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TMI Blog2024 (9) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... sel, that when no source code was shared with the end users, said end user cannot be said to have been enabled for any enduring benefit. In present case, this test is not satisfied by any stretch as the contract is limited only to grant of access to the software during the subscription period and on the expiry of the subscription period, the access to the software gets terminated and the customer content also stands deleted. Facts the 'make available clause is not satisfied, as erroneously held by the DRP. Decided in favour of assessee. - Shri GS Pannu, Vice President And Shri Anubhav Sharma, Judicial Member For the Assessee : Shri Kamal Sawhney, Advocate, Shri Nishank Vashistha, Advocate Shri Puru Medhira, Adv. For the Revenue : Shri Vizay B. Vasanta, CIT(DR) ORDER PER ANUBHAV SHARMA, JM The assessee has come up in appeal against the order dated 20.05.2022 passed by the Assistant Commissioner of Income-tax, Circle 2(2)(1), International Taxation, New Delhi u/s 143(3) read with section 144C(13) of the Income-tax Act, 1961 (hereinafter referred to as the Act ) pertaining to the assessment year 2018-19. 2. The relevant facts as can be picked from the impugned orders and submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Copyrights Act, 1957 ('ICA') and therefore cannot be characterized as royalty payment. Further that since the payment made by the end users did not involve payment for grant of any right specified under the ICA, payments made by the end users does not qualify as royalty under DTAA 3. The AO considered the plea of assesses and found not tenable holding that Hon'ble Supreme Court judgment in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra) is not applicable in this case as facts of assessee and one relied upon are different. AO observed that the said ruling covered the following categories of software payments; Sales of software directly to an end-user by a non-resident Sales of software by a non-resident to Indian distributors for resale to customers in India Sales of software by a non-resident to a foreign distributor for resale to customers in India Software bundled with hardware and sold by foreign suppliers to Indian distributors or end-users 3.1 AO concluded that from the perusal of the submission and information available in open domain, the Assessee Company provides access to customers in India to certain software applications in its websi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it was observed that the agreement clearly restricts the use of services to the customer only. Hence, contention of the assessee that it cannot be taxed as royalty has merit and the AO is directed not to treat the income as royalty. This is in accordance with the Hon'ble Apex Court ruling in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra). 5.1 However, DRP held that given the nature of services being highly technical, these falls clearly under the definition of FTS/FIS given in the Act as well as India-US DTAA. Reliance was placed on the definition of fees for technical services given in explanation 2 under section 9(1)(vii) of the Act and Article 12(4) of India-USA DTAA, where fees for included services is defined. 6. The assessee is in appeal raising following grounds; On the facts and in the circumstances of the case and in law, the learned Assistant Commissioner of Income Tax, Circle 2(2)(1) (International tax), New Delhi ('Ld. AO') has erred in passing the final assessment order dated May 20, 2022 (received on 29.06.2022) under section 143(3) read with section 144C of the Income-tax Act, 1961 ('the Act') and the Ld. Dispute Resolut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e examine the Business model, which is also considered by the AO, on the basis of portal of assessee company it comes up that the assessee is a business analytics service company. It tracks user interactions with web and mobile applications and provides tools for targeted-communication with them. Data collected is used to build custom reports and measure user engagement arid retention. It lets customers track thousands of intricate events and properties. This allows customers to run sophisticated queries and unearth powerful product insights in seconds. Mixpanel is a tool that allows customers to analyze how users interact with their Internet-connected product. It is designed to make teams more efficient by allowing everyone to analyze user data in real time to identity trends, understand user behavior, and make decisions about your product. 9. The primary basis of DRP classifying the income as FIS is as follows: i. That nature of services being highly technical, these falls clearly under the definition of FTS/FIS ii. That knowledge imparted through application become knowledge base for future use 10. Now the relevant Article 12(4)(b) of the India-USA DTAA reads as follows: 4. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lysis. We consider the same to be quite relevant and reproduce the same below, as this example 7 reads as follows: Facts: The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol free oil and wishes to market this product worldwide. It hires an American marketing consultancy firm to do computer simulation of the world market for such oil and to advise it on marketing strategies. Are the fees paid to the US company for included services? Analysis: The fees would not be for included services. The American company is providing a consultancy which involves the use of substantial technical skill and expertise. It is not, however, making available to the Indian company any technical experience, knowledge or skill, etc., nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the performer of the service in order to perform the commercial information does not make the service a technical service within meanings of para (4)(b). 15. Clearly, commercial information/output from a technical application does not constit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the end users, said end user cannot be said to have been enabled for any enduring benefit. In present case, this test is not satisfied by any stretch as the contract is limited only to grant of access to the software during the subscription period and on the expiry of the subscription period, the access to the software gets terminated and the customer content also stands deleted. 19. The concept of make available as applicable to FTS, is now quite crystilised and we rely upon the findings of Hon ble Karnataka High Court in the case of De Beers India Minerals (p.) Ltd. ITA 549 to 551 of 2007, where in the facts were quite similar as in that case the assessees entered into an agreement with M/s Fugro Elbocon B. V. Netherlands (hereinafter referred to as 'Fugro'). Fugro had a team of experts who are specialized in performing air borne geophysical services for clients, process the data acquired during the survey and provide necessary reports. The services are engaged to conduct the air borne survey for providing high quality, high resolution, geophysical data suitable for selecting probable kimberlite targets. For the technical services rendered by them the assessees had p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or processing of data to the assessees, which the assessee can apply independently and without assistance and undertake such survey independently excluding Fugro in future. The Fugro has not made available the aforesaid technology with the aid of which they were able to collect the data, which was passed on to the assessees as a technical service. In other words, Fugro has rendered technical service to the assessees. They have not made available the technical knowledge with which they rendered technical service. There is no transmission of technical knowledge, expertise, skill, etc., from Fugro along with technical services rendered by them. The assessees are completely kept in dark about the process and the technologies which the Fugro adopted in arriving at the information/data which is passed on to the assessees as technical service. The assessee is unable to make use of the said technical knowledge by itself in its business or for its own benefit without recourse to Fugro. In fact, the question whether along with rendering technical services, whether the technical knowledge with which that services was rendered was also made available to the assessees/customers is purely a que ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged the services of Fugro which is expert in the field. By way of technical services Fugro delivered to the axsexsees the data and information after such operations. The said data is certainly made use of by the assessees. Not only the said data and information was furnished in the digital form, it is also provided to the assessees in the form of maps and photographs. These maps and photographs which were made available to the assessees cannot be construed as Technology made available. Fugro has not devised any technical plan or technical design. Therefore the question of Fugro transferring any technical plan or technical design did not arise in the facts of these cases. The maps which are delivered are not of kind of any developmental activity. As such, earlier the information which is furnished to the assessees by way of technical services in the digital form is also given in the form of maps. Therefore the case on hand do not fail in the second part of the aforesaid clause dealing with development and transfer of plans and designs. Therefore the second substantial question of law is also answered in favour of the assessees and against the Revenue. 20. Reliance is also placed ..... 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