ITAT Rules SaaS Subscription Receipts Not Taxable as Royalty

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) held that receipts earned by a US-based company from providing product analytics services under the Software-as-a-Service (SaaS) model are not taxable in India either as royalty or as Fees for Technical Services (FTS) / Fees for Included Services (FIS) under the India-USA Double Taxation Avoidance Agreement (DTAA). A Bench comprising Judicial Member Vikas Awasthy and Accountant Member Renu Jauhri allowed the appeals filed by Amplitude Inc. for AYs 2021-22 and 2022-23.

Amplitude Inc., a tax resident of the United States, provides product analytics solutions that enable businesses to analyse customer behaviour through a cloud-based platform. Indian customers access the platform through subscription-based accounts and are granted a limited, non-exclusive right to use the services for their internal business purposes. During the relevant assessment years, the company earned subscription receipts from Indian customers and claimed that such income was not taxable in India under the provisions of the India–USA DTAA.

The Assessing Officer, however, held that the receipts constituted equipment royalty as well as FTS/FIS. According to the Revenue, Indian customers were using dedicated server infrastructure and related equipment made available through the SaaS platform. The Assessing Officer further alleged that the services involved human intervention and technical elements, thereby attracting taxation under Article 12 of the DTAA. The Dispute Resolution Panel upheld the addition, though it directed the Assessing Officer to allow credit for the equalisation levy paid by the assessee after verification.

Before the Tribunal, the assessee contended that customers merely accessed a standard automated software platform and did not receive any rights in the underlying software, source code, equipment, intellectual property, or technology. It was submitted that the customers neither possessed nor controlled the servers and infrastructure used for delivering the services. The assessee further argued that no technical knowledge, skill, know-how, or process was made available to customers, and therefore, the “make available” condition under the India-USA DTAA was not satisfied.

“The Assessee’s customers do not acquire any right of using the infrastructure and software of the Assessee for the purposes of commercial exploitation.” The Tribunal noted that the issue was squarely covered by various judicial precedents, including the Delhi High Court’s decision in Amazon Web Services and the Supreme Court’s ruling in Engineering Analysis Centre of Excellence Pvt. Ltd. It observed that the payments were made only for availing services provided through the assessee’s proprietary infrastructure and not for the use or right to use any equipment or intellectual property.

“The charges paid by the Assessee’s customers are for availing services, which the Assessee provides by using its proprietary equipment and other assets.”

Thus, the ITAT deleted the additions made by the Assessing Officer for both assessment years. The Tribunal also directed the Assessing Officer to verify and grant eligible TDS credit and recompute consequential relief relating to interest and other connected issues.

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