Receipts From CRM Services Not Taxable In India As Royalty Or FTS: ITAT

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that receipts from Customer Relationship Management (CRM) services are not taxable in India as royalty or Fee for Technical Services (FTS).

The bench of Saktijit Dey (Vice President) and Brajesh Kumar Singh (Accountant Member) has observed that on November 26, 2019, the assessee filed a revised return of income, declaring income of Rs. 2,94,91,40,080 towards the subscription fee from CRM services and Rs. 2,69,11,689 towards interest on the income tax refund. However, while computing the assessee's income in the final assessment order, the assessing Officer erroneously included the interest on the income tax refund in the receipts of CRM services.

The assessee/appellant is a non-resident corporate entity, incorporated under the laws of Singapore, and is a tax resident of Singapore. As stated by the Assessing Officer, the assessee is engaged in providing CRM services to its customers and subscribers in various countries, including India, which enables them to systematically record, store, and act upon business data and to help businesses manage customer accounts, track sales leads, evaluate marketing campaigns, and provide better post-sales service. The services provided enable customers to generate reports and summaries of their data and share such data with authorized individuals across functional areas. The assessee provides services through the internet. It is stated that the assessee does not have any data center or business premises of its own in India.

For providing CRM services during the year under consideration, the assessee received an amount of Rs. 297,06,94,174 from Indian customers. However, the amount received was not subject to tax in India. The assessee claimed exemption from taxation based on the receipts, pleading that while rendering such services, it has not allowed the use or grant of any right to use the copyright in the software to Indian customers. Therefore, receipts cannot be treated as royalty. The assessee submitted that in the assessee's own case in earlier years, similar receipts had not been held to be taxable by the Tribunal and High Court. The assessing officer, however, did not accept the claim of the assessee. The Assessing Officer was of the view that the services rendered by the assessee are of a technical nature and hence qualify as FTS under Section 9(1)(vii) of the Act as well as under Article 12(4) of the India-Singapore DTAA. Accordingly, he framed the draft assessment order bringing tax receipts from CRM services as FTS.

Against the draft assessment order so passed, the assessee raised objections before DRP. While deciding the assessee's objections on the issue, DRP, though, upheld the action of the Assessing Officer; however, at the same time, it directed the Assessing Officer to examine the order dated March 25, 2022, of the Income Tax Appellate Tribunal, keeping in view the assessee's claim that the issue is covered by the decision of the Tribunal. However, while finalizing the assessment, the assessing officer confirmed the addition made in the draft assessment order.

The issue raised was whether the receipts from CRM services are taxable or not as royalty or FTS, which is a legacy issue between the assessee and the department starting from assessment year 2010–11 onwards.

The tribunal, while allowing the appeal, held that neither receipts from CRM services are in the nature of royalty nor FTS.

Counsel For Petitioner: Vishal Kalra

Counsel For Respondent: Vijay B Vasanta

Case Title: Salesforce.com Singapore Pte Ltd. Versus ACIT

Case No.: ITA No.1923/DEL/2022

Click Here To Read The Order