Services Provided By Irish Company To Its Indian Counterpart Not Technical Services: Delhi High Court Quashes Order Denying Nil/Lower TDS certificate

The Delhi High Court has quashed the order denying Nil or lower TDS certificates and held that the services provided by the assessee, Irish Company, to its Indian counterpart were not technical services.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that though the power to grant a TDS certificate was merely a preliminary examination of the issue of taxability and had no implication on the ultimate assessment that might be made, still due consideration should be accorded to the question of chargeability to tax while examining applications made under Section 197 of the Income Tax Act, 1961.

The petitioner has challenged the certificate issued and passed by the respondent department in purported exercise of powers conferred by Section 197 of the Income Tax Act, 1961. The petitioner had approached the respondent, certifying that the petitioner would be entitled to a Nil/lower rate withholding tax certificate in respect of payments received from salesforce.com India Private Limited.

The payments were received by the petitioner, SFDC Ireland Limited, pursuant to the arrangement embodied in the amended and restated reseller agreement dated February 1, 2023. While proceeding to evaluate the application as made, the respondent has denied the withholding tax certificate in terms as requested by SFDC Ireland and permitted it to receive payment upon deduction of 10% as TDS on the entire amount that it was to receive from SFDC India for the financial year 2023-2024.

The order rests on the respondent finding that SFDC Ireland was not selling standard off-the-shelf and non-customized downloadable software and that it was in fact offering a comprehensive service experience or solution with the help of technology embedded in the software. It has been held that the remittances received are liable to be taxed as fees for technical services within the meaning of Section 9(1)(vii) of the Act, read along with Article 12 of the India-Ireland Double Taxation Avoidance Agreement.

For the purposes of evaluating the challenge that has been raised, it would be appropriate to notice the following salient facts: The petitioner, SFDC Ireland, is stated to be a tax resident of the Republic of Ireland holding a valid Tax Residency Certificate under Article 4 of the DTAA. The petitioner asserts that since it does not have a place of business, employees, or any other sort of presence in India, it does not have a permanent establishment as contemplated under Article 5 of the DTAA. SFDC Ireland is stated to be engaged in the business of operating customer relationship management offerings, applications, and platforms, including sales, service, marketing, commerce, integration, analytics, and related products and services, which shall be collectively referred to as SFDC products.

The petitioner contended that the respondent has clearly erred in treating the remittances made by SFDC India as constituting FTS by ignoring the undisputed position that SFDC products were standardized with the customers having the option to pick any combination of products best suited to their business requirements. SFDC products assist the clients in generating reports and summaries of the data, which is fed into the software by the client itself. The customers input, store, and retrieve their proprietary data through the CRM application software portal. It was additionally pointed out that, pursuant to the access granted to clients, subscribers are enabled to use the software to generate appropriate reports on the basis of information fed into the software and as per the format as desired.

The department contended that the certification, which is granted under Section 197, is based on the formation of a tentative opinion alone and thus merits no interference by this Court in exercise of its extraordinary writ jurisdiction. It was in this connection further urged that the rights of the assessee are in any case fully safeguarded since the sum ultimately determined as chargeable to tax would be available to be offset from the tax already deducted at source. The grant of a withholding tax certificate is premised on the maxim abundans cautela non nocet (abundant caution does no harm).

The court noted the relevant clauses of the reseller agreement and observed that the Indian company was appointed as a non-exclusive reseller without any technology transfer. The technical assistance and training do not bear the characteristics of the conferral of specialized or exclusive technical services, and they are concomitant with the sale of principal products in the territory, aimed at equipping and educating the representatives of SFDC India to be in a position to comprehensively brief potential customers.

The court held that technical assistance and training do not constitute either the core or foundational basis of the consideration that is received by the assessee, and there is no transmission of specialized knowledge or skill. Imparting training or educating a person with respect to the functionality and attributes of a software or application does not amount to the rendering of technical service under the DTAA.

Counsel For Petitioner: Ajay Vohra

Counsel For Respondent: Aseem Chawla

Case Title: SFDC Ireland Limited Versus Commissioner Of Income Tax

Citation: 2024 LiveLaw (Del) 307

Case No.: W.P.(C) 14636/2023 & CM APPL. 58218/2023 (Interim Relief)

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