Recent ITAT rulings on Royalty and Fees for Technical Services

In the case of Atos IT Solutions and Services Inc vs Deputy Commissioner of Income Tax, International Taxation Circle 1(2)(1), Mumbai [TS-123-ITAT-2023(Mum)] dated 1st March 2023, the ITAT held that the usage of Microsoft license and service desk facility dealing with IT incidents will not be treated as royalty and Fees for Technical Service (FTS). The ITAT held that there was no vestige of copyright being transferred by Microsoft, and providing access to a computer does not amount to royalty under the domestic law as well as India-UK DTAA. On the other hand, the service desk was held to be taxable as business profit in terms of Article 7 of India-US DTAA.

In the case of M/s. Uptodate Inc vs Deputy Commissioner of Income Tax, International Taxation Circle 3(1)(1), New Delhi [TS-96-ITAT-2023(DEL)] dated 28th February 2023, the ITAT held that online database subscription fees will not be taxable as royalty. The ITAT noted that the assessee was neither the creator of the content put in the database nor had it transferred any copyright or license to use the content of the database. The ITAT relied on a Supreme Court ruling in Engineering Analysis and a co-ordinate bench ruling in assessee's sister concern Ovid Technology Inc wherein it was held that the receipts from Indian end-users/distributors for the resale/use of the computer software is not the payment of royalty for the use of copyright in the computer software and does not give rise to any income taxable in India.

In the case of M/s. Sungard Availability Services LLP vs Income Tax Officer-4, Pune [TS-1042-ITAT-2022(PUN)] dated 28th November 2022, the ITAT held that fees for Cloud Services, Colocation and Network Services, Mainframe Services, Disaster/Data Recovery Services will not be taxable as Fees for Included Services (FIS) in India. The ITAT observed that even if Revenue's argument of applicability of Section 9(1)(vii) is accepted, the assessee, in light of Section 90(2), is very well entitled for the benefit under India-USA DTAA. The ITAT also observed that Article 12(4)(b) of the DTAA states that the income arising from provision of technical services can only be taxable if the services concerned fulfills the make available condition.