ITAT rules against subscriber fee under India-Singapore tax agreement

ITAT rules against subscriber fee under India-Singapore tax agreement

The tribunal bench governed in favor of the assessee

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has held that the subscriber fee would not be taxable as 'royalty' under the India-Singapore Double Taxation Avoidance Agreement (DTAA) or under the Income Tax Act, 1961.

The assessee, Salesforce.com, is engaged in providing comprehensive Customer Relationship Management (CRM) services. It enables the customers and subscribers to systematically record, store and act upon business data, and helps businesses manage customer accounts, track sales, lead, evaluate marketing campaigns, and provide better post-sales service.

The assessing officer (AO) and the first appellate authority held that the services rendered by the assessee were in the nature of imparting information concerning commercial expediency.

The tribunal bench comprising Judicial Member Anubhav Sharma and Accountant Member NK Billaiya observed that under the Master Subscription Agreement (MSA), the customers did not have access to the process of the service provider. Also, the assessee did not have any access except provided in the MSA to the data of the subscriber.

Ruling in favor of the assessee, the bench held, "All equipment and machines relating to the service provided by the assessee are under its control and are outside India. The subscribers do not have any physical access to the equipment providing system service, which means that the subscribers are only using the services provided by the assessee."

"Therefore, the subscriber fees received by the assessee do not fall within the ambit of 'royalty' under the IT Act nor under the India–Singapore DTAA. The AO is directed to delete the impugned additions," the bench added.