DIGICERT INC.,UNITED STATES vs. ACIT, CIRCLE INT. TAXATION 1(2)(2), DELHI

DEFINITIONS "Addendum" means a mutually agreed upon addendum, purchase schedule, order form, or other purchasing document setting forth commercial terms for the resale of Services, whether such document is in hard copy or online. "Certificates" means any type of digital certificate. "DigiCert Materials" means hard or electronic copies of any DigiCert technical manual, sales and marketing material, hardware, or software related to the Services that DigiCert makes available to Reseller. "DigiCert PKI" means the DigiCert public key infrastructure that provides Services for individuals and organizations "Effective Date" means the date Reseller first accepted this Agreement “This Master Reseller Agreement (the "Agreement is between DigiCert, Inc. ("DigiCert") and the entity or business reselling Services (Reseller By executing an Addendum that references this Agreement, by electronically this via DigiCert's online services, or by reselling Services, hereby accepts this Agreement lys Agreement via Diger endividuals entering into this Agreement on behalf of Reseller, you represent and warrant Reseller to to this Agreement. that you are authorized representatives of Reseller the authority to bind "Intellectual Property Rights" means any and all now known or hereafter existing rights associated with intangible property including, but not limited to, registered and unregistered United States and foreign copyrights, trade dress, trade names, corporate names, logos, inventions, patents, patent applications, software, know-how, and all other intellectual property and proprietary rights (of every kind and nature throughout the universe and however designated).

APPOINTMENT Subject to the terms and conditions of this Agreement, DigiCert hereby appoints Reseller as a non-exclusive reseller for the Services. Reseller may promote, market, and resell Services to end user customers (each such customer to whom Reseller resells Services, the "Reseller Customers") in the Territory.

RESELLER OBLIGATIONS 3.1 Resale Process. 3.1.1 Reseller may purchase Services for resale to Reseller Customers. If Reseller wishes to enroll for Services on behalf of Reseller Customers, Reseller shall enter into an agreement with such Reseller Customers (each, a "Customer Agreement"), which (a) binds the Reseller Customers to the Subscriber Agreement applicable to the Services, as specified by DigiCert and published at https://www.digicert.com/subscriber-agreement; and (b) provides that DigiCert is an express third-party beneficiary of the obligations contained in the Customer Agreement. Reseller shall use best efforts to ensure that all Customers abide by the terms of the applicable Customer Agreement(s). DigiCert may modify such terms by updating its repository from time to time and Reseller shall flow- down such new terms to existing or new Reseller Customers. Alternatively, Reseller Customers may enroll for Services through URLs that DigiCert provides to Reseller. Customers will be subject to DigiCert's applicable contract terms for purchase of the applicable Services from in which case Reseller DigiCert. Upon written request from DigiCert. Reseller shall promptly provide DigiCert with a copy of each Customer Agreement, provided that Reseller may redact from such coples any information that is not relevant to the requirements of this Section 3.1.1 (if any). 3.1.2 DigiCert hereby appoints Reseller as a Trusted Agent (and Reseller hereby accepts such appointment) pursuant to the terms of the applicable Certification Practices Statement, available that https://www.digicert.com/legal-repository/ (as updated from time to time, the "CPS"), which Agreement. To the extent that Reseller performs any functions of a Trusted Agent, it will do so in compliance with the CPS, and DigiCert may rely on Reseller's actions when performing as a Trusted Agent. is part of this third-party claim, suit, proceeding, or judgment arises from Reseller's failure to comply with the obligations of To the extent any a Trusted Agent, Reseller shall defend, indemnify, and hold harmless DigiCert, Its Page | 5

DIGICERT'S OBLIGATIONS 4.1 Ordering and/or Deploying Services. If Reseller enrolls for Services on behalf of Reseller Customers, then DigiCert shall email deployment Reseller enrolls for Se Digicert's authentication of the applicable Certificate Application. Alternatively, if Reseller Reseller upon DigiCservices through DigiCert's URL, then DigiCert shall email deployment instructions director Reseller Customers upon DigiCert's authentication of the applicable Certificate Application. 4.2 Service Notices. DigiCert shall use commercially reasonable efforts to notify Reseller and/or Reseller Customers of the expiration of any Services at least thirty (30) days prior to the expiration. 4.3 Support. DigiCert shall provide support as follows: (a) standard phone and email support during normal business hours Monday through Friday exchange signated holidays), (b) within twenty-four (24) hours of receipt of a technical inquiry fronting Digited to the Services, a response addressing the issue; (c) twenty-four (24) hour access to support pages on DigiCert's website; and (d) at DigiCert's discretion, assign an account manager or the equivalent portages on DigiCert sketing support. For the avoidance of doubt, Reseller is solely responsible for providing billing port and Reseller Customers that purchase the Services directly from Reseller, and DigiCert has no responsibility for or liability in respect of billing such Reseller Customers unless specifically agreed otherwise in writing.

The learned assessing officer observed that underlying agreement based on which the assessee derived receipts is basically a service agreement and not a software license agreement with an End User License Agreement (EULA). The services rendered by assessee to its Indian parties include services along with software license. Accordingly, the learned Assessing Officer concluded that the receipts of the assessee cannot be treated as exempt from tax. Further, the learned Assessig Officer concluded that from the information provided by the assessee, both assessee company and Indian Associated Enterprises (AEs) are rendering fee for technical services for Indian customers and that these services are inextricably linked to security licenses. Accordingly, he concluded that the receipts are to be treated as fee for technical services both under the Act as well as under the India-USA treaty.

We find on perusal of all the agreements placed on record referred to herein above, the assessee issues non-exclusive, non-transferable and non-sublicensable license to the resellers in India without granting any right to modify the software. In our considered opinion, the assessee provides only the limited license to the resellers which has been categorized as services as per the Master Reseller Agreement. The assessee does not grant any proprietary interest on the licensee and there is no parting of any copyright in favor of the licensee. It is only a non- exclusive, non-transferable license merely enabling the use of the copyrighted product and does not create any interest in copyright and therefore, the payment for such a license would not be in the nature of either royalty (1:25) or fee for technical services. We find that assessee had also placed on record the Addendum to Master Reseller Agreement with the main parties which had contributed 99 percent of the receipts to Page | 9 the assessee. This addendum is enclosed in pages 996 to 1001 of Vol. III of the Paper Book. The assessee had also furnished the invoices raised on JNR management resources private limited which are enclosed in pages 518 to 522 of Vol. II of the Paper Book which clearly says what is being charged by the assessee is for reseller bulk digital certificate purchase. These invoices clearly show that no technical services within the ambit of fee for technical services both as per the Act as well as under the treaty were rendered by the assessee. Similarly, the assessee had enclosed the invoices from pages 535 to 547 of Vol. II of the Paper Book in respect of Adweb Technologies private limited whose invoices also carry the same description as that of JNR above.

We find that assessee had rendered level 1 services to the Indian customers and level 2 services were provided by Indian AE. In our considered opinion, the learned AO had mixed both these services together and categorized the receipts of the assessee as FTS. Infact, the assessee vide reply letter dated 15-12-22 enclosed in Pages 673 to 675 of Vol. II of the Paper Book had categorically stated that DigiCert India provides level 2 technical support services. The level 1 support comprise of addressing network issues, integration of DigiCert products etc. which were provided by assessee. DigiCert India is responsible for undertaking level 2 technical support which involves interacting with the customers to understand the issues, providing suggestions on customer network, undertake troubleshooting etc. In case of any issues in coding surface, while adding a customer query, the same is intimated to the development team for fixing the same. The invoices for all the parties were duly furnished by the assessee before the lower authorities. We hold that assessee had only sold the copyrighted article by granting non-exclusive, non-transferable and non-sublicensable right and license to resellers without granting any right to modify the software.

In view of the aforesaid factual observations which remain uncontroverted, we find that the reliance placed by the assessee on the decision of Hon‟ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt Ltd. reported in 432 ITR 471 (SC) is well founded wherein the transaction of the assessee is specifically covered under the second category of software sale stated in the said decision and such sale of software as end-user model or a reseller model granting non-exclusive restrictive license model would not be covered in the definition of royalty as per DTAA and accordingly not taxable in India.

It would be pertinent to note that the learned Assessing Officer had relied on the agreement entered into with DXC Technology India Private Limited, wherein a separate clause for providing technical support services was present. In this regard, the assessee had submitted that the services rendered towards maintenance and support are only ancillary to the sale of software license and not any additional services rendered to Indian customers. We find that in any event, the receipts by the assessee from DXC Technology India Private Limited is only Rs 1,20,931/- which Page | 10

The assessee submitted that the Indian AE does not provide any technical services relating to software sale to the customers in India. We find that the earning of the Indian AE has no relevance to the issue in dispute before us. The learned Assessing Officer had stated that the Indian AE is rendering FTS for Indian customers. We find that there is no specific agreement in place between the AE and its Indian customers. Hence we are unable to comprehend ourselves to accept to the contention of the revenue that the services rendered by Indian AEs are FTS.

In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we hold that the assessee was duly justified in treating the receipts of Rs 10,89,13,249/- as exempt from tax both under the Act as well as under the treaty in the facts and circumstances of the instant case. Accordingly, the grounds 3 to 10 raised by the assessee are allowed.

In the result, the appeal of the assessee is partly allowed. “

Respectfully following the aforesaid decision, we hold that the assessee was duly justified in treating the receipts of Rs 5,89,73,412/- as exempt from tax both under the Act as well as under the Treaty in the facts and circumstances of the instant case. Accordingly, the Ground Nos. 2 to 6 raised by the assessee are allowed.

The Ground No. 7 raised by the assessee is regarding the chargeability of interest under section 234B of the Act which would be consequential in nature.

In the result, the appeal of the assessee is partly allowed.