customized services and that make available clause is not relevant for the second part of Article 12(5)(b) i.e it is not relevant for development and transfer of a technical plan or technical design. In our considered opinion, make available is for the entire expressions mentioned in Article 12(5)(b) of the India Netherlands Treaty. In this regard, it would be relevant to address the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention. 14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word 'make available', the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ally sought for by user or consumer and, therefore, no TDS would be deductible under section 194J on payments made for such services. 8. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the subscription, professional and training services rendered by the assessee does not fall within the definition of FTS both under the Act as well as under the DTAA and accordingly the same cannot be taxed in India. Accordingly, the Grounds 1 to 3 raised by the assessee are allowed. 9. The Ground No. 4 raised by the assessee is only to seek correct TDS credit. This matter requires factual verification and hence the ld. AO is hereby directed to grant TDS credit after due verification in accordance with law. Accordingly, the Ground No.4 raised by the assessee is allowed for statistical purposes. 10. The Ground No. 5 raised by the assessee is challenging the initiation of penalty proceedings u/s 274 read with section 270A of the Act, which would be premature for adjudication at this stage and hence dismissed. 11. In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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