SERVICENOW NEDERLAND BV,NETHERLANDS vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE INTERNATIONAL TAX 3(1)(2), DELHI

1 ITA Nos. 2022 & 2023/Del/2023 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI

BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER

ITA No. 2022/DEL/2023 : (A.Y. 2020-21) & ITA No. 2023/DEL/2023 : (A.Y. 2021-22)

Service Now Nederland BV, Vs ACIT, Circle International Netherlands. Taxation, C/o Service Now Software Development 3(1)(2), New Delhi. India Private Limited, Knowledge City, 7th & 8th floor, Plot No. 2, Phase I, Survey No. 83/1 Raidurg village, Serlingampally, Telangana-500081.

PAN- AASCS7933F APPELLANT RESPONDENT Assessee represented by Sh. Aditya Vohra, Adv.; & Sh. Hardeep Chawla, Adv.

Department represented by Sh. Vizay B. Vasanta, CIT(DR)

Date of hearing 07.12.2023 Date of pronouncement 13.12.2023

O R D E R PER KUL BHARAT, JM: These two appeals preferred by the assessee pertain to A.Y. 2020-21 and 2022-23.

Since facts and grounds for adjudication are similar, both the appeals were taken

2 ITA Nos. 2022 & 2023/Del/2023 up for hearing together and are being disposed of by a consolidated order for the

sake of brevity.

assessee has raised following grounds of appeal:

“1. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ( DRP") erred in not quoting a valid computer- generated DIN on the body of DRP directions dated 19 A 2023 under section 144C(5) of the Act, in contravention to the Circular No. 19 of 2019 by the Cen Board of Direct Taxes ('CBDT"), thus rendering such an order/direction to be invalid and never to ha been issued as per para 4 of the said circular. 2. On the facts and in the circumstances of the case and in law, the final assessment order dated 29 M 2023 passed by the Ld. AO under section 143(3) read with section 144C(13) of the Act pursuant to inv and non-est directions passed by the Ld. DRP, is bad in law, null and void and liable to be quashed. 3. Without prejudice to Ground No.1 and 2 above, on the facts and circumstances of the c and in law, the Ld. AO and Ld. DRP erred in making an addition of INR 171,92,37,658 to the incom of the Appellant on account of subscription, professional and training services without appreciat the fact that these services do not fall within the purview of fees for technical services ('FTS") une Article 12 of the India-Netherlands Double Taxation Avoidance Agreement (DTAA') and hence taxable in India. 4. On the facts and circumstances of the case and in law, the Id. AO and the Ld. DRP erred in mer assuming that there is make available of technical knowledge by the Appellant to the serv recipient without bringing any materials on record to substantiate the same.

3 ITA Nos. 2022 & 2023/Del/2023 5. On the facts and circumstances of the case and in law, the Ld. AO and Ld. DRP erred in making. addition of INR 171,92,37,658 to the income of the Appellant on account of subscripti professional and training services without appreciating the fact that these services do not fall wit the purview of FTS under Article 12 of the India-Netherlands DTAA by virtue of the Most Favou Nation (MFN) clause of the India-Netherlands DTAA read with India- Finland DTAA and hem not taxable in India. 6. Without prejudice to the above grounds, on the facts and circumstances of the case and law, the Ld. AO erred in not granting credit for entire taxes as appearing in Form 26AS in impugned order as directed by the Ld. DRP and even though the entire receipts have been assesm to tax. 7. On the facts and circumstances of the case and in law, the Ld. AO has erred in charging inter under section 234C/234D of the Act. 8. On the facts and circumstance of the case and in law, the interest under section 234A and 234B the Act are consequential in nature and would undergo change on the basis of relief provided in the aforesaid grounds of appeal. 9. On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings by issuing notice under section 274 read with section 270A of the Act. The Appellant craves leave to alter, amend, or withdraw all or any of the grounds herein or add any further grounds as may be considered necessary either before or during the hearing.” 3. Facts, in brief, are that the assessee company filed its original return of

income for the assessment year 2020-21 on 12.02.2021 declaring total income at

INR 172,56,16,120/-. The case was selected for scrutiny assessment for refund

claim. The AO observed that in its ITR the assessee had claimed a refund of INR

1,37,18,050/- against TDS amounting to INR 1,43,55,898/- u/s 195 of the Income-

4 ITA Nos. 2022 & 2023/Del/2023 tax Act, 1961(hereafter referred to as the “Act”). The assessee had claimed INR

171,92,37,658/- as exempt from taxation under Article 12 of India-Netherlands

DTAA. The AO in order to satisfy about the veracity of claim of the assessee

issued notice to the assessee to explain about its claim. Rejecting the claim of the

assessee, the AO taxed INR 171,92,37,658/- as FTS under DTAA. Remaining

income of INR 63,78,464/- was taxed as per return of income. The assessee filed

objections against the action of the AO before the learned DRP objecting draft

order passed u/s 144C(1) of the Act. Learned DRP considered the objections and

held that there was no reason to deviate from the finding of the learned DRP for

A.Y. 2019-20, whereby the learned DRP had upheld that the receipts from

subscription payments training and professional fees were taxable in India as FTS.

However, in respect of the credit of taxes the AO was directed to verify the factual

submissions of the assessee and grant credit as per law. Thereafter the AO passed

the impugned order u/s 143(3) read with section 144C(13) vide order dated

29.05.2023.

that he does not wish to press the same. Therefore, ground nos. 1 & 2 are dismissed

as not pressed.

counsel for the assessee submitted that the issue is squarely covered by the

5 ITA Nos. 2022 & 2023/Del/2023 decision of the Tribunal in assessee’s own case for A.Y. 2019-20 rendered in ITA

no. 2242/Del/2022 vide order dated 29.08.2023. He took us through the decision of

the Tribunal for A.Y. 2019-20, wherein the Tribunal has decided the issue in

favour of the assessee.

contended that the learned DRP has examined the issue. However, he fairly

conceded that similar issue has been decided in favour of the assessee by following

the binding precedents.

record. We find that identical ground was taken by the assessee in A.Y. 2019-20

wherein the Tribunal had examined the issue relating to taxability of the amount as

fee for technical services by observing as under:

6 ITA Nos. 2022 & 2023/Del/2023 professional services including the production of any related deliverables, performed y ServiceNow pursuant to a statement of work. Clause 1.32: “Subscription Service” means the ServiceNow subscription services and the Technology used by the ServiceNow or its affiliates to deliver such subscription services, including Configurable Elements and APIs, but excluding Ancillary Software. 2. PARTNERNOW OVERVIEW 2.1. Enrollment in PartnerNow. PartnerNow consists of Programs, including the Sales Partner Program and Services Partner Program, described in the applicable Program Terms and Guides. Participant shall be deemed enrolled in PartnerNow, subject to the terms of this Agreement, when it is initially appointed to one or more Programs as evidenced by an Appointment Confirmation. 2.3. Benefits. Upon appointment to a Program, Participant may access certain ServiceNow Technology, including one or more Partner Instances, all subject to and in accordance with the Licenses and use authorizations granted under Section 4 (Licenses to Participant) below and the other terms and conditions of this Agreement.

7 ITA Nos. 2022 & 2023/Del/2023 discretion, except as provided in an applicable Guide or Program Terms for a Program to which Participant was appointed. 7. INTELLECTUAL PROPERTY 7.1. Ownership. Subject to the limited licenses set forth in this Agreement, nothing in this Agreement transfers or assigns to ServiceNow any of Participant’s Intellectual Property Rights in Participant Technology (including in any source code originally authored by Participant using the Subscription Service), Participant Trademarks, or Participant’s marketing materials; and nothing in this Agreement transfers or assigns to Participant any of Service Now’s Intellectual Property Rights in ServiceNow Technology (including in any preexisting works of ServiceNow that are modified by Participant), ServiceNow Trademarks, or Collateral. There are no implied licenses under this Agreement, and any rights of a party that are not expressly granted to the other party hereunder are reserved. PROGRAM TERMS (APPENDIX 1 to the aforesaid Agreement) FOR THE PARTNERNOW SALES PARTNER PROGRAM 3. RESLLER RIGHTS 3.1. Appointment. An Appointment Confirmation that appoints Participant to the Program alone does not constitute an authorization for Participant to resell the Subscription Services, ServiceNow Professional Services or any other products or services of ServiceNow. Such resale authorization may only be granted pursuant to an Appointment Confirmation that expressly appoints Participant as ServiceNow’s authorized reseller (which may be provided separately or in the same communication that appoints Participant to the Program). Upon Participant’s receipt of such Appointment Confirmation, Participant may resell ServiceNow products and packaged professional services as provided in the Guide.

8 ITA Nos. 2022 & 2023/Del/2023 1…….. [2……. 3. ……. 1 [4……….. 5. For purposes of this Article, "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 4 of this Article is received; or (b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. 6 to 9. …….

7.1. We find that Article 12(5)(a) above is not applicable in the instant case. Article 12(5)(b) insist on make available clause to fall within the ambit of FTS. In the instant case, the assessee has only access to software. There is no transfer of technology by the assessee. We are unable to persuade ourselves to accept to the argument of the ld. DR in this regard wherein it was argued that services provided by assessee are standard and customized services and that ‘make available’ clause is not relevant for the second part of Article 12(5)(b) i.e it is not relevant for development and transfer of a technical plan or technical design. In our considered opinion, ‘make available’ is for the entire expressions mentioned in Article 12(5)(b) of the India Netherlands Treaty. In this regard, it would be relevant to address the decision of Hon’ble Karnataka High Court in the case of CIT vs De Beers India Minerals (P) Ltd reported in 346 ITR 467 (Kar) to understand the meaning of expression ‘make available’. The relevant operative portion of the judgement of Hon’ble Karnataka High Court is reproduced hereunder:- 13. Under the Act if the consideration paid for rendering technical services constitutes income by way of fees for technical services, it is taxable. However, Article 12 of the aforesaid India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which deals with royalties and fees for technical services. The fees for technical services means the payment of any amount to any person in consideration for rendering of any technical services only, if such services make available technical knowledge, expertise, skill, know- how or processes. If the technical knowledge expertise, skill, know

9 ITA Nos. 2022 & 2023/Del/2023 how or process is not made available by the service provider, who has rendered technical service for the purpose of Article 12 of DTAA it would not constitute fees for technical services. To that extent the definition of fee for technical services found in the agreement is inconsistent with the definition of fees for technical services provided in Explanation 2 to Clause (vii) of sub Section (1) of Section 9. In view of Section 90 the definition of fees for technical services contained in the agreement overrides the statutory provisions contained in the Act. In fact, the latest agreement between India and Singapore further clarifies this position, where they have explained the meaning of the word 'make available'. According to the aforesaid definition fees for technical service means payments of any kind to any person in consideration for services of technical nature if such services make available technical knowledge, experience, skill, know how or processes, which enables the person acquiring the service to apply technology contained therein. Though this provision is not contained in India Netherlands Treaty, by virtue of Protocol in the agreement, Clause (iv) (2) reads as under:- "If after the signature of this convention under any Convention or Agreement between India and third State which is a member of the OECD India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention." 14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word 'make available', the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the

10 ITA Nos. 2022 & 2023/Del/2023 tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical Services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the Clauses in the DTAA. the liability, to tax is not attracted.

7.2. In the instant case, as stated earlier, we find that the assessee had merely granted only access to software and there is no transfer of technology by the assessee. Hence we have no hesitation to hold that the services rendered by the assessee does not fall within the definition of FTS as per the Treaty. In any case, we find that the since assessee had merely granted access to software, it does not fall within the definition of FTS even as per the Act. In this regard, analogy could be drawn from the decision of Hon’ble Supreme Court in the case of CIT vs Kotak Securities Ltd reported in 383 ITR 1 (SC) wherein it was held that service made available by Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which transaction charges are paid by members of BSE are common services that every member of Stock Exchange is necessarily required to avail of to carry out trading in securities in Stock Exchange; such services do not amount to 'technical services' provided by Stock Exchange, not being services specifically sought for by user or consumer and, therefore, no TDS would be deductible under section 194J on payments made for such services.

11 ITA Nos. 2022 & 2023/Del/2023

7.1 Therefore, taking a consistent view we do not see any reason to deviate from

the decision of the Tribunal in earlier year. Consequently, grounds nos. 3 to 5,

raised by the assessee are allowed.

factual verification. The AO is directed to grant TDS credit after due verification in

accordance with law.

will recalculate the interest, if any, while giving effect to the appellate order.

needs no adjudication.

21 is partly allowed.

2023/Del/2023. The assessee has raised following grounds of appeal:

“1. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('Ld. DRP' ) erred in not quoting a valid

12 ITA Nos. 2022 & 2023/Del/2023 computer-generated DIN on the body of DRP directions dated 19 April 023 under section 144C(5) of the Act, in contravention to the Circular No. 19 of 2019 by the Central Board of Direct Taxes ('CBDT"), thus rendering such an order/direction to be invalid and never to have been issued as per para 4 of the said circular. 2. On the facts and in the circumstances of the case and in law, the final assessment order dated 31 May 2023 passed by the Ld. AO under section 143(3) read with section 144C(13) of the Act pursuant to invalid and non-est directions passed by the Ld. DRP, is bad in law, null and void and liable to be quashed. 3. Without prejudice to the Ground No.1 and 2 above, on the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP erred in making an addition of INR 248,32,06,556 to the income of the Appellant on account of subscription, professional and training services without appreciating the fact that these services do not fall within the purview of fees for technical services 'FTS') under Article 12 of the India-Netherlands Double Taxation Avoidance Agreement ('DTAA') and hence not taxable in India. 4. On the facts and circumstances of the case and in law, the Ld. AO and the Ld. DRP erred in merely assuming that there is make available of technical knowledge by the Appellant to the service recipient without bringing any materials on record to substantiate the same. 5. On the facts and circumstances of the case and in law, the Ld. AO and Ld. DRP erred in making an addition of INR 248,32,06,556 to the income of the Appellant on account of subscription, professional and training services without appreciating the fact that these services do not fall within the purview of FIS under Article 12 of the India-Netherlands DTAA by virtue of the Most Favored Nation (MFN') clause of the India-Netherlands DTAA read with India - Finland DTAA and hence not taxable in India. 6. Without prejudice to the above grounds, on the facts and circumstances of the case and in law, the Ld. AO erred in not granting credit for entire taxes as appearing in Form 26AS in the impugned order as directed by the Ld. DRP though the entire receipts have been assessed to tax. 7. On the facts and circumstances of the case and in law, the Ld. AO has erred in charging interest under section 234C/234D of the Act.

13 ITA Nos. 2022 & 2023/Del/2023 8. On the facts and circumstance of the case and in law, the interest under section 2344 and 234B of the Act are consequential in nature and would undergo change on the basis of relief provided in the aforesaid grounds of appeal. 9. On the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings by issuing notice under section 274 read with section 270A of the Act.”

income for the assessment year under consideration on 10.03.2022 declaring total

income of INR 63,78,465/-. The case was selected for scrutiny assessment for the

reason “receipt of large value foreign remittance and low receipts in ITR”. The AO

in order to satisfy about the veracity of claim of the assessee issued notice to the

assessee calling upon the assessee to explain about its claim. The AO treated the

receipts as FTS amounting to INR 248,32,06,556/- under domestic as well as

DTAA. The assessee filed objections against the action of the AO before the

learned DRP objecting against draft order passed u/s 144C(1) of the Income-tax

Act, 1961(hereafter referred to as the “Act”). Learned DRP considered the

objections and held that there was no reason to deviate from the finding of the

learned DRP for A.Y. 2019-20, whereby the learned DRP had upheld that the

receipts from subscription payments training and professional fees were taxable in

India as FTS. However, in respect of the credit of taxes the AO was directed to

verify the factual submissions of the assessee and grant credit as per law.

14 ITA Nos. 2022 & 2023/Del/2023 Thereafter the AO passed the impugned order u/s 143(3) read with section

144C(13) vide order dated 31.05.2023.

same as FTS on account of subscription, professional and training services.

Admittedly the facts are identical to earlier years in assessee’s own case. As

observed in assessee’s appeal for A.Y. 2020-21, this issue has been elaborately

discussed by the Tribunal in assessee’s own case for A.Y. 2019-20. Facts and

circumstances of the case remaining the same, respectfully following Tribunal’s

order for A.Y. 2019-20, herein also we hold that subscription, professional and

training services rendered by the assessee do not fall within the definition of FTS

under DTAA and, therefore, cannot be taxed in India. Accordingly, addition of

INR 248,32,06,556/- stands deleted. Ground nos. 3 to 5 stand allowed.

factual verification. The AO is directed to grant TDS credit after due verification in

accordance with law.

will recalculate the interest, if any, while giving effect to the appellate order.

15 ITA Nos. 2022 & 2023/Del/2023 18. Initiation of penalty proceedings, raised in ground no. 9, is premature and needs no adjudication. 19. Consequently, assessee’s appeal in ITA No. 2023/Del/2023 for A.Y. 2021-

22 is partly allowed. 20. In the result, assessee’s appeals in ITA No. 2022/Del/2023 for A.Y. 2020-21 and ITA No. 2023/Del/2023 for A.Y. 2021-22 are partly allowed.

Order pronounced in open court on 13th December, 2023.

Sd/- Sd/- (DR. B.R.R. KUMAR) (KUL BHARAT) ACCOUNTANT MEMBER JUDICIAL MEMBER *MP* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI