BRANCH METRICS, INC.,UNITED STATES OF AMERICA vs. ASST. COMMISSIONER OF INCOME TAX CIRCLE - 1(1)(2), DELHI, DELHI

ITITA 1122/DEL/2025Status: DisposedITAT Delhi12 August 2026AY 2022-2316 pages
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What were the facts?

The assessee, Branch Metrics Inc., a US-based company, provides Software as a Service (SaaS) products, specifically a Software Development Kit (SDK), to Indian customers. For Assessment Year (AY) 2021-22, the assessee declared NIL income, claiming ₹7,42,26,819/- as exempt under Section 10(50) (Equalisation Levy paid) and ₹16,74,02,059/- as business profits not taxable under Article 7 of the India-US DTAA due to the absence of a Permanent Establishment. The Assessing Officer (AO) proposed to treat the entire receipt of ₹24,16,28,878/- as Fees for Technical Services (FTS) under Article 12 of the DTAA and Section 9(1)(vii) of the Income Tax Act, 1961. The Dispute Resolution Panel (DRP) upheld the AO's view. The assessee appealed to the ITAT against the final assessment orders for AY 2021-22 and AY 2022-23.

What did the Tribunal hold?

The Tribunal held that the receipts of ₹24,16,28,878/- from Indian customers on account of the sale of SaaS-based products are consideration for the use of a standard, non-customized, off-the-shelf facility. It was found that these services neither made available any technical knowledge, experience, skill, know-how, or process to the customers nor consisted of the development and transfer of any technical plan or design. Consequently, they do not constitute 'fees for included services' under Article 12(4) of the DTAA. The Tribunal noted that the DRP erred in relying on the 'marketing and sales support services agreement' which was not between the assessee and its Indian customers. The Tribunal deleted the addition of ₹24,16,28,878/-. The issue of credit for tax deducted at source was restored to the AO for verification. The levy of interest under Sections 234A and 234B was directed to be recomputed. The initiation of penalty proceedings under Section 274 read with Section 270A was dismissed as premature. The appeals for both AY 2021-22 and AY 2022-23 were partly allowed.

What were the issues?

1. Whether the receipts of ₹24,16,28,878/- from Indian customers for SaaS-based products constitute 'fees for included services' under Article 12(4) of the India-US DTAA, considering whether the services made available technical knowledge, experience, skill, know-how, or process, or involved the development and transfer of a technical plan or design. Assessee's arguments: The services provided are for the use of a standard, off-the-shelf facility, not customized. The services do not make available any technical knowledge or skills to the customers, nor do they involve the development or transfer of any technical plan or design. The reliance on the 'marketing and sales support services agreement' by the DRP is misplaced as it is between the assessee and its Indian subsidiary, not the Indian customers. The deduction of tax at source by customers is not determinative of taxability. Revenue's arguments: The services are customized, involve human element, include technical account management, and involve face-to-face meetings. The services confer enduring benefits and make available knowledge and skills to the recipient. Reliance was placed on the rulings in Shell India Markets Pvt. Ltd. and CBDT vs. Oberoi Hotels (India) Pvt. Ltd. The place of service rendering is immaterial. The deduction of tax at source substantiates taxability. Reliance was placed on DCIT vs. Kalpataru Power Transmission Ltd.

Which sections of the Income-tax Act were involved?

Section 10(50),Section 143(3),Section 144C(13),Section 144C(5),Section 144C(1),Section 9(2),Section 9(1)(vii),Section 12,Section 80-O,Section 90(2),Section 234A,Section 234B,Section 274,Section 270A

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Income Tax Appellate Tribunal, DELHI “D” BENCH, NEW DELHI

Before: SHRI VIKAS AWASTHY & SHRI MANISH AGARWAL

PER MANISH AGARWAL,

The order continues below.

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