SUMO LOGIC, INC.,USA vs. THE ASSISTANT COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE 3(1)(2), DELHI, DELHI

After elaborately discussing the method of consultancy services, the services rendered outside India, services as standard facility; taxability of income under India-USA DTAA; the issue of technical training provided by the assessee; and the issue of ownership of intellectual property, in his view the income in the hands of the assessee is in the nature of FTS and further observed that from the details of ITRs filed by the assessee that assessee has not paid any tax in India for assessment years 2019-20 to 2021-22 and further observed that tax returns filed by the assessee in USA for the years 2018 to 2020 filed during the course of assessment proceedings shows that the income received from Indian customers and end-users was not effectively taxed in USA. He observed that on perusal of Financial data of the assessee reveals that assessee has shown huge losses in all the years 2019 to 2021. Therefore, it is amply clear that the said income has not suffered tax anywhere, neither in India nor in USA. He also observed that assessee has carried on similar business operations in other countries and it failed to provide the details of tax statement in their source countries on identical transactions.

Further, proposed above income to the tax as FTS @ 10% on the other provisions of Income tax and India-US DTAA.

Aggrieved, with the above order assessee preferred objections before learned Dispute Resolution Panel-2 (“DRP” in short), New Delhi. The learned DRP has dismissed the grounds of objections raised by the assessee. Accordingly, final assessment order was passed dated 28.09.2023. Aggrieved with the above order assessee is in appeal before us.

At the time of hearing learned AR brought to our notice findings of the Assessing Officer in final assessment order and submitted that the assessee has developed software generated data at machine language and its recurring services offered to the clients in India on monthly and quarterly basis. Further, he brought to our notice observations of the Assessing Officer that the foreign AE makes losses globally, therefore, income earned in India are not subjected to tax effectively, therefore, assessee is not eligible. Further, he brought to our notice directions of the learned DRP and further submitted that there is no findings given by the learned DRP. In this regard, he brought to our notice page 18 of the case law Sumo Logic Inc. paper book, which is the decision of the Hon’ble Supreme Court in the case of Azadi Bachao Andolan (2003) 263 ITR 706 (SC) in which Hon’ble Court has discussed the issue of physical residence. Further, he brought to our notice various observations of the Hon’ble Court decision of the Indian Authority for Advance Ruling in Mohsinally Alimohammed Rafik and finally it is held that it is, therefore, not possible for us to accept the contentions so strenuously urged on behalf of the respondents that avoidance of double taxation can arise only when tax is actually paid in one of the Contracting States. Further, he brought to our notice page 120 of the paper book, which is a copy of the tax resident certificate submitted by the assessee and it was filed before lower authorities. Further, he brought to our notice page 144 of case law paper book and he brought to our notice findings of the Hon’ble Delhi High Court in the case of International Management Group (UK) Ltd. v. CIT (2024) 466 ITR 514 in which Hon’ble Court has observed that “as we read article 13(4)(c) of the Double Taxation Avoidance Agreement, it becomes manifest that the mere furnishing of service would not suffice and a liability of tax would be triggered only if the technical or consultancy service were coupled with a transfer of the expertise itself. The expression “make available” must be construed as an enablement, conferral of knowledge and which would lead to the payer becoming skilled to perform those functions independently. Therefore, he submitted that without the presence of “make available” there is no transfer of Sumo Logic Inc. technology. Further, he relied on the decision of the ITAT in the case of Coursera Inc. v. ACIT in & 3646/Del/2023 dated 21.08.2024; decision of ITAT in Mixpanel Inc. v. ACIT (pages 192 to 200 of case law paper book) and he prayed that the assessee has not rendered any service to the customers in India and has not transferred any technology which will fall under the category of FTS.

On the other hand, learned DR relied on the detailed findings of the Assessing Officer and DRP.

However, as far as the receipts of Rs.75,66,52,591/-, the assessee claimed that such receipts are neither in the nature of royalty nor FIS, hence, not taxable in India. The Assessing Officer, however, was not convinced with the submission of the assessee. After verifying the agreements with one of the Indian customers, viz., Gandhi Institute of Technology and Management, the Assessing Officer observed that the assessee provides two types of services, such as, Content Services and User Services. He observed, under the User Services, the assessee provides (i) customized landing page featuring the Organization logo and selected courses, (ii) user engagement reports, (iii) payment solution(s) that allow users to seamlessly access premium course experiences and skip checkout, and (iv) enterprise-level user support. Whereas, Content Services means, access to assessee's course and/or Specialization certificate services, including access to course assessments and grades through online open content offerings. ……… ……. .

We have considered rival submissions in the light of decisions relied Sumo Logic Inc. upon and perused the materials on record. Insofar as the activity of the assessee is concerned, it is established on record that the assessee provides a global online learning platform, wherein, various courses and degrees from leading universities and companies are provided. It is a fact on record that the contents of such courses and degrees are created by the concerned universities and companies and not by the assessee. The assessee acts as a mere facilitator between the concerned university/companies and the customers who want to undertake the courses of the concerned university/companies.The assessee merely provides access to the contents of the universities/companies through the platform on receipt of fees.

Be that as it may, Assessing Officer's findings/observations on the role of assessee are self-contradictory. While on one hand, the Assessing Officer has acknowledged the fact that the assessee is an aggregation service provider and not a content creator, in the same breath, he says that assessee's contention that it is a mere aggregator of educational courses is not correct. The Assessing Officer has not brought on record any material to establish the fact that the assessee provides technical services through its online platform. Merely because the assessee has a customized landing page, it does not mean that the assessee provides technical services, that too, through human intervention. The Assessing Officer, in our view, has not been able to prove such fact. Even, assuming for argument's sake, the services provided by the assessee is of technical nature, that by itself would not be enough to bring such receipts within the purview of Article 12(4) of India USA DTAA, unless the make available condition is satisfied. Burden is entirely on the Revenue to prove that in course of rendition of services, the assessee has transferred technical knowledge, know-how, skill etc. to the service recipient, which enables him to utilize such technical knowledge, know-how, skill etc. independently without aid and assistance of the service provider.

In case of Elsevier Information Systems GmbH Vs. DCIT (supra), wherein identical nature of dispute was involved, the Coordinate Bench has held as under: "15. A customer/subscriber can access the data stored in the database by paying subscription. The Department held the subscription paid to Dun & Brad Street Espana, S.A., for accessing the data to be in the nature of royalty. The Authority for Advance Ruling after dealing with the issue ultimately concluded that the subscription received by Dun & Brad Street Espana, S.A., for allowing access to the database is not Sumo Logic Inc. in the nature of royalty/fees for technical services. Following the aforesaid decision, the Tribunal, Ahmedabad Bench, in ITO v/s Cedilla Healthcare Ltd. [2017] 77 taxmann.com 309, while considering the nature of subscription paid to a U.S. based company viz. Chemical Abstract Services, which is in the same line of business and is stated to be the competitor of the assessee, held that the subscription paid for online access to the database system "scifinder" is not in the nature of royalty. The observations of the Tribunal, while deciding the issue in favour of the assessee, are as under:- "17. We find that as the treaty provision unambiguously requires, it is only when the use is of the copyright that the taxability can be triggered in the source country. In the present case, the payment is for the use of copyrighted material rather than for the use of copyright. The distinction between the copyright and copyrighted article has been very well pointed out by the decisions of Hon'ble Delhi High Court in the case of DIT v. Nokia Networks OY [2013] 358 ITR 259/212 Taxman 68/25 taxmann.com 225. In this case all that the assessee gets right is to access the copyrighted material and there is no dispute about. As a matter of fact, the AO righty noted that 'royalty' has been defined as "payment of any kind received as a consideration for the use of, or right to use of, any copyright of literary, artistic or scientific work" and that the expression "literary work", under section 2(0) of the Copyright Act, includes 'literary database' but then he fell in error of reasoning inasmuch as the payment was not for use of copyright of literary database but only for access to the literary database under limited non exclusive and non transferable licence. Even during the course of hearing before us, learned Departmental Representative could not demonstrate as to how there was use of copyright. In our considered view, it was simply a case of copyrighted material and therefore the impugned payments cannot be treated as royalty payments. This view is also supported by Hon'ble Bombay High Court's judgment in the case of DIT (International Taxation) v. Dun & Bradstreet Information Services India (P.) Ltd.

Similar view was expressed by another Coordinate Bench in case of Relx Inc. Vs. ACIT (supra). In our view, the ratio laid down in these decisions squarely apply to the facts of the present appeal. In view of the aforesaid, we hold that the receipts do not qualify as FIS under Article 12(4) of India - USA tax treaty.

The above decision squarely applies to assessee’s facts. We observe that the assessee has submitted TRC and also offered income generated in India in the resident country and offered the same as income and it does not make any difference whether the global income assessed to tax are income or loss, as long as, the income generated are offered in the resident country as business income which is the requirement of law. In view of the above discussions we hold that receipt did not qualify as FTS under Article 12(4) of the India-US tax treaty. Thus, grounds of appeal

In the result, appeal of the assessee is partly allowed as indicated above. Order pronounced in the open court on this 27th day of December, 2024.