Amplitude Inc. vs ACIT/DCIT

ITA N o. 3528/Del/2023:

“1 . That, on the fact s and circ umstanc es of the cas e and i n law, the Ld. AO has erred i n maki ng additi ons o f Rs. 14,58,50,462 t o the returned i ncome of the appellant, by ignoring t he fac tual matrix of the c ase and nat ure of t he tr ansacti o ns undertak en by the A ppellant, and henc e the assessment order i s vitiated in law.

2.

That, on the facts and circumstances of tire cas e and i n law, the L d. AO has er red in c haracterizing the rec eipts on account of prod uct analytics services as equi pment royalty, taxable both under the provisions of the Ac t as well as under the India-USA D TAA.

2.1

That, on the fact s and circ umstanc es of the cas e and i n law, the L d. AO has egregi ously er red i n holdi ng tha t Explanatio n 5 to s. 9(1)(vi) of the Ac t stood incorporated i n A rticle 12 of the India-USA DTAA.

3.

That, on the fact s and circ umstanc es of the cas e and i n law, the L d. AO has er red in c haracterizing the rec eipts on account of pr oduct analytics s ervices as Fee for Technic al Ser vices(“FTS ”) / F ee for Incl uded S er vices (“FIS”), tax abl e bot h under the provisions of the Act as well as under the India-USA D TAA.

4.

That, without prej udice to the above gr ound(s), on the facts and circumst ances of the case and i n law, the Ld. AO has grossly er red i n applyi ng a hi gher tax rate o f 40% i nst ead of the t ax ra te of 10% pr escribe d under s. 115A the Act fo r taxation of royal ty/ FTS/ FIS.

5.

That, on the fact s and circumstances of the cas e and i n la w, the Ld. AO has erred i n:

a)

incorrectly c omputing and l ev ying surc harge and education cess; and

b)

not granti ng full TDS cr edit of Rs.1,40,59,061 claimed by the Appellant ;

6.

That, on the fact s and circ umstances of the cas e and in law, t he Ld. AO has e rred i n incor rectly levyi ng / computi ng interes t under s. 234A and 234B of the Act;

7.

That, on the fact s and circ umstanc es of the cas e and in la w, recoveri ng the purported refund of Rs.1,37,13,285 without appreciati ng that the same was nev er granted/ pai d to I the Appellant;

8.

That, on the fact s and circ umstanc es of the cas e and in l aw, i n not co mputi ng t he i nter est under s. 244A of the Act;

9.

That, on the fact s and circ umstanc es of the cas e and i n law, t he Ld. AO has erred in denyi ng the exemption of Rs. 14,58,50,462 claimed b y the Appellant under s. 10(50) of t he Act, without ap preciating the fact ual matrix of the case.

9.1

That, without prejudice t o t he above ground(s), the Ld. AO has erred in not granting the credit of equali zati on levy pai d by t he App el l ant i n t erms of the directio ns of the L d. Dispute R esolution Panel .

10.

That on the f acts and circumst ances of the case and i n law, t he Ld. AO has err ed in i nitiati ng pe nal ty proc eedi ngs under s ecti on 270A of the Act.

All the aforesaid grounds are mut ually exclusive and without prejudice to each other.”

ITA N o. 1675/Del/2025:

“1 . That, on the fact s and circ umstanc es of the cas e and i n law, the Ld. AO has erred i n maki ng additi ons o f Rs. 30,24,17,192 t o the returned i ncome of the appellant, by ignoring t he fac tual matrix of the c ase and nat ure of t he tr ansacti o ns undertak en by the A ppellant, and henc e the assessment order i s vitiated in law.

2.

That, the Ld . DR P and t he Ld. AO have ta xed the rec eipts of the appellant i n vi olation of t he j udgem ent of the Ho n’ble S upreme Court of India in Engi neering Analysi s Centre of Excel le nce Pvt. Ltd. vs C IT [2021] 125 taxm ann.c om 42 (SC).

3.

That, on the fact s and circ umstanc es of the cas e and i n law, the L d. AO has er red in c haracterizing the rec eipts on account of product analytics services as equi pment royalty, taxable both under the provisions of the Ac t as well as under the India-USA D TAA.

3.1

That, on the fact s and circ umstanc es of the cas e and i n law. the L d. AO has egregi o usly er red i n holdi ng tha t Explanatio n 5 to s. 9(1)(vi) of the Ac t stood incorporated i n A rticle 12 of the India-USA DTAA.

4.

That, on the fact s and circ umstanc es of the cas e and i n law, the L d. AO has er red in c haracterizing the rec eipts on account of pr oduct analytics s ervices as Fee for Tec hnical Services (“FTS ”)/Fee for Incl uded Services (“FIS”), taxable bot h under the provisions of tire Act as well as under the India-USA D TAA.

5.

That, on the fact s and circ umstanc es of the cas e and i n law, the Ld. AO has erred in denyi ng the exemption of Rs. 30,24,17,192 claimed b y the Appellant under s. 10(50) of t he Act, without ap preciating the fact ual matrix of the case.

6.

That, without prejudice t o t he above ground(s), the Ld. AO has erred in not granting the credit of equali zati on le vy paid by the Appellant.

7.

That, on the fact s and circ umstanc es of the cas e and in law, t he Ld. AO has e rred i n incor rectly levyi ng / computi ng interest under s. 234B of the Act and fur ther incorrectly computing total int erest and fee payabl e as Rs 62,59,260.

8.

That, on the fact s and circ umstanc es of the cas e and in law, t he Ld. AO has erre d i n no t granti ng e nti re TDS cr edi t claimed by t he Appellant.

9.

That, on the fact s and circ umstances of the cas e and in l aw, the Ld. AO has er red wit hdrawi ng i nt er est pay abl e under s. 244A of the Ac t.

All the aforesaid grounds are mut ually exclusive and without prejudice to each other.”

“25.3

F rom th e perusal of the above, it is am ply clear that th e applicant is no t m erely p rov idin g content services to th e customers in I ndia but is also p r ovid ing a whole rang e of “User S ervices ” w hich involve a hig h degree of hu man int erv ent ion. It is also im portan t to not e th at there is no separat e co nsideration for such user servic es to assessee comp any.

25.4

It i s imperative to m ention th at t he applicant had evaded t he q uery raised in questi onnaire dat ed 06.12.2 022 wherei n th e a ssessee was ask ed t o “Exp lain in deta il th e ‘S aaS ’ Model and how the company provid es prod uct an alyt ics services t o In dian C ustom er. S up port your answer wit h documentary proo f.”

26.

In view of t he observat i ons made above, t he cont ention of the app licant that the services prov ided by it are a utom ated and do not involve any huma n intervent i on, is her eb y r ej ected . It is amp ly clear t hat th e servi ces pr ovid ed by the applicant (Con ten t services and Use r serv ic es) are tec hnical in n ature and there is human int erv ent ion i nvol ved in t he rende rin g of these ser vices . In view of the sam e, the consideratio n received for su ch serv ic es is h eld to be FTS / F IS bo th under t he A ct , as well as the India-USA DTAA .”

“28.

It i s imperative to mention t hat the fact th at th e ap plicant has suo moto deposit ed eq u aliz at ion levy at th e rate of 2% on such receipts, cann ot influence th e ap plicati on of th e provision s of t he law that require th e determina tio n to be mad e as t o whether t he amounts are ta xable a s roy alt y / FTS . On ce it is hel d th at the income is ta xable as r oyalty / FTS, such income is no t charg eable to equaliz at ion levy, regardless of any suo moto depo si t of equaliz at ion levy by the app licant. F urt her, sin ce t he equaliz at ion levy is charged und er a separate law, i.e. Finance A ct , 2016, and the law does not p rovid e for an y set-off o f equal ization l evy against t he incom e tax liabil it y of a taxpayer. ”

“4.1

The Panel has gone through th e submission of t h e assessee and t he draft assessment orde r. The AO has tr eat ed the receipt of the assessee as eq uipm ent royalt y which are c overed under secti on 9(1)(vi) read wit h Explanation 5 of the Finance A ct— The A O h as also treated pa rt of the receipt as FTS/FIS a nd demonst rated t hat the y confirm t o t he ‘Mak e A vai lable ’ clau se for treatment o f such receipts as FIS . The receipts wh ich are in t he natur e of equipment royalty and FIS a re not squarely cover ed or b y th e decisi on o f t he Hon ’bl e Su preme C ourt Engin eering A naylsisC entre of Excellen ce P rivate L i mited v. CIT a nd ANR (Civil A ppea l N o. 8733-87 34/201 8). Furt her since th e receipt are i n the nat ure of R oyalty/FIS they are not eligibl e f or equ aliz ati on levy as spec ified u/s 1 0(50) read wit h the rel evant provis ions C hapter VIII of the Finance A ct, 2 016 on this subj ect . Ho wever, the A O is directed to all ow c redi t of such taxes paid a fter ve rificatio n. Th e assessee ’s obj ect ion on the ab ove is d isp osed off as ab ove.”

“1.

The appellan t is a tax res ident o f U SA as per th e pr ovis ion s of India-U SA DTAA. The appellant does n ot have a Perma nent Estab lish ment ('PE') in In dia.

2.

Admittedly, t he ap pellant pr ovid es p roduct analyti cs serv ic es to its cus tomers that help s comp anies to anal yz e th eir custom er beh avior wit hin digit al products, under th e S oftw are-as-a-ser vice (Saa S) m odel on subscriptio n b asis.

3.

Under t he S aaS mod el, t he se rvic e pro vid er hosts software appl icat ions for con su mers to use a s a nd when requi red. The Saa S vend ors wi ll host their S oftware either on t heir own dat a center or wit h any other third-p art y serv ic e provide rs and provide t he service to th e cu st omer on a user-b ased mod el. Th e ul tima te customer would no t have any r ight t o manage or c ont rol the soft war e. T he licen se f or the so ft ware w ould be owned by th e vendo r a nd would not be transfe rred to the end cust om er.

4.

The Ap pellant delivers its own soft ware applicat ion over the interne t as a subscrip tion service to th e customers. Th e customers access A mplit ude's soft ware ap plicati on (host ed on Amazon Web Services CAWS ’) serv er) th rou gh a sub scrip tion -based log-in account and avail the agreed servic es. The A pplicat ion enables businesses t o underst and customer b ehavior by t rack ing an d analyzing user int eracti ons wit h their prod ucts or serv ic es. Such services are com plet ely au tomated and d o not invo lve hu man in terven tion in t he provisi on of such serv ic es.

5.

The S oftware trac ks the behavior of users based on in-product inte ract ions. Event s are a ct ions that users tak e in the p rodu ct , such a click ing a butt on, making a purch ase, o r c reatin g a n a ccou nt. F or examp le, when someone presse s a bu tton in an a pplicat ion, even t pr operties can trac k the details r elated to that event.

6.

The cust omers g et au tom ated repo rts by acce ss to t hé software which h el ps them understa nd their product usage, tr end s and use r beha vior.

7.

The custom er does not own/ con tro l the underlying hardware or t he s oftw are . They can on ly use the soft ware serv ic es thro ugh th e internet. I n ess ence, the case of th e ap pellant is tha t the custom er has n o ph ysical cont rol/ d omin ion/p ossession ove r the equipm ent, and hence th ere is no question of grant of right t o use / u se.

8.

During t he year u nder conside rat i on, the Appellan t earned fees of INR 1 4,58,50,46 2 in relati on t o product an alyt ics servic es u nder S aaS m odel fr om vari ous customers in India. The A ppellant has claimed the said f ees as “ex emp t income’ unde r the b eneficial p rovis ion s of India-U SA D TAA .

9.

However, the Ld . AO, vid e final assessment orde r da ted 30 October 20 23, taxed the ent ire receipts of I NR 14,58,50,462 by cl assifying the same as Equipm ent R oyalt y an d FTS / F IS without rebu tti ng the su bmission o f th e A ppellant that the rec eipt s are not t axable in vi ew of th e decisio n of H on’ bl e S upreme C ourt in the case of Eng inee ring An alysis C entre of Exc el lence Private Limited [202 1/ 125 ta xmann.com 42 (S C ). The applicabi lity of th e said deci sion was n ot discussed at all b y the Id. A O.

K ey di scussions of t he A O as regards equipm ent royalty and make a vailable is as un der:

10. DISCUSSIO N ON ‘EQUIPMENT R O YA L TY’ IN THE ASS ESSMEN T OR DER

“11.

F urther, in rel ation to 'e quip ment’, A rticle 12(3)(a) neither d efines “use of, o r r ight t o use” nor does it explicit ly confine ‘use, o r rig ht t o use, indu st rial , comm ercial o r scient ific equip ment' t o cases where physical po ssessio n or control of th e equipm ent is ob tained. A lso , the t erm ‘use’ is now here limit ed to th e legal con cepts of rent or leas e, which do requir e ob taining th e po wer t o di sp ose ov er an item an d to use it exclusively. This was also the notion ado pted by AAR in i ts rul ing D ish net Wireless Limit ed, AAR no. 86 3 of 201 0 wh ere it wa s seen as suffici en t - in ord er to qu al ify as 'use'- to acc es s a particular s egm ent o f a large r system and t o use the cap acity o f thi s system.

12.

In fact, equipment can be used in man y different ways and behin d every u se of equipment is th e desir e to use its c apacity and fu nct ions. Logically, th e use of equip men t cannot be separated from the use o f it s capacity and functio ns. In some cases, the use o f an it em’s capacity and fu nction will requir e physical po ssession of the item (e.g. in order to use a ca r's tr anspo rtation fu n ction, t he physical possession of t he car is required), but in ot her cases, an item and thus an it em’s capacity an d functions can be u sed withou t physical possessi o n of the item, a s in the case wit h satellit es . Hen ce, t he use of equipment's capacit y a nd functions equals the u se of ‘equipm ent ’.

13.

The word "use" i n relation to equip men t occurr ing in clau se (iv a) of exp lan at ion 2 t o secti on 9(l)(vi) ne eds to b e understo od in a broad sense fo r availin g the benefit o f an equipm ent in the p resen t digital era. The c ont ext an d combined use of the two expressions "use" and " right to u se" follow ed b y th e word equ ipme nt i ndicates that th ere m ust be som e po sitive act of utilisation , app licatio n or employment of equipment for the desired purp os e.

14.

Fu rth er, an int erp ret ation of the term ‘use, o r rig ht to use, o f indu st rial , commercial or scientifi c equipment” as also cover ing pa ym ents for th e use of an equipment’s capacit y and functio ns is consisten t with th e int erp ret ati on of t h e term ‘ use, o r rig ht t o use’ as u sed th roug hout Art icle 1 2(3). A fter all, the physical po ssession an d con trol o f the ot her it ems covered by th e pr ovis ion s such as copyright s, pa tents, tradem ark s, desig ns or models, plans, secret for mula s or pro cesses, is not key to qu alifying paym ents fo r their use as royalt ies. In fact, the concep t of physica l possession and cont rol is alien to many such it ems.

17.

In the p resen t case th e assesse e h as provid ed a dedicated facility / space in the s erver s to the custom ers in Ind ia.

18.

Fu rth er, ther e have been vari ous jud icial pr eced ents w here in t he Courts have held that th at 'righ t to use' is t he right to access the particular s eg ment of a larger system, to use th e capacity of the syst em po wered by the equipm ent s of t he whole syst em. Furth er, the j udgments ha ve provided that t he considerat ion paid for this right to access and the righ t to u se a nd exploit t he system, is royal ty.

19.

Therefore a right t o access and explo it a part of segm ent o f a larg er system t o use the capacity of t h e system and t he considerat ion paid therefor clea rly falls und er C lause (iva) of Expla nat ion 2 to S ection 9(1)(vi) of t he Income Tax Act and hen ce 'royalty '. Ergo , in essen ce the C ourts have u pheld that use of dedicated facility would invariably amount to usage of equipment .

20.

Hence, the rec ei pt s from Pro duct Analytics S ervices by the assessee w ould t antamount for considerat ion f or the use of equip men t - b eing taxab le as royalt y unde r the IT Act as well as th e Tax Trea ty.

21.

Wit hout prej udice to the ab ove argument, reliance is als o pla ced on Explan ation 5 to section 9(1) (vi) of the I T A ct. The F inance Act , 2 012, has included Exp lanation 5 to Sect ion 9(1)(vi) which states th at royalty i ncl udes and has always included considerat ion in respect of any r ight, property o r information, whet h er or n ot:

a. the p ossession or contr ol of such rig h t, prope rty or inform ati on is w it h the p ayer;

b. such rig ht, pr ope rty or inform ati on is used d irect ly by the payer;

c. the locat ion of su ch right , p rop ert y o r inform ati on is in India.

22.

In view of th e ab o ve, the l egislature has mad e it s int ention am ply clear t hat t he cont rol or possess ion is irre levant in case of evaluat i on of the te rm right t o use . Hence, th e r ece ipts o f t he assessee would clearl y fall und er th e ambit of royalty.

23.

Fu rth er, relia nce is pla ced on the Posi tio n stated by Ind ia on A rt icl e 12 of the O EC D Model Con ven tion . It is stat ed in the st at ed Posit io ns to the Mod el Convent ion, that India reserves the right to: ta x royalt ies and fees for techn ical services at source; defin e th ese, parti cularly by reference to its domestic law ; define t he source of such p aym ent s, which ma y extend beyond the sou rce d efined in paragra ph 5 of A rticl e 11 and mod ify pa rag rap hs 3 and 4 accordi ngly. In view o f the above India’s po si tion on the OECD Model has always b een clea r that India does not agree with th e defin ition of royal ty as provided in the OECD Model Convent ion. Therefore, the definitio n o f ‘r oyalt y’ as pr ovid ed in th e A ct cl ear ly d emonstra tes I ndia‘s positi on on ro ya lty an d h as to be read into the t reaty as wel l”.

11. DISCUSSIO N ON MAK E AVA ILABL E' IN TH E ASS ESSMEN T OR DER

"25.3

From the perusal of the above , it is amply clea r th at the app licant is not merely provid ing con ten t serv ic es t o the customers in Indi a but is also provid ing a whole ran ge of “U ser S ervices” w h ich involve a h igh degre e of human interv ention. It is a lso important t o note t hat t here is no separat e cons iderat i on for such user servic es to as sessee.

25.4

It is imperative to m ent ion that the applicant had evaded t he quer y raised in questio nnair e d ated 06.12.2022 w herei n th e assessee w as asked to "Explai n in detail the 'Sa aS' Model and h ow the company provides pr oduct analyti cs servic es to Indian customer. Support your answe r with do cumen tary pro of.”

26.

In view of t he o bservations made above, th e cont ention of t he applican t that t he serv ices provid ed b y it a re au tomated and do not involve an y human int erv ent ion, is he reby reject ed. It i s amply clear that th e servic es pr ovid ed by t he applican t (Conten t services an d User servic es)a re technica l in nature and t here is hum an in terventio n involved in the rend ering of these serv ic es. In view o f t he same, the c on sid erati on received for such services i s held to b e F TS / F IS both under th e A ct, as well as t he Ind ia-U SA D TAA ."

K EY TER MS OF THE A GR EEMEN T WITH C US TOM ER

“1.2.

Ampl itude hereb y g rant s to Customer, fo r the term set for th herein, a non-exclusive, non-sublicen sable, nontransferab le, non -assignable license t o u se th e S oftw are for C ustom er’s inte rna l business purposes only . For p urp oses of this A gr eemen t, “S oftware” sh all include, but not be limited t o any SDK s, A PIs, do cu ment at ion, dashboard s and rep ort fo rmats mad e available by Am plitu de to C ust omer (page 31 of pape r-bo ok).

2.2.

C ustomer will not (anti will not allow an y third pa rty) to di rectl y or ind irectly: revers e engineer, decompile, disass emble or otherwis e att empt to discover th e source cod e, o bj ect code or un derlyi ng structure, ideas or algorithm s of the S oftw are or S ervic e (or an y und erlying softw are, documen tat ion or dat a relat ed t o th e S ervice); m odify, tra nslate, o r creat e deriva tiv e works b ased on the S oft war e o r Service or an y und erlying so ft ware; o r copy (except for archival purposes), rent, lease, distrib ute, pl edge, assign, or ot herwis e transf er or encumber rights to t he So ft ware or S ervice or any u nderlying softw are; use t he Service o r an y underlying software fo r ti mes haring or service bureau purposes o r othe rwis e for t he benefit of a thi rd pa rty; o r rem ove any proprieta ry not ices o r labe ls.

2.1.

A s part of t he re gistratio n process, Cust omer will identify an admini st rat ive user n ame and password for Cu st om er ’s a ccount (the “Account”). Custom er may use the admin ist rative user n ame and password t o crea te standar d users (each wit h a user pa sswo rd) up t o th e ma xim um num ber permitt ed in the Order F orm. A mp litude res erv es the ri ght to refus e r egistrati on of an accoun t to be c reat ed fi rst time, or ca ncel password(s) it deems is not in co mpliance with the nomencla ture specified on the in ter face at t he tim e of regi st rati on o f th e account and/or the password.”

“1.1 - Provis ion o f A mplitu de S ervices

"Amplitud e S ervic es" m eans the software-as- a-se rvic e pr oduct( s) sp ecifie d in the applicable Orde r Fo rm, bu t for c larit y excl udes Third-Party Produ ct s.

3.1 - Admini strat ion of Cu st om er’s A cco unt

A s part of t he registration process, Customer will identify an admin ist rative username and password ("A dm inistrator C redentials") . C ustomer ma y use th e A dm inistrative C redentials to create standard Users (each with their o wn sepa rate usernames and pa sswords) ("U ser( s)" ), in accordance with th e pr ovis ion s of the applicabl e Ord e r Form or S OW. Customer is respo nsible fo r main tain ing the security of th e Administrat or C redenti als a nd the user nam es and pa sswords for all of it s U sers. Cu st om er ma y permit its U sers to use th e Ampl itude Services, provided their use is fo r C ustom er' s ben efit only and th ey rem ain in comp liance with the A greement. C ustomer shall b e resp onsib le f or all acts or omissi on s tak en und er t he A dm inistrator C redentials and those taken under th e usernam es and passwords of all U sers. "U ser" m ean s an indi vidua l Cust omer invit es to use t he Amplitude Services pu rsuant to t he A greement, includi ng emplo yees, c ontract ors, agents a nd consult ants of C ustom er.

15.2 - License Restrictions

Customer wi ll n ot (and will not allow an y User or thi rd pa rty t o) directly or indi rect ly: (a) reverse engineer, decompile, disass emble or otherwis e att empt to discover th e source cod e, o bj ect code or un derly ing structure, ideas o r algo rith ms of th e Amp litude S ervic es (o r an y und erlying softw are, documen tat ion or dat a relat ed t o th e Am plit ude S ervices); (b ) m odify, tran slate, o r cr eat e derivativ e w ork s based on the Am plit ude S ervices or an y und erlying software; (c) copy, r en t, lease, distribute , pledge, a ssig n, or otherwis e t ransfer o r en cu mber rig hts to the A mp litude Services o r an y un derlying so ft ware; (d) u se the Amplit ude Services or an y underly ing software for t he b enefit of a third party, in violat ion o f an y appl icable laws or regu lations or out side the scope expressly permit ted hereunder(in clu ding in vio lation of th e usage restricti ons set forth in th e applicable Orde r Form o r S O W); ( e ) col lect , p roc ess, store or t ransm it an y C ustomer Data in violation of any applicable laws, regula tion s, priva cy policies, agr eem ent s, or othe r ob ligat ions C ust ome r m ay maintain or enter int o with its en d users; (f collect, transmit or p rovid e t o th e A mp litude S ervices hereunder finan cial in formation of an y natur e; med ical information of an y nature, including wit hout lim itat ion biom etric or g enetic data; social securit y numbers; drive r's license numb ers; bi rth dates; pa sswords; person al bank accoun t num bers; passport, go vernment-issued ID or visa numb ers; and credit card num ber s or any other sensit ive personal dat a; (g) at tempt to probe, scan or t est the v ulnerabil it y of t he A mp litude S ervi ces, br each the securit y or au thenticat ion measures of t he A mplit ude S ervices wit hout proper aut horiz ation o r wil lfu ll y render any part of t he A mplitude S ervices un usa ble: (h) use o r access th e Amplitude S ervices to deve lop a product or se rvic e th at is competiti ve with the A mplitude S ervices or en gage in comp eti tive analysis or benchmar king ; (i) incorpo ra te t he Am plitude S ervices in to a prod uct o r serv ic e C ustomer provid es to a third p art y or pub licl y dissem inat e information regarding the p erfo rmance of th e Am plitude Services; ( j) remov e a ny propri etar y notices o r l abel s; or (k) sto re or transmit ma licious cod e th roug h t he Amp litud e S ervices (al l of t he fo reg oing, coll ect ively , t he "L i cense R estri ct i ons").

LEGAL SUBM ISS IO NS

SUBMISSIO NS O N EQ UI PME NT ROYAL TY

“12.

We d eem it ap prop riat e t o addit ionally observe tha t th e right of subscription to a cl oud- b ased soft war e cannot po ssib ly be said to b e eq uiva l ent to the ‘use’ or ‘right to use’ any industrial, commercial or scienti fic equipment.

“14.

S im ilar would be the p osit ion which would obta in bearin g in mind the unam biguous lan guag e in which A rticl e 1 2(4)(b) of t he DTAA is couched . Article 12(4 ) (b) would have b een applicable pr ovid ed the appellant s had been able to esta blish t hat the assessee had p rovid e d technical kno wledge, exp erience, skill, kn owho w o r pr ocess es enabling the su bscriber acquiring t he servic es to app ly t he technology conta ined therein . Th e explan atio n of t he assessee, and which has gone unrefuted even before us, was tha t the customer is merel y acco rd ed access to the applic ation and it is th e subscriber w hich t her eafte r input s the requisit e data a nd ta kes advantage of the an alytical attribu tes of th e software. This wou ld clea rly n ot fal l w ithin the ambi t of A rticl e 12(4)(b ) of th e DTAA ”.

"79.

Art icle 12 (3) defin es 'royalt y1 to m ea n payments received f or the us e or r ight to use copyrighted articles, pa ten ts, t rademarks, design s, mo dels, secret formula e or p roc esses. The latter pa rt of Pa ra 3(a) also ro pes in considerat ion that ma y be recei ved f rom the alienati on of any su ch right , property, o r information. T h e expression —use or —right to use m ust conseq uently b e und erstood in the aforesaid light and thus contemplating a posi tive co nferra l of a r ight t o employ, possess or utiliz e a p atent, trad emark, process or equi pmen t In order to fall withi n th e a mbit o f the royalty A rticle, it would be imperati ve for t he Court di scerning a righ t given to m ak e use of t he paten t, t rademark process o r equipment. The key element w ould be effectiv e control or domini on having been con ferred upon a n ind ividual o r en tit y for consider ati on. U se or r i ght to use would necessarily ent ail t he grant o f a right to exploit o r br ing int o effect ive use. A m ere advant age or ben efit de rived from a s ervice provided cannot possib ly be countenan ced to fall with in t he me aning of the expression's —use or — rig ht to use as they appear in A rticle 12. Wh at we seek to emp hasise is that th e use of a servic e wh ile equipment or p roc ess remains wit h and in t he control o f th e provider canno t attract process o r eq uipment royalt y pr ovis ion s. S imil arly, m erely b ecause an eq uipment or pr ocess com es to be d epl oyed or used in th e course o f pr ovid ing a servic e wou ld n ot att ract A rticle 12. This since no dom inion or cont rol cam e t o be g ranted o r tr ansferred. ” (para 79 of t he jud gem ent at pg 16 8 of case law p aper-bo ok V ol II)

16......we a re of th e view t hat th e agreement be twee n th e assessee and its custom er is for providing host ing an d other ancillary services to the cu stomer and not fo r th e use o f / leasin g of a ny equipm en t. Th e Data Ce ntre an d t he Infrastruc t ure the rein is used to provide th ese serv ic es belon g t o the assessee. The customers do not have physical control or possession over t he servers and rig ht to op erate and m anag e this i nfrastruct ure / serv ers vest so lely wit h t he assessee. T he agreem ents ent ered int o the service lev el agr eem ents. The agreement is t o pr ovid e hosting s er vices simplicit er and is not fo r th e purpose of giving t he underlyi ng equipm ent on higher or lease. Th e custom er is not even a ware of the spe cific location of the s erver in the D ata C en tre wh er e th e customer app lication, web mail, w eb sites et c. In view of th ese facts, w e are of t he v iew th at income from clou d host ing serv ices ha s er rone ously hel d a s ro yalty wit hi n th e m eaning of explanati on (2) to section 9(1)( vi) of th e A ct as well as Art icle 12( 3)(b) o f the Indo -U SA DTAA b y th e A O and DR P . (para 16 of t he jud gem ent at pg 28 6 of case law p aper-bo ok V ol II)

“13 On perusal of t he terms of the a bove Cu st omer A greem ent , Trad em ark Guidelin es and S upport S ervices Gu idelin es , it is cl early eviden t that t he pre req uisites for th e i mpugned receipts to be treated as royalty in come in term s of art icle 12(3) of the India-US A D TAA are not met as th e cu stom er do n ot receive any right to use the copyrigh t or o the r IP involv ed in A WS service; t he customers are gra nted only a non-exclusive and no n-tr ansferabl e licence to access t he s ta ndard aut om ated serv ic es offered by the assesse e w ith out the sou rc e c ode of th e licence being shared with the cust omer; th e customers ha ve no right t o use or co m mercially exp lo it th e IP; there is n o equipm ent o f any nature or at an y ti me placed at th e d isposal of t he custom ers by t h e assessee. F urt her, it is to be n ote d t hat under th e Trademar k Guidel ines cu stomer has been g rant ed a limited , non- exclus ive, revocab le, non - tra nsferabl e righ t to use AWS m ark s only to th e limited ext ent for identificat ion of the custo mer who is using A WS services for th eir c omputing n eed s......”

Explan ation 5 to sectio n 9(1)(v i) o f th e Act would n ot be applicable :

SUBMISSIO NS ON FEE S FOR TECH NIC AL SE RVICE S/

FEE S FOR INC LUDED SE RVICES (FTS/ FIS )

"... Tech nical s erv ices " l ike "Man agerial a nd Consult ancy service " would d enot e seek ing of se rvic es to cater to the sp ecial n eeds of the consumer/user as may b e felt nece ssary and the making of th e sam e available by the service provider. It is th e above f eatur e th at woul d dist inguish/identify a serv ice provided fr om a facility o ffer ed. While the form er is speci al and exclusiv e to the seeke r of t he service, t he latter, even if te rme d as a service, is available to all an d would therefor e stand out in dist inction to the form er. The servic e pr ovid ed by the S tock Exchange for which tr ansacti on char ges are paid fails to sat isfy the afor esaid t est o f specialized, exclusive and indi vidual requ irem ent of t he user or consumer who may approach the service pro vide r for such a ssistance/service. It is only service of t he ab ove k ind that , according to us, should come within th e am bit of the expression "t echnical s ervices" ap pea ring in Explanation 2 of S ection 9(1)(vii) of t he A ct....”

"Furth er, va ri ous j udicia l preced ents have also dealt wit h th e issue as to what constit utes mak e available, especial ly in lig ht of the p rovis ions of the India-USA DTAA an d the MOU to the India-U SA DT AA. As per th e j udicial precedent s, services are s aid to b e mad e available when a s a result o f provisi on of such serv ic es, the reci p ient of t he service s is en abled t o perf orm such servi ces in the future on it s own wit hou t recourse to th e s erv ice p rovide r. M ere p rovis ion of technical servic es sha ll no t suffice for considerati on for s erv ices to qualify as F IS ( Para 16).

B asis the above, it can be held that the assessee d o not “make a vailable ” any technical kn owledge, experience, sk ill, kno w-how or pro cesses to group comp anies which ma y enable them to apply an y technology cont ain ed therein without rec ourse to th e A ppellant ( Para 18)

22.

Hence, we hold that t he receipt from subscript ion of cl oud based services i s not taxab le und er Art icle 1 2(4) (b) o f India-U S D TAA (Para 22) ”.

“47.

We fi nd no merit i n t he content ion that the amo unt rec eiv ed by the A ssessee for providing s ervices would be taxabl e as equipme nt ro yal ty. As not ed before, t he Assessee's c ust omers do not ac quir e any ri ght of using the i nfras truc ture and software of the Ass essee for the pur poses of c ommer cially ex ploitation. The charges paid by the Assess ee's custo mers are for availing se rvic es, whic h the Assessee provides by usi ng its pr opri etary equi pment and other assets. No part of its equipment or IPRs are ali enated by the Ass essee i n favour of i ts cust omers for their us e. T herefore, the pay ments rec eiv ed cannot be consider ed as royalties withi n t he meani ng of Arti cle 12(3 ) of the India US DTAA. This questi on is also s tands c overed by the decisions of this Court in Commissioner of Income-tax (Inter national Taxation) v. Telstra Singap ore Pte. Ltd. [2024] 165 taxmann.com 85 /467 ITR 302 (Del hi), Asia Satelli te Telecommunicati ons Co. Ltd . v. Di rector of Income-tax [2011] 9 taxmann.com 168/197 Taxma n 263/332 ITR 340 (Del hi ) and DIT v. New S kies Satellite BV [2016] 68 taxmann.com 8 /238 Taxma n 577/382 ITR 114 (Delhi). ”