Case title: SFDC Ireland Ltd. vs Commissioner of Income Tax and Anr.
Case no.: W.P.(C) 14636/2023 & CM APPL. 58218/2023
Decided on: 11.03.2024
Quorum: Hon’ble Mr. Justice Yashwant Varma, Hon’ble Mr. Justice Purushaindra Kumar Kaurav
FACTS OF THE CASE:
The case under consideration is W.P.(C) 14636/2023, where SFDC Ireland Limited is the petitioner. The issue revolves around whether TDS (Tax Deducted at Source) was deductible by M/s Bharti Cellular Ltd. when it paid interconnect charges/access/port charges to BSNL. The case requires an examination of the meaning of “fees for technical services” under Section 194-J of the Income Tax Act, 1961. The petitioner contends that the services provided by SFDC Ireland were specialized and customized technical services, falling under the definition of “fees for technical services.” However, the respondent failed to provide any material to support the conclusion that SFDC Ireland was not selling standard off-the-shelf software. The petitioner also argues that the respondent did not demonstrate that the SFDC Products departed from a standard scope of services or were customized for individual consumers. The case involves a detailed analysis of the nature of services provided by SFDC Ireland and whether they qualify as “fees for technical services” under the relevant tax provisions.
LEGAL PROVISIONS:
Section 194-J of the Income Tax Act, 1961: This section deals with the deduction of tax at source on fees for professional or technical services.
Article 12(3)(b) of the Double Taxation Avoidance Agreement (DTAA): This article specifies the definition of “fees for technical services” for tax purposes.
Section 195 of the Income Tax Act: This section pertains to the requirement of deducting tax at source on payments made to non-residents.
Section 197 of the Income Tax Act: This section allows for obtaining a certificate for lower withholding tax rates or exemption from tax deduction at source.
Rule 28AA of the Income Tax Rules, 1962: This rule relates to the consideration of aspects pertaining to chargeability when raised by the assessee.
United Nations Model Double Taxation Convention Handbook: Provides guidance on the interpretation and application of tax treaties.
APPELLANTS CONTENTION:
The appellants argued that the remittances made by SFDC India should not be considered as Fees for Technical Services (FTS) as the SFDC products were standardized, with customers having the option to use them without any customization.
They contended that the services provided by SFDC Ireland were not specialized or customized technical services but rather standard off-the-shelf software products.
The appellants highlighted that the SFDC products allowed customers to input, store, and retrieve their proprietary data through CRM application software, indicating a lack of specialized technical services.
They emphasized that the access to SFDC products was for a limited duration based on subscription fees paid by customers, further supporting the argument that these were not specialized technical services.
RESPONDENTS CONTENTION:
The respondents argued that SFDC Ireland was providing comprehensive service experiences or solutions with the help of technology embedded in the software, indicating a level of customization and technical service.
They contended that even if the SFDC products were not customized for individual consumers, the comprehensive service experiences provided by SFDC Ireland should be considered as technical services. The respondents held that the service experience or solution offered by SFDC Ireland was an integral part of the software application available to any customer, falling within the standard scope of services for technical services.
They also raised the point that SFDC Ireland was providing support, training, and assistance free of charge, suggesting that these services were part of the technical services provided, even if not explicitly charged for.
COURT’S ANALYSIS AND JUDGMENT:
The court focused on determining whether the services provided by SFDC Ireland could be classified as “fees for technical services” under the relevant tax provisions.
After careful consideration, the court made the following judgments: The court observed that the nature of services provided by SFDC Ireland was crucial in determining whether they qualified as technical services for tax purposes. The court noted that the SFDC products were standardized and not customized for individual consumers, which raised doubts about whether they could be classified as specialized technical services.The court emphasized that the services provided by SFDC Ireland were part of the standard scope of services for technical services, even if they were not explicitly customized for each customer. Ultimately, the court ruled in favor of the respondents, holding that the comprehensive service experiences provided by SFDC Ireland should be considered as technical services under the relevant tax provisions.
In conclusion, the court’s judgment favored the respondents, affirming that the services offered by SFDC Ireland qualified as technical services for tax purposes based on the comprehensive service experiences provided through the software applications.
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Judgement reviewed by – Ayush Shrivastava
