Commissioner Of Income Tax, Internationaltaxation-1, New Delhi v. Coursera Inc

Signature Not Verified $~97 *IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision : 19.05.2025 +ITA 157/2025, CM Nos.30185/2025 & 30186/2025 COMMISSIONER OF INCOME TAX, INTERNATIONALTAXATION-1, NEW DELHI.....AppellantThrough:Mr Puneet Rai, SSC, Mr AshviniKumar Mr Rishabh Nangia, and MrGibran JSCs and Mr Nikhil Jain,Advocate. versus COURSERA INC. .....Respondent Through: CORAM:HON'BLE MR. JUSTICE VIBHU BAKHRUHON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J. (ORAL) 1.The Revenue has filed the present appeal under Section 260A of theIncome Tax Act, 1961 [the Act], inter alia, impugning the common orderdated 21.08.2024 [impugned order] passed by the learned Income TaxAppellateTribunal inITANo.2416/Del/2023andITANo.3646/Del/2023 in respect of Assessment Year 2020-21 and 2021-22 respectively. The learned ITAT allowed the aforesaid appeals preferredby the respondent [Assessee] assailing the final assessment order dated28.06.2023 passed under Section 143(3) read with Section 144C(13) of theAct. 2.The Revenue has confined the present appeal to the impugned orderin so far as it relates to ITA No.2416/Del/2023 in respect of AY 2020-21.In terms of the impugned order, the learned ITAT allowed the appeal of the Signature Not Verified Assessee, inter alia, impugning the final assessment order dated 28.06.2023passed by the AO under Section 143(3) read with Section 144C(13) of theAct. 3.The Assessee is a company incorporated in United States of Americaand is a tax resident of the said country. The Assessee operates a globalonline learning platform providing online courses and degrees from leadinguniversities and companies. The AO sought to tax the receipts fromprovision of said services as fees for technical services within themeaning of Section 9(1)(vii) of the Act and fees for included services within the meaning of paragraph 4 of Article 12 of India USA DoubleTaxation Avoidance Agreement [ Indo-US DTAA]. 4.The learned ITAT accepted the Assessee’s contention that the receiptsfrom the services rendered are neither in the nature of royalty nor FTS (as itdid not entail any included services) which are chargeable to tax under theAct. 5.In the aforesaid context, the Revenue has projected the followingquestion of law for consideration of this Court: - “A. Whether on the facts and in the circumstances ofthe case, and in law, the Hon’ble ITAT is correct inholding that customized service as provided by theassessee do not qualify as “Make Available” as perArticle 12 of India-USA DTAA?the case, and in law, the Hon’ble ITAT is correct inholding that customized service as provided by theassessee do not qualify as “Make Available” as perArticle 12 of India-USA DTAA? B. Whether on the facts and in the circumstances of thecase, and in law, the Hon’ble ITAT is correct inholding that the user services provided by the assesseewhich involved high degree of human intervention oftrainingelementwouldnotsatisfyas“MakeAvailable” as per Article 12 of India-USA DTAA?”case, and in law, the Hon’ble ITAT is correct inholding that the user services provided by the assesseewhich involved high degree of human intervention oftrainingelementwouldnotsatisfyas“MakeAvailable” as per Article 12 of India-USA DTAA?” Signature Not Verified FACTUAL CONTEXT 6.On 23.12.2020, the Assessee had filed its return of income for theAY 2020-21 under Section 139(1) of the Act declaring total income of₹17,98,07,270/-. The Assessee’s return was picked up for scrutiny and a notice dated 29.06.2021 under Section 143(2) of the Act, was issued. Thesaidproceedingsculminatedintothedraftassessmentorderdated28.09.2022 which was passed under Section 144C(1) of the Act. Signature Not Verified FACTUAL CONTEXT 6.On 23.12.2020, the Assessee had filed its return of income for theAY 2020-21 under Section 139(1) of the Act declaring total income of₹17,98,07,270/-. The Assessee’s return was picked up for scrutiny and a notice dated 29.06.2021 under Section 143(2) of the Act, was issued. Thesaidproceedingsculminatedintothedraftassessmentorderdated28.09.2022 which was passed under Section 144C(1) of the Act. 7.It was the Assessee’s case before the AO that it had received the grossamount of ₹75,66,52,591/- during the previous year relevant to AY 2020-21 in respect of services rendered. The Assessee had explained that it operatesa platform which hosts multimedia courses for consumption of end users.The Assessee has onboarded various educational institutions offeringvarious courses in multiple disciplines, on its platform. The said courses inthe disciplines of management,arts, humanities,data analysisandphilosophy etc, are offered online. The Assessee claimed that its customersincluded individuals, educational institutions as well as the corporates. TheAssessee claims that the receipts did not constitute consideration forindustrial, commercial, or scientific knowledge or experience, etc. and therewas no element of its services, whereby it made available any technicalknowledge/skills etc to the customers. The Assessee, thus claimed that itsincome was not chargeable to tax either as royalty or as FTS under the Actread with the Indo-US DTAA. 8.Paragraphs 1 to 4 of Article 12 of the Indo-US DTAA are relevantand are reproduced below: - Signature Not Verified “ARTICLE 12 - Royalties and fees for included services – 1. Royalties and fees for included services arising in aContracting State and paid to a resident of the other ContractingState may be taxed in that other State.Contracting State and paid to a resident of the other ContractingState may be taxed in that other State. 2. However, such royalties and fees for included services mayalso be taxed in the Contracting State in which they arise andaccording to the laws of that State; but if the beneficial owner ofthe royalties or fees for included services is a resident of theother Contracting State, the tax so charged shall not exceed:also be taxed in the Contracting State in which they arise andaccording to the laws of that State; but if the beneficial owner ofthe royalties or fees for included services is a resident of theother Contracting State, the tax so charged shall not exceed: (a) in the case of royalties referred to in sub-paragraph (a)of paragraph 3 and fees for included services as defined inthis Article [other than services described in subparagraph(b) of this paragraph]:of paragraph 3 and fees for included services as defined inthis Article [other than services described in subparagraph(b) of this paragraph]: (i) during the first five taxable years for which thisConvention has effect,Convention has effect, (a) 15 per cent of the gross amount of the royaltiesor fees for included services as defined in thisArticle, where the payer of the royalties or feesis the Government of that Contracting State, apoliticalsub-divisionorapublicsectorcompany; andor fees for included services as defined in thisArticle, where the payer of the royalties or feesis the Government of that Contracting State, apoliticalsub-divisionorapublicsectorcompany; and (b) 20 per cent of the gross amount of theroyalties or fees for included services in all othercases ; androyalties or fees for included services in all othercases ; and (ii) during the subsequent years, 15 per cent of thegross amount of royalties or fees for included services; andgross amount of royalties or fees for included services; and (a) 15 per cent of the gross amount of the royaltiesor fees for included services as defined in thisArticle, where the payer of the royalties or feesis the Government of that Contracting State, apoliticalsub-divisionorapublicsectorcompany; andor fees for included services as defined in thisArticle, where the payer of the royalties or feesis the Government of that Contracting State, apoliticalsub-divisionorapublicsectorcompany; and (b) 20 per cent of the gross amount of theroyalties or fees for included services in all othercases ; androyalties or fees for included services in all othercases ; and (ii) during the subsequent years, 15 per cent of thegross amount of royalties or fees for included services; andgross amount of royalties or fees for included services; and (b) in the case of royalties referred to in sub-paragraph(b) of paragraph 3 and fees for included services asdefined in this Article that are ancillary and subsidiary tothe enjoyment of the property for which payment isreceived under paragraph 3(b) of this Article, 10 per centof the gross amount of the royalties or fees for includedservices.(b) of paragraph 3 and fees for included services asdefined in this Article that are ancillary and subsidiary tothe enjoyment of the property for which payment isreceived under paragraph 3(b) of this Article, 10 per centof the gross amount of the royalties or fees for includedservices. 3. The term “royalties” as used in this Article means : (a)payments of any kind received as a consideration for the use of,or the right to use, any copyright or a literary, artistic, orscientific work, including cinematograph films or work on film,tape or other means of reproduction for use in connection withradio or television broadcasting, any patent, trade mark, designor model, plan, secret formula or process, or for informationpayments of any kind received as a consideration for the use of,or the right to use, any copyright or a literary, artistic, orscientific work, including cinematograph films or work on film,tape or other means of reproduction for use in connection withradio or television broadcasting, any patent, trade mark, designor model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience,including gains derived from the alienation of any such right orproperty which are contingent on the productivity, use, ordisposition thereof ; and (b) payments of any kind received asconsideration for the use of, or the right to use, any industrial,commercial, or scientific equipment, other than paymentsderived by an enterprise described in paragraph 1 of Article 8(Shipping and Air Transport) from activities described inparagraph 2(c) or 3 of Article 8. 4. For purposes of this Article, “fees for included services”means payments of any kind to any person in consideration fortherenderingofanytechnicalorconsultancyservices(including through the provision of services of technical orother personnel) if such services: (a)are ancillary and subsidiary to the applicationor enjoyment of the right, property, orinformation for which a payment described inparagraph 3 is received; oror enjoyment of the right, property, orinformation for which a payment described inparagraph 3 is received; or (b)makeavailabletechnicalknowledge,experience, skill, know-how, or processes, orconsist of the development and transfer of atechnical plan or technical design.”experience, skill, know-how, or processes, orconsist of the development and transfer of atechnical plan or technical design.” 9.The Assessee claimed that by virtue of paragraph 4 of Article 12 ofthe DTAA its receipts cannot be treated as FIS as the Assessee did not makeavailable any technical knowledge, experience, skill, know-how, orprocesses. The Assessee claimed that its services were confined to offeringits platform for access to various courses conducted by other institutions/organisations. (b)makeavailabletechnicalknowledge,experience, skill, know-how, or processes, orconsist of the development and transfer of atechnical plan or technical design.”experience, skill, know-how, or processes, orconsist of the development and transfer of atechnical plan or technical design.” 9.The Assessee claimed that by virtue of paragraph 4 of Article 12 ofthe DTAA its receipts cannot be treated as FIS as the Assessee did not makeavailable any technical knowledge, experience, skill, know-how, orprocesses. The Assessee claimed that its services were confined to offeringits platform for access to various courses conducted by other institutions/organisations. 10.The AO examined one of the agreements entered into by the Assessee[Assessee’sagreementwithGandhiInstituteofTechnologyandManagement] and found that the Assessee provided two kinds of services:content services and user services. Insofar as the user services areconcerned, the Assessee provided services for; (i) preparing customised landing page featuring the organization logo and selected courses; (ii)generating user engagement reports; (iii) providing payment solution(s) toallow users to seamlessly access premium course experiences and skipcheckout; and (iv) rendering enterprise-level user support. The AO alsonoticed that the agreement included additional services which, inter alia,provided for training for using the platform. On the aforesaid basis, the AOconcluded that the Assessee was not merely providing content services butwas providing a whole range of user services, which is specific to aparticular user. Additionally, the AO observed that such services alsoinvolved a high degree of human intervention and no separate considerationfor such user services was received by the Assessee. The AO thus,proceeded to propose an addition of ₹75,66,52,591/- to the Assessee’s returned income (which was nil). 11.The Assessee filed his objections before the Dispute Resolution Panel . The DRP considered the Assessee’s objections. The DRP was notpersuaded by the objections raised by the Assessee. However, it took note ofthe submission that the AO had not factually examined the terms andconditions of the agreement, which was picked up by the AO, namely theservices that were, in fact, rendered in terms of the agreement with GandhiInstitute of Technology and Management. Accordingly, the DRP issueddirections to the AO to verify the Assessee’s contentions. The relevantextract of the directions issued by the DRP on 24.04.2023 are extractedbelow: “4.2.3 The Panel has considered the rival avermentsas mentioned above. The Panel takes a note of theAO's remarks made at para no. 9.3 to 9.4 of the draft order by which he has attempted to substantiate thatassessee is not only providing content services to thecustomer in India but also providing whole range ofuser services which involve a high degree of humanintervention. The AO further states that there is anelement of training involved with respect to thecustomerandtheclientandthebasisoftheinformationavailedthroughtheproceedingsconducting by him u/s 133(6) of the Act.The Panel also takes a note of assessee'ssubmission dated 14.02.2023 by which it has filed acopyofagreementwithGandhiInstituteofTechnology and Management which does not appearto be considered and discussed by the AO in the draftassessment order. The AO needs to factually examinethe assessee's contention as to whether the terms andcondition of this agreement do enable the assessee tomake it service provider in hosting content servicesand user services in relation to courses developed bythe educational institution and also enabling theassesseeforprovidingtechnicalservicestoitscustomer. Accordingly, the AO is directed to verify theassessee's contention in light of the said agreementby passing a speaking and reasoned order. The Panelhastens to clarify that the AO shall not conduct anyfresh inquiry in this regard; the verification shall bemadeonthebasisofdocuments/submissionsavailable on the assessment records. The assessee'sobjections in this regard are hereby, disposed offaccordingly. *** ****** 5.Directions under section 144C of the IncomeTax Act: The Assessing Officer is directed to complete theassessment as per the above directions of the DisputeResolution Panel. The Assessing Officer shall place acopy of these directions as annexure to the final order,to be read as a part of the order. While passing thefinal order, the Assessing Officer shall incorporate the Signature Not Verified reasons given by the Dispute Resolution Panel inrespect of various objections, at appropriate places.The Grounds of Objections are decided as above.” [emphasis added] 12.However, it does not appear that the AO undertook any fresh exercise.The AO reiterated its earlier observations and proceeded to pass the finalassessment order dated 28.06.2023. 13.The learned ITAT did not find merit in the Revenue’s contention thatthe Assessee had provided any technical services, especially the once whichinvolved human intervention. Accordingly, the learned ITAT rejected thecontention that the Assessee’s receipts were chargeable to tax under theIndo-US DTAA as FIS. The relevant extract of the learned ITAT’s decisionis set out below: “11. We have considered rival submissions in the lightof decisions relied upon and perused the materials onrecord. Insofar as the activity of the assessee isconcerned, it is established on record that the assesseeprovides a global online learning platform, wherein,various courses and degrees from leading universitiesand companies are provided. It is a fact on record thatthe contents of such courses and degrees are created bythe concerned universities and companies and not bythe assessee. The assessee acts as a mere facilitatorbetween the concerned university/companies and thecustomers who want to undertake the courses of theconcerned university/companies. The assessee merelyprovidesaccesstothecontentsoftheuniversities/companies through the platform on receiptof fees. 12. In fact, the Assessing Officer in the draftassessment order has clearly observed that the assesseeis not an educational institution but an aggregationservice provider, which brings educational learning on 12. In fact, the Assessing Officer in the draftassessment order has clearly observed that the assesseeis not an educational institution but an aggregationservice provider, which brings educational learning on one platform. He has further stated that the coursecontents were not created by the assessee, but by theeducational institutions. The customers who want toundertakecourse/degreegetaccesstothecontents/study materials through the platform providedby the assessee. Tests/examinations are also conductedby the concerned universities and companies and notbytheassessee.Certificateforcompletionofcourse/degrees are also issued by the concerneduniversities/companies along with the logo of theassessee. These facts clearly indicate that whileprovidingaccesstovariouscourses/degrees,theassessee does not provide services of technical natureto the customers. In fact, while disposing of theobjections raised by the assessee against the draftassessment order, learned DRP has clearly observedthattheAssessingOfficerhasneitherproperlyexamined the agreement with Gandhi Institute ofTechnologyandManagement,norhasfactuallyexamined assessee’s contention that the terms andconditions of the agreement do not make the assessee atechnical service provider. However, while passing thefinal assessment order, the Assessing Officer hascompletely ignored the directions of learned DRP.This is evident from the following observations of theAssessing Officer in the final assessment order“13. In response to the directions of Hon’bleDRP, the agreement of the assessee withGITAM was perused. It is seen that theobservations regarding the agreement of theassessee with GITAM has been discussed inthe Draft assessment order (refer to para 8.2and 8.3). Accordingly, the final assessmentorder is being passed at total assessed incomeofRs.75,66,52,591/-taxableatasperprovisions of the Income Tax Act, 1961 andapplicablesurchargeandcess.Necessaryforms to be issued, applicable interest to becharged and credit of taxes, if any afterverification from the ITD system are to beallowed. Penalty u/s 270A is being proposed to initiate as discussed in earlier paragraphs ofthe order. Detailed computation of tax payableand interest charged u/s 234A, 234B and 234Cof the Act is being attached as part of the finalorder. Notice of demand is being issued.” 13. As could be seen from the highlighted portion ofthe observation of Assessing Officer, without properlyimplementing the directions of learned DRP, he hasmerely stated that the agreement with Gandhi Instituteof Technology and Management has been discussed inthe draft assessment order. By these observations whatthe Assessing Officer implies is, learned DRP hasissued directions without proper application of mind.This, in our view, is highly objectionable and againstthe provision contained under section 144C(13) of theAct. 14.Bethatasitmay,AssessingOfficer’sfindings/observations on the role of assessee are self-contradictory. While on one hand, the AssessingOfficer has acknowledged the fact that the assessee isan aggregation service provider and not a contentcreator, in the same breath, he says that assessee’scontention that it is a mere aggregator of educationalcourses is not correct. The Assessing Officer has notbrought on record any material to establish the fact thatthe assessee provides technical services through itsonline platform. Merely because the assessee has acustomized landing page, it does not mean that theassessee provides technical services, that too, throughhuman intervention. The Assessing Officer, in ourview, has not been able to prove such fact. Even,assuming for argument’s sake, the services providedby the assessee is of technical nature, that by itselfwould not be enough to bring such receipts within thepurview of Article 12(4) of India – USA DTAA,unless the make available condition is satisfied.Burden is entirely on the Revenue to prove that incourse of rendition of services, the assessee hastransferred technical knowledge, know-how, skill etc.to the service recipient, which enables him to utilize suchtechnicalknowledge,know-how,skilletc.independently without aid and assistance of the serviceprovider.” 14.It is clear from the above that the learned ITAT’s conclusion that theservices provided by the Assessee did not include any element of includedservices and, therefore, the Assessee’s receipts were not chargeable to tax asFIS under the Indo-US DTAA, is based on the findings of fact in respect ofthe services rendered by the Assessee. 15.We do not find that the said findings can be stated to be perverse byany stretch. There is no dispute that if the services provided by the Assesseeare not of technical nature as stated by the learned ITAT, the Assessee’sreceipts would not be chargeable to tax as FTS under the Act read with theIndo-US DTAA. In any event, the amount receipt is not chargeable to tax asFIS within the scope of Article 12 of the India US DTAA. 16.In view of the above, we find that no substantial question of law arisesfor consideration of this Court. 17.The application for condonation of delay of 92 days in re-filing thepresent appeal is allowed. 18.The appeal is dismissed and the pending application is also is alsodisposed of. VIBHU BAKHRU, J MAY 19, 2025M TEJAS KARIA, J Click here to check corrigendum, if any