AI Structured Summary
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Judgment
Per Renu Jauhri, Accountant Member:
These three appeals by the assessee are directed against the separate Final Assessment Orders dated 30.01.2023, 29.09.2023 and 26.12.2024 passed by the Income Tax, Circle Int Tax 1(2)(1), (hereinafter referred to as the ‘ld. AO’) under Section 143(3) read with Section 144C(13), of the Income-tax Act, 1961 (“the Act”), pursuant to the directions of the Hon'ble Dispute Resolution Panel-1, New Delhi (DRP) order dated 20.12.2022, 22.08.2023 and19.11.2024 for the Assessment Year 2020-21, 2021-22 and 2022-23 respectively. Since common issues are involved in these two appeals, the same are being disposed off by way of this common order for the sake of convenience and brevity.
Grounds of appeal filed by the Assessee (ITA- 917/Del/2023) for A.Y. 2020-21 are reproduced as under:
“1.That the Assessing Officer ("AO") erred on facts and in law in computing the income of the Appellant for the relevant Assessment Year ("AY") at Rs. 27,85,51,009/-as against income of Rs. 2,08,64,650/- returned by the Appellant.
2.That on the facts and in the circumstances of the case and in law, the directions issued by the Dispute Resolution Panel ("DRP") and the final assessment order passed by the AO are void-ab-initio having been issued beyond statutory limitation prescribed under Section 153 of the Income tax Act, 1961 (the "Act").
Re: Receipt of Rs. 24,95,71,598/- from supply of software subscription and services to be taxable as Royalty income and/or Fees for Technical/Included Services ("FTS/FIS") under Article 12 of the India-US Double Taxation Avoidance Agreement ("DTAA")
3.That on the facts and circumstances of the case, the AO and the DRP has erred in treating the receipts from the supply of software subscription and services to the customers in India amounting to Rs. 24,95,71,598/- as income in the nature of FTS/FIS without appreciating that the Appellant did not make available any skill, know-how, knowledge, etc. to the customers.
4.That on the facts and circumstances of the case, the AO and DRP have erred in misinterpreting the Enterprise Subscription Master Agreement ('ESMA') by holding that the Appellant is primarily engaged in the business of providing consulting, training and software support and maintenance services and the software subscription are supplied incidentally only on need basis of the customer without appreciating that the Appellant is engaged in providing a wide range of products and services and primarily engaged in the business of supply of software subscription
5.That on the facts and circumstances of the case, the Ld. AO and the DRP erred in holding that the Appellant provides a comprehensive range of products and services as a package during the subscription period taken by the customer without appreciating that the Appellant provides a range of products and services, which the customer selects based on their choices and needs and that products and services chosen by the customers are not bundled as a package.
6.That on the facts and circumstances of the case, the AO and the DRP have erred in not appreciating that the Appellant primarily generates revenue from customers by selling software subscriptions which include related online subscription support services required for implementation application/use of the software.
7.That on the facts and circumstances of the case, the AO and the DRP has failed to appreciate that vide the sale of software subscription services by the Appellant, it does not result in developing any technical plans or designs, nor result in transfer of any knowledge or technical know-how or skill to the customers/ end-users. The customers cannot use the services to further supply any consulting, training or support services to any external or third party/person.
8.That on the facts and circumstances of the case, the AO and the DRP has erred in holding that receipts from the supply of software subscription to the customers in India are alternatively in the nature of royalty income under the Act and the DTAA without appreciating fact that software subscription provided by the Appellant is the use of a copyrighted article. and not use of copyright right of the software. the
9.That on the facts and circumstances of the case, the AO and the DRP has failed to appreciate that the Appellant provides a non-exclusive, non-transferable and a limited access software subscription to customers in India. for the duration of the applicable subscription period, and the ownership and reservation of all rights, title, and interest in and to the software subscription (including online subscription support services) supplied by the Appellant always remained owned and retained with the Appellant.
10.That on the facts and circumstances of the case, the AO and the DRP has failed to appreciate that the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (Civil Appeal Nos. 8733-8734 of 2018) applies in all fours in the facts of the instant and any deviation from the decision constitutes judicial indiscipline, bordering on contempt of court.
11.That on the facts and circumstances of the case, the AO and the DRP has failed to appreciate that the online subscription support services rendered by the Appellant in relation the software subscription purchased by customers are essentially linked to the supply of software subscription and not for parting with the copyright of the software and therefore, receipts from the same cannot be taxed as royalty.
Re: Receipts from Datametica Solutions Pvt. Ltd. amounting to Rs. 81,14,761/- taxable as Royalty income and/or Fees for Technical/ Included Services ("FTS/FIS") under Article 12 of the India-US DTAA
12.That on the facts and circumstances of the case, the AO and the DRP erred in holding that the receipts from Datametica Solutions Pvt. Ltd. amounting to Rs. 81,14,761/-during AY 2020-21 is taxable as income in the nature of royalty and/or FTS/FIS.
13.That on the facts and circumstances of the case, the AO and the DRP has failed to appreciate that consideration received from Datametica Solutions Pvt. Ltd. is towards supply of software subscription and, therefore, neither in nature of royalty nor FIS in terms of Article 12 of the India-USA DTAA, hence, not taxable in India in the hands of the Appellant.”
Grounds of appeal filed by the Assessee (ITA- 3387/Del/2023) for A.Y. 2021-22 are reproduced as under:
“1.That the Assessing Officer ("AO") erred on facts and in law in computing the income of the Appellant for the relevant Assessment Year ("AY") at Rs. 59,15,19,050/- as against returned income of Rs. 23,69,356/- -.
2.That on the facts and in the circumstances of the case and in law, the directions issued by the Dispute Resolution Panel ("DRP") and the final assessment order passed by the AO are void-ab-initio having been issued beyond statutory limitation prescribed under Section 153 of the Income tax Act, 1961 (the "Act").
3.Without prejudice, the directions dated 22.08.2023 issued by the DRP are void-ab-initio and bad in law for the reason that the said directions mention two manual Document Identification Number ("DIN"), neither of which can be authenticated on the income tax website a and, therefore, the consequential final assessment order is also void ab initio.
Re: Receipt of Rs. 57,26,99,675/- from supply of software subscription and Rs1,64,50,020 from professional services to be taxable as Royalty income and/or Fees for Technical/Included Services (“FTS/FIS") under Article 12 of the India US Double Taxation Avoidance Agreement ("DTAА")
4.That on the facts and circumstances of the case, the AO and the DRP have erred in treating the receipts from the supply of software subscription and professional services to the customers in India amounting to Rs. 58,91,49,695/- as income in the nature of FTS/FIS without appreciating that the Appellant did not make available any skill, know-how, knowledge, etc. to the customers as per Article 12 of India -USA DТАА.
5.That on the facts and circumstances of the case, the AO and DRP have erred in misinterpreting the Enterprise Subscription Master Agreement ('ESMA') by holding that the Appellant is primarily engaged in the business of providing consulting, training and software support and maintenance services and the software subscription are supplied incidentally only on need basis of the customer without appreciating that the Appellant is primarily engaged in the business of supply of software subscription
6.The learned AO and Hon'ble DRP ought to have considered that the support services in relation to the software subscription is only ancillary to the main contract of software subscription and the taxability of same is to be analysed on the basis of the principal purpose, which is supply of software subscription.
7.That on the facts and circumstances of the case, the Ld. AO and the DRP erred in holding that the Appellant provides a comprehensive range of products and services as a package during the subscription period taken by the customer without appreciating that the Appellant provides a range of products and services, which the customer selects based on their choices and needs and that products and services chosen by the customers are not bundled as a package.
8.That on the facts and circumstances of the case, the AO and the DRP have erred in not appreciating that the Appellant primarily generates revenue from customers by selling software subscriptions which include the related online subscription support services required for implementation and application/use of the software.
9.The learned AO and Hon'ble in DRP erred in disregarding the fact that professional services are highly specialised in nature and the same cannot be transferred or passed on to the end-user/ customer for an independent use and hence does not make available any skill, know-how, knowledge, etc.
10.That on the facts and circumstances of the case, the AO and the DRP have failed to appreciate that the sale of software subscription support services by the Appellant, does not result in developing any technical plans or designs, nor result in transfer of any knowledge or technical know-how or skill to the customers/ end-users, hence does not get characterised as FTS.
11.The learned AO and DRP erred in disregarding the fact that the use of software subscription support services during the duration of the applicable subscription period is solely and only for the customer's/ end-users own business purposes and not meant for any public or external use
12.That on the facts and circumstances of the case, the AO and the DRP has erred in holding that receipts from the supply of software subscription to the customers in India are alternatively in the nature of royalty income under the Act and the DTAA without appreciating the fact that software subscription provided by the Appellant is the use of a copyrighted article, and not use of copyright right of the software.
13.That on the facts and circumstances of the case, the AO has erred in treating the receipts from the supply of software subscription and services to the customers in India amounting to Rs. 58,91,49,694/- as income in the nature of FTS and royalty both without appreciating that royalty and FTS are mutually exclusive and same payment cannot be characterised both as royalty and FTS.
14.That on the facts and circumstances of the case, the AO and the DRP have failed to appreciate that the Appellant provides a non-exclusive, nontransferable and a limited access software subscription to customers in India, for the duration of the applicable subscription period, and the ownership and reservation of all rights, title, and interest in - the software subscription (including online subscription support services) supplied by the Appellant always remained with the Appellant.
15.That on the facts and circumstances of the case, the AO and the DRP have failed to appreciate that the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (Civil Appeal Nos. 8733-8734 of 2018) applies on all fours in the facts of the instant case of the Appellant and any deviation from the decision constitutes judicial indiscipline, bordering on contempt of court.
16.That on the facts and circumstances of the case, the AO and the DRP have failed to appreciate that the online subscription support services rendered by the Appellant in relation to the software subscription purchased by customers are essentially linked to the supply of software subscription and not for parting with the copyright of the software and therefore, receipts from the same cannot be taxed as royalty.
17.That on the facts and circumstances of the case, without prejudice, the АO and the DRP have failed to appreciate that Appellant has paid Equalization Levy on the receipts amounting to Rs. 50,13,82,837/- and hence, the said receipts are exempt under Section 10(50) of the Act.”
Grounds of appeal filed by the Assessee (ITA- 1185/Del/2025) for A.Y. 2022-23 are reproduced as under:
“1.That the Assessing Officer ('AO') erred on facts and in law in computing the income of the Appellant for the relevant AY at Rs. 60,75,88,684/- as against the returned income of Rs. 1,07,53,306/-
2.That on the facts and in the circumstances of the case and in law, the directions issued by the Dispute Resolution Panel ('DRP') and the final assessment order passed by the AO are void-ab-initio having been issued beyond statutory limitation prescribed under Section 153 of the Income-tax Act, 1961 ('the Act').
Re: Receipt of Rs. 56,62,94,044/- from supply of software subscription and Rs. 3,05,41,334/- from professional services to be taxable as Royalty income and/or Fees for Technical Services/Included Services ("FTS/FIS") under Article 12 of the India-USA Double Taxation Avoidance Agreement ("DTAA").
3.That on the facts and in the circumstances of the case and in law, the AO and the DRP have erred in treating the receipts from the supply of the software subscription and professional services to the customers in India amounting to Rs. 59,68,35,379/- as income in the nature of fees for included services ("FIS") without appreciating that the Appellant did not make available any skill, know-how, knowledge, etc. to the customers as per Article 12 of the India-USA DTAA.
4.That on the facts and in the circumstances of the case and in law, the AO and the DRP have erred in misinterpreting the Enterprise Subscription Master Agreement ('ESMA') by holding that the Appellant is primarily engaged in the business of providing consulting, training and software support and maintenance services and the software subscription are supplied incidentally only on need basis of the customer without appreciating that the Appellant is primarily engaged in the business of supply of software subscription as its main source of Revenue in India and support services are inextricably linked to the software subscription.
5.That on the facts and in the circumstances of the case and in law, the AO and the DRP ought to have considered that the support services in relation to the software subscription is only ancillary to the main contract of software subscription and the taxability of same is to be analysed on the basis of the principal purpose, which is supply of software subscription.
6.That on the facts and in the circumstances of the case and in law, the AO and the DRP erred in holding that the Appellant provides a comprehensive range of products and services as a package during the subscription period taken by the customer without appreciating that the Appellant provides a range of products and services, which the customer selects based on their choices and needs and that products and services chosen by customers are not bundled as a package.
7.That on the facts and in the circumstances of the case and in law, the AO and the DRP have erred in not appreciating that the Appellant primarily generates revenue from customers by selling software subscriptions which include the related online subscription support services required for implementation and application/use of the software and no knowledge is transferred to customers in order for them to independently apply those services in future or being replicated/duplicated by them.
8.That on the facts and in the circumstances of the case and in law, the AO and the DRP erred in disregarding the facts that professional services are highly specialised in nature and the same cannot be transferred or passed on to the end-user/customer for an independent use and hence does not make available any skill, know-how, knowledge, etc.
9.That on the facts and in the circumstances of the case and in law, the AO and the DRP have failed to appreciate that the sale of software subscription support services by the Appellant, does not result in developing any technical plans or designs, nor result in transfer of any knowledge or technical know-how or skill to the customers/end-users, hence does not get characterised as FIS.
10.That on the facts and in the circumstances of the case and in law, the AO and the DRP erred in disregarding the facts that the use of software subscription support services during the duration of the applicable subscription period is solely and only for the customer's/end-users own business purposes and not meant for any public or external use.
11.That on the facts and in the circumstances of the case and in law, the AO and the DRP has erred in holding that receipts from the supply of software subscription to the customers in India are alternatively in the nature of royalty income under the Act and the India-USA DTAA without appreciating the facts that software subscription provided by the Appellant is for the use of a copyrighted article, and not use of copyright right of the software.
12.That on the facts and in the circumstances of the case and in law, the AO has erred in treating the receipts from the supply of software subscription and professional services to the customers in India amounting to Rs. 59,68,35,379 as income in the nature of FIS and royalty both without appreciating that royalty and FIS are mutually exclusive and same payment cannot be characterised both as royalty and FIS.
13.That on the facts and in the circumstances of the case and in law, the AO and the DRP have failed to appreciate that the Appellant provides a non-exclusive, non-transferable and a limited access software subscription to customers in India, for the duration of the applicable subscription period, and the ownership and reservation of all rights, title, and interest in the software subscription always remained with the Appellant.
14.That on the facts and in the circumstances of the case and in law, the AO and the DRP have failed to appreciate that the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (Civil Appeal Nos. 8733-8734 of 2018) applies to the facts of the instant case, wherein it was held that the payments made from resident Indian end users/distributors to Non-resident suppliers of software, does not result in any sale of copyright rather is a sale of copyrighted article which is construed as sale of goods and hence, not liable to be taxed in India, and any deviation from the decision constitutes judicial indiscipline, bordering on contempt of court.
15.That on the facts and in the circumstances of the case and in law, the AO and the DRP have failed to appreciate that the subscription support services rendered by the Appellant in relation to the software subscription purchased by customers are essentially linked to the supply of software subscription and not for parting with the copyright of the software and therefore, receipts from the same cannot be taxed as royalty.
16.That on the facts and in the circumstances of the case and in law, without prejudice, the AO and the DRP have failed to appreciate that the Appellant has paid Equalization Levy on the receipts amounting to Rs. 59,68,35,378/-and hence, the said receipts are exempt under Section 10(50) of the Act.
17.Without prejudice, the AO and the DRP having held that the supply of software subscription and professional services are in the nature of FIS/royalty, and not subject to Equalization Levy under Section 163 read with Section 165A of the Finance Act, 2016 (as amended by Finance Act, 2020), by virtue of it being treated as fees for technical services/royalty, ought to have directed refund of entire amount of such equalisation levy paid by the Appellant for AY 2022-23.
18.That on the facts and in the circumstances of the case and in law, the AO has erred in computing the tax on additions made amounting to Rs. 59,68,35,378 as per the rate prescribed in the India-USA DTAA i.e., at the rate of 15% without considering the rate as per Income Tax Act i.e., tax rate of 10% which is beneficial as per Section 90 of the Act
19.That on the facts and in the circumstances of the case and in law, the AO has erred in levying surcharge and cess which is consequential to the above of grounds of appeal.
20.That on the facts and in the circumstances of the case and in law, the AO has erred in computing the total interest as Rs.2,16,82,208 instead of Rs. 1,68,84,483
21.That on the facts and in the circumstances of the case and in law, the AO has erred on facts and in law in levying interest under Section 234B of the Act. Without prejudice, the computation of the interest is erroneous and excessive.
As common issues are involved in these appeals, A.Y. 2022-23 (ITA No.-1185/Del/2025) is taken as the lead case.
Brief facts are that the assessee is a company incorporated in the USA and is a tax resident of that country. It is a provider of data software solutions and generates revenue from software products subscriptions and related services including training / educational services. For A.Y. 2022-23, return declaring income of Rs. 60,75,88,684/- was filed out of which Rs. 59,68,35,379/- was claimed as exempt. Total receipts were declared as under:
Receipts from sale of training material – Rs. 69,51,872/-
Receipts from supply of software products – Rs, 59,68,35,379/-
While the receipts from sale of training material were offered to tax as Fee for Technical Services (FTS) in the return, receipts from supply of software products were not offered to tax. These were claimed to be not taxable in India relying on the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. AIRONLINE 2021 SC 102. However, the AO treated the same as consideration for provisions of technical and consultancy services and proposed to tax the same as FTS under the Act and the DTAA.
Aggrieved, the assessee filed objections before the DRP. Noting that identical issue was involved in A.Y. 2021-22 and A.Y. 2020-21, wherein the order of the AO was upheld by the DRP, following directions were issued for the year under consideration.
“ 4.5 DRP Directions for the current Assessment Year (i.e. AY 2022-
4.5.1The Panel has carefully examined the written and oral submissions of the Ld. AR of the assessee, the AO's contentions in the DAO, the clauses of the ESMA and the directions of the DRP in the earlier years. The Panel does not see any reason to deviate from the earlier stance of the DRP directions, the legal and factual matrix remaining the same and thus reiterates the same for the current AY also. However, having said so, the Panel seeks to strengthen the observations of the AO as under: Non-applicability of the Engineering Analysis case in the case of the assessee (i) The Ld. AR of the assessee during the hearing before the Panel vehemently argued that the case of the assessee is squarely covered by the decision of Hon'ble Supreme Court in the case of Engineering Analysis. However, the reliance of the assessee on the same is misplaced for the following reasons:
That the Cloudera Software is not a shrinkwrap software as it has been clearly established in the DAO that it is not an off the shelf software but a complete package with a host of services, support consulting and framing. Shrinkwrap software is a very basic, off the shelf software which only requires transfer of object code. The Hon'ble Supreme Court while discussing the case of Engineering Analysis examined this particular software only and the transfer of object code as the mechanism for usage of the software in discussion in the order.
Further, the Panel points out that the Cloudera data platform works on through the programming languages of Java, Python, C++, PHP, Scala, Apache Groovy, etc. It was then gathered from the internet search that the usage of the above mentioned languages required the transfer of source code. In fact in Java which is a compile language means that the source code is converted directly into machine code. In the case of Python also which is an interpreted language it was found out that the source code is converted into the bit code and then executed by the Python Virtual Machine. In the case of Engineering Analysis, the transfer of object code with respect to shrinkwrap software was discussed and it was explicitly stated that the source code was not transferred whereas in the case of the assessee it is neither shrinkwrap software nor transfer of object code. Further, the Panel also brings about the difference in the features between the shrinkwrap software and the Cloudera Software Package.
Shrinkwrap Software Cloudera Software Package (The considered software for Cloudera is a software company that e, discussion by the Hon'ble Supreme specializes in data management and big data. Court in Engineering Analysis It offers a software package which includes: Centre of Excellence Pvt. Ltd.) (i) It is used for Microsoft Office, Cloudera Data Platform A hybrid data Adobe Acrobat, and Trend platform that provides data analytics and Officescan. Micro management for any data, analytics, or cloud. It's built on open source technology (ii) Shrinkwrap software is a term and uses machine learning and data 5. for on premises software that is analytics to gain insights from data. installed on a company's computers On-premises software is installed and runs or computers on Cloudera Manager A centralized interface n premises of the person or gateway e that provides access Cloudera's organization using the software. tools and CDH. It includes automated wizards to help users control their Cloudera (iii) It is an off-the-shel software cluster tasks. Cloudera Manager also that is available to the public under provides monitoring capabilities, including standard terms and conditions. real-time insights into CPU, memory, disk usage, and network performance. S C S (iv) It is often sold at a low cost and is no open to modification. Cloudera Impala Software that runs natively on Apache Hadoop and is used for Ot Massively Parallel Processing of SQL Query Engine. It makes it easy to query data stored in Apache HBase and HDFS (Hadoop Distributed File System). Cloudera Data Hub A cloud service on Cloudera Data Platform that makes it easier to build data-driven applications. It provides enterprise security, governance, scale, and control. Cloudera Data Science Workbench An Al and machine learning platform that allows data scientists to build and deploy models using programming languages like Python and R. Cloudera Observability A service that helps users understand their environment, data services, workloads, clusters, and resources. It includes a range of metrics and health tests to help identify and troubleshoot problems source: https://www.google.com/search?q=Cloud era+softzoare+package&oq=Cloudera+soft ware+package+&gsJcrp=EgZjaHJvbWU yCwgAEEUYChg5GKABMgKIARANG AOYOAHSAQkxMzQOOGowajeoAgiwA gE&sourceid=chrome&ie=UTF-8
So, in the discussion above, it transpires that the softwares employed by Cloudera uses a very complex set of algorithms the transfer of which requires transfer of source code. So, it is very clear that these softwares which are transferred by the assessee are certainly not off the shelf shrinkwrap softwares as these softwares are very basic softwares and any businesses /industries/banking institutions etc. do require substantial modification/customization and configuration to deliver the desired objective in operations, which in this case is done by Cloudera. So it is clearly established in the instant case that owing to substantial modification as required by the client, the exercise of departing from the original basic softwares has been conducted on the software to make it usable for the client. Thus, by the very nature of different products (software) being the object of discussion in examination, the Engineering Analysis as relied upon by the assessee is inapplicable in the instant case. So, in view of elaborate discussion above, the case of the assessee is distinguished from the case of Engineering Analysis as it can be construed as comparing apple and oranges as the basic premise from which the entire judgment emanates is different from the case of the assessee and so the reliance placed by the assessee on the case of Engineering Analysis for pleading for not holding the receipts from sale of software as FTS holds no merit and deserves to be rejected.
(ii)Quoting from the relevant clause of ESMA
"1.15"Subscription" means: (i) with respect to Supported OSS Products, a Cloudera offering that provides Customer the right to access and receive Support Services during the applicable Subscription Period for such Supported OSS Products in accordance with the terms of this ESMA and the applicable Order Form, and (ii) with respect to Cloudera Software and Cloudera Online Services, a Cloudera offering that provides Customer the right to access, use and receive such Cloudera Software and/or Cloudera Online Services, along with applicable Support Services, during the applicable Subscription Period in accordance with the terms of this ESMA and the applicable Order Form.
1.16"Subscription Period" means the period of time as identified in the applicable Order Form for which Customer is purchasing and will be entitled to the benefits of the applicable Subscription.
1.17"Support Services" means the technical support and software maintenance provided by Cloudera under this ESMA as further described in Section 3.2 below.
1.18"Supported OSS Products" means software products that are made available by Cloudera under the terms of Applicable OSS Licenses and for which Cloudera provides Support Services. ………….
…………….
2.3Restrictions. Except as otherwise expressly set forth in this ESMA or the applicable Order Form, Customer may not: (i) modify, disclose, alter, translate or create derivative works of the Cloudera Software; ii) license, sublicense, resell, distribute, lease, rent, lend, transfer, assign or otherwise dispose of the Cloudera Software; (ii) use the Cloudera Software, or allow the transfer, transmission, export or re-export of the Cloudera Software or any portion thereof in violation of any export control laws or regulations administered by the U.S. Commerce Department, OFAC, or any other U.S. government agency; (iv) disassemble, decompile or reverse engineer any of the Cloudera Software; or (v) cause or permit any third party to do any of the foregoing. In addition, Customer will not remove, alter or obscure any proprietary notices in the any third party to do so.
2.4Ownership and Reservation of Rights. As between the parties and subject to Sections 2.2 and 3.4.1 of this ESMA, Cloudera and its licensors own and retain all right, title and interest in and to: (i) the Cloudera Products, ii) the Cloudera IP, (Hi) the Pre-Existing Property, (iv) the General Enhancements, (v) Training Materials, (vi) all Cloudera logos and trademarks included in any of the foregoing, and (vii) any and all Intellectual Property Rights embodied in the foregoing. Cloudera reserves all rights not expressly granted in this ESMA or the applicable Order Form, and no licenses are granted by Cloudera to Customer, whether by implication, estoppel or otherwise, except as expressly set forth in this ESMA or the applicable Order Form.
2.5License Keys. Any license keys provided, by Cloudera to Customer are personal to Customer. Customer may not distribute any license keys provided by Cloudera to any third party. Such requirements of Section 6 of this ESMA.
2.6Cloudera Trademarks in Supported OSS Products. Unless as otherwise set forth in the applicable Order Form, this ESMA and the applicable Order Form do not permit Customer to distribute Supported OSS Products or any of their components containing Cloudera's trademarks. The "Cloudera" trademark is a registered or unregistered trademark of Cloudera in various countries, Customer may redistribute Supported OSS Products that include Cloudera trademarks only if: (i) permitted under a separate written license agreement with Cloudera authorizing such redistribution, or (ii) Customer removes all occurrences of Cloudera trademarks and logos in such Supported OSS Products prior to any redistribution. Modifying Supported OSS Products may: 1) corrupt the Supported. OSS Products, and ii) adversely affect Cloudera's ability to provide Support Services for the Supported OSS Products.
The plain reading above clauses of ESMA amply prove that the assessee company owns a very sophisticated system of softwares, the usage rights of which are transferred to the customers with umpteen inherent restrictions including license key and are prohibited from further distribution. Hence, through the said software highly specialized /customized customer specific consultation is given to the client.
Further, the term Subscription as defined in the contract expressly means that the assessee provides customers the right to access and receive Cloudera Software Access, Online Services & Support Services during the applicable Subscription Period. Whereas services in the contract include professional services, support services and training services. So, the assessee company is clearly not providing a routing random software product to its customers but a subscription for a period of time which allows the customers to access the entire gamut of products and services as a package along with support services, training services, online support access etc. which in effect is a technical support providing remote help and resolving software issues faced by the customers. Further, even consulting and training services are also part of the subscription package. So effectively this Cloudera Software Package enables the customers to undertake and perform various business functions and are recipients of specialized skills, knowledge, knowhow and the same is augmented through continuous support service provided by the assessee company. Hence, it satisfies the requirement of make available clause for FTS as stipulated in terms of Section 9(1)(vii) of the IT Act and Article 12 of India-US DTAA.
Further, it is very surprising that the assessee chooses to offer the receipts from sale of training material to taxes in India whereas the receipts from supply of software products and subscription and professional services which are the primary products (and in fact the training material being logically consequential to the former) are not offered for taxes in India considering them to be outside the purview of both the provisions of Section 9(1)(vii) of the IT Act and Article 12 of the DTAA.
4.6In view of the above discussion in e pre-paras, the Panel not only affirms the findings of the AO in the DAO but also strengthens. The AO is directed to incorporate the discussion of the DRP in the body of the order at appropriate places. Ground Number 1 & 2 are accordingly disposed of.”
Final assessment order was accordingly passed at total assessed income of Rs. 60,75,88,684/- after making addition of Rs. 59,68,35,378/- as above.
Aggrieved, the assessee has preferred an appeal before the Tribunal.
Ground no. 1 is general in nature and ground no. 2 has not been pressed, ground no. 3 to 15 are essentially related to the addition of Rs. 59,68,35,378/- made on account of FTS /FIS and Royalty from supply of software subscriptions and professional services.
Before us, the Ld. AR has vehemently argued that the AO and the DRP have erred in treating these receipts as taxable and has submitted impugned addition is comprised of the following components as under:
Receipts from supply of software subscription – Rs. 56,62,94,044/-
Supply of Professional Services - Rs. 3,05,41,334/-
It is contended that the receipts from supply of software subscriptions, have erroneously been treated as FTS & Royalty by the AO in complete disregard of the terms and conditions mentioned under the Enterprise Subscription Master Agreement (ESMA). As per the ESMA, the customer is given a non-transferable and limited access and use of software subscription, only for its own business purposes. As regards receipts from professional services (Rs. 3,05,41,334/-), it is explained that the same is mainly for migration from old to new coursera Ld. AR has further pointed out that as per paras 2.2. to 2.5 of ESMA, the recipient has no right to modify, alter, sublicense, transfer etc., the cloudera software. Further, the assessee owns and retains all rights title and interest including the Intellectual Property Rights (IPR) embedded in the cloudera products, training material etc. Further, the license keys provided to the customers are personal to them and they are prohibited from distributing these to any third party. It has been explained that the software is modified / customized by the assessee to suit the individual customer’s requirements and, even in that case there is no transfer of technology and customers are restricted from modifying the same themselves.
Ld. AR has further argued that the DRP has incorrectly distinguished the facts of the case with those of the Engineering Analysis (supra) and has also placed reliance on the following decisions: -
CIT(IT) vs. Salesforce. Com Singapore Pte. Ltd. [2024] 165 taxmann.com 580 (Delhi), wherein it has been held that the assessee, a tax resident of Singapore provided cloud based Customer Relationship Management (CRM) services to its customers in India and they were provided access to application but there was no transfer of copyright, hence subscription fee received by the assessee was not taxable in India as royalty or FTS. Revenue’s SLP against this decision has also been dismissed.
Aecom Technical Services INC. vs. Income Tax Officer, Ward Int. Tax, 1(1)(1), Delhi & Ors., W.P.(C). 10850/2024 & CM Appl. 44661/2024, Hon’ble Delhi High Court judgment dated 20.05.2025. In this case, the assessee, a tax resident of the USA, was engaged in the business of design and consultancy services, and providing management and governance support functions in multiple areas to its customers. While deciding the issue regarding withholding of tax, the Hon’ble jurisdictional High Court held as under:
“ In so far as the IT infrastructure and software development is concerned, the petitioner had explained it maintains the network connectivity and ensures that the business of AIPL and AIGSPL is being maintained and run at optimum effectiveness and maximum security. The same would include the applications and software, which are used by the professionals of AIPL and AIGSPL. However, the assumption that there is any transfer of right in relation to the said software or applications to AIPL and AIGSPL is not supported by any material on record. …. … Given the fact that AIPL and AIGSPL did not acquire any copyright in the software, the cross charges paid by them could not be construed as royalties within the scope of Article 12(3) of the India-US DTAA. This issue is covered by the decision of the Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT & Anr.: (2021) 432 ITR 471.”
CIT (IT)-1, vs. Amazon Web Services Inc. [2025] 174 taxmann.com 1188 (Delhi), In this case, Hon’ble jurisdictional High Court noted that the assessee operated a cloud computing platform, which essentially comprised of hardware as well as software Assessee's customers did not acquire any right to commercially exploit any of assessee's intellectual property rights (IPRs). Held - Provision of cloud computing services did not entail placing any hardware at exclusive disposal of customer Assessee granted access to standard and automated services, which were available online - Customers could select from services offered according to their needs - Whether since assessee's customers did not acquire any right of using infrastructure and software of assessee for purposes of commercial exploitation and charges paid by assessee's customers were for availing services, which assessee provided by using its proprietary equipment and other assets, payments received could not be considered as royalties within meaning of article 12(3) of India - US DTAA - Held, yes.”
Ld. DR, on the other hand has strongly relied on the orders of the AO and the elaborate directions of the DRP, on the issue.
We have heard the rival submissions and perused the material available on record. We note that the assessee received the following gross amounts during the year:
Supply of Software Subscription (including Software subscription support Services) - Rs. 56,62,94,044/-
Supply of Professional Services - Rs. 3,05,41,334/-
Sale of training material - Rs. 69, 51,872/-
While the receipts from sale of training material have been offered to tax, the taxability of the remaining two items is under dispute.
As regards the receipts from software subscription, we have carefully considered the scope of ESMA, the restrictions imposed on the customers with regard to use, transfer, modification of software subscription etc. In the light of the decision of the Hon’ble Apex Court in the case of Engineering Analysis (supra) and also of the Hon’ble Jurisdictional High Court in several cases discussed in para 4.2 hereinbefore, we are inclined to accept the claim of the assessee that there was no transfer of technology to the customers and the customers were provided a non-transferable access and use of software products for own business purposes and therefore the subscription receipts amounting to Rs. 56,62,94,044/- are not in the nature of FTS and Royalty.
With regard to the professional services (Rs. 3,05,41,334/-), we note that these have been shown for the first time in the year under consideration. The assessee, in its submission dated 30.08.2023 before the AO has explained the nature of these receipts and the scope of professional services as under:
“ B. Professional services Professional services help the customers/ end-users to derive maximum value from the implementation and use of software subscriptions, machine learning, enabling customers/ end-users to efficiently use their data environment specific to customer data systems, data analytics, and business data needs such as, upgrading from old version of applications to the newest available version; helping customers/ end-users where having any issue with Cloudera products while accessing them; tuning the software for the customers/ end-user needs.”
Further, the term ‘services’ has been defined under the ESMA as follows:-
"1.15"Subscription" means: (i) with respect to Supported OSS Products, a Cloudera offering that provides Customer the right to access and receive Support Services during the applicable Subscription Period for such Supported OSS Products in accordance with the terms of this ESMA and the applicable Order Form, and (ii) with respect to Cloudera Software and Cloudera Online Services, a Cloudera offering that provides Customer the right to access, use and receive such Cloudera Software and/or Cloudera Online Services, along with applicable Support Services, during the applicable Subscription Period in accordance with the terms of this ESMA and the applicable Order Form."
Further, from the bifurcation of total receipts submitted by the assessee, which is reproduced at page 15 of the assessment order, it is noted that out of 12 customers, 6 customers have also taken professional services while the remaining have only availed software subscription services. The breakup of receipts under these two heads is as under:
From above, it is clear that some of the customers have availed substantial professional services while others have not made any payment for such services. For example, Ivalue Infosolutions Pvt. Ltd. has paid Rs. 2,68,38,242/- for supply of software & support services and Rs. 1,20,30,803/- for supply of professional services which is around 40% of the total subscription paid. In the face of these facts and figures, the assessee’s argument that the professional services are provided only for migration from old to new version of the software and for using the software efficiently does not appear to be convincing. From the above chart, it is clear that only some of the customers have paid for professional services and the amounts paid by them (in absolute terms and also as a percentage of total subscription fee paid) vary drastically suggesting customized technical and professional services specific to the individual customers.
Thus, we are not convinced that these services are simply restricted to providing assistance for migration from old to new version of the software application. Rather, the substantial payments made by some of the parties is suggestive of the fact that these are specialized customer specific consultations provided to some of the clients and therefore, these are clearly in the nature of FTS / FIS. Thus, we are of the considered view that akin to the receipts from supply of training material and services, the professional services being provided by the assessee are not covered by the decision of the Hon’ble Apex Court in Engineering Analysis (supra) where an off the shelf software (Shrinkwrap) was under consideration. The assessee has already offered the receipts from supply of training material services. In view of above facts and circumstances, the receipts from supply of professional services is also liable to be taxed as FTS under the Act and DTAA.
We accordingly hold that the fee from professional services amounting to Rs. 3,05,41,334/- is liable to be taxed as Fee for Technical Services under the provisions of the Act as well as DTAA @ 10% while Rs. 56,62,94,044/- is held to be not FTS/Royalty and therefore, not taxable in India. Accordingly, this ground of appeal is partly allowed.
Ground no. 16 to 18: Equalization levy paid receipts of Rs. 59,68,35,378/-: The assessee has claimed that it has paid equalization levy on the receipts amounting to Rs. 59,68,35,378/- and hence these are exempt u/s 10(50) of the Act. Without prejudice, it has claimed that in case these receipts were to be treated as FTS /FIS / Royalty, the refund of such equalization levy ought to have been granted by the department.
We have heard the rival submissions and perused the material available on record. Since receipts of Rs. 305,41,334/- on account of supply of professional services are held to be taxable as FTS /FIS, proportionate amount of equalization levy is directed to be refunded to the assessee. This ground of appeal is accordingly, allowed.
Ground no. 19, 20 and 21 are related to charging of cess / surcharge and interest u/s 234B respectively and are consequential in nature. These are, therefore, not being separately adjudicated and the AO is directed to consider and allow consequential relief.
In the result, appeal of the assessee is partly allowed.
ITA No. – 917/Del/2023 for A.Y. 2020-21 and ITA No.- 3387/Del/2023 for A.Y. 2021-22
The grounds of appeals and facts and circumstances in these two appeals are identical to A.Y. 2022-23 except that no professional services have been shown in these two years. Accordingly, the above decision for A.Y. 2022-23 will apply mutatis mutandis to these years i.e. 2020-21 and 2021-22 as well.
In the result, all the three appeals of the assessee for A.Ys. 2020-21, 2021-22, and 2022-23 are partly allowed.