Software subscription receipts not taxable as royalty or FTS or FIS but professional services receipts being provision of specialised consultation taxable as FTS or FIS under the India-US DTAA – Delhi bench of the Tribunal

In brief

The Delhi bench of the Income-tax Appellate Tribunal (Tribunal), in a recent ruling1 involving a US tax resident company, concluded that receipts from software subscriptions supplied to Indian customers are not taxable in India as royalty or fees for technical services (FTS) or fees for included services (FIS) under the Income-tax Act, 1961 (the Act) and the India-US Double Taxation Avoidance Agreement (DTAA). For software subscription receipts, the Tribunal observed that customers were granted only non-transferable access to, and use of, software products for their own business purposes and that there was no transfer of technology, copyright or intellectual property rights. For professional services, the Tribunal was of the view that the substantial payments made by certain customers indicated specialised, customer-specific consultations and, therefore, are taxable as FTS or FIS under the Act and the India-US DTAA.