+Ita 158/2025 & Cm Appl v. Coursera Inc

$~98 IN THE HIGH COURT OF DELHI AT NEW DELHI %Date of Decision : 19.05.2025 +ITA 158/2025 & CM APPL. 30269-70/2025COMMISSIONER 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.Kumar Mr Rishabh Nangia, and MrGibran JSCs and Mr Nikhil Jain,Advocate. versus COURSERA INC. Through: .....Respondent 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 whereby the learned ITAT allowed the aforesaid appealspreferred by the respondent [Assessee] in respect of the final assessment orderspassed by the Assessing Officer under Section 143(3) readwith Section 144C(13) of the Act. 2.The Revenue has confined the present appeal to the impugned orderinsofar as it relates to ITA No.3646/Del/2023 in respect of AY 2021-22. Interms of the impugned order, the learned ITAT allowed the appeal of theAssessee, inter alia, impugning the final assessment order dated 31.10.2023passed by the AO under Section 143(3) read with Section 144C(13) of theAct. 3.The Assessee is a company incorporated in the United States ofAmerica and is a tax resident of the said country. The Assessee operates aglobal online learning platform providing online courses and degrees fromleading universities and companies. The AO sought to tax the receipts fromthe provision of said services as ‘fees for technical services’ withinthe meaning of Section 9(1)(vii) of the Act and ‘fee for included services’ under Article 12(4) of India USA Double Taxation AvoidanceAgreement [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 entrail any included services) which are chargeable to tax under theAct. 5.In the aforesaid context, the Revenue has projected the followingquestions 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 in holding 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(4) of India-USA DTAA?” FACTUAL CONTEXT 6.On 11.03.2022, the Assessee had filed its return of income for theAY 2021-22 under Section 139(1) of the Act declaring total income of₹1,03,070/-. The Assessee’s return was picked up for scrutiny and a notice dated 27.06.2022 under Section 143(2) of the Act, was issued. The saidproceedings culminated into the draft assessment order dated 29.12.2022,which was passed under Section 144C(1) of the Act. FACTUAL CONTEXT 6.On 11.03.2022, the Assessee had filed its return of income for theAY 2021-22 under Section 139(1) of the Act declaring total income of₹1,03,070/-. The Assessee’s return was picked up for scrutiny and a notice dated 27.06.2022 under Section 143(2) of the Act, was issued. The saidproceedings culminated into the draft assessment order dated 29.12.2022,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 ₹106,18,97,258/- during the previous year relevant to AY 2021-22 in respect of services rendered.The Assessee had explained that itoperates a platform which hosts multimedia courses for consumption of end-users. The Assessee has on boarded various educational institutions offeringvarious courses on its platform and offers educational courses in multipledisciplines, on its platform. The said courses in the disciplines ofmanagement, arts, humanities, data analysis and philosophy etc. are offeredonline. The Assessee claims that its customers included individuals,educational institutions as well as corporates. The Assessee claims that thereceipts did not constitute consideration for industrial, commercial, orscientific knowledge or experience, etc., and there was no element of its services whereby it made available any technical knowledge/skills etc. to thecustomers. The Assessee thus, claimed that its income was not chargeable totax, either as royalty or as FTS/FIS under the Act read with Indo-US DTAA. 8.Paragraph nos. 1 to 4 of Article 12 of the Indo-US DTAA are relevantand are reproduced below: - “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. 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) ofparagraph 3 and fees for included services as defined in thisArticle [other than services described in subparagraph (b) ofthis paragraph]:paragraph 3 and fees for included services as defined in thisArticle [other than services described in subparagraph (b) ofthis paragraph]: (i) during the first five taxable years for which this Convention has effect, (a)15 per cent of the gross amount of theroyalties or fees for included services asdefined in this Article, where the payer of theroyalties or fees is the Government of thatContracting State, a political sub-division or apublic sector company; androyalties or fees for included services asdefined in this Article, where the payer of theroyalties or fees is the Government of thatContracting State, a political sub-division or apublic sector company; and (b)20 per cent of the gross amount of theroyalties or fees for included services in allother cases ; androyalties or fees for included services in allother cases ; 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 as defined inthis Article that are ancillary and subsidiary to theenjoyment of the property for which payment is receivedunder paragraph 3(b) of this Article, 10 per cent of the (b)20 per cent of the gross amount of theroyalties or fees for included services in allother cases ; androyalties or fees for included services in allother cases ; 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 as defined inthis Article that are ancillary and subsidiary to theenjoyment of the property for which payment is receivedunder paragraph 3(b) of this Article, 10 per cent of the gross amount of the royalties or fees for included services.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 informationconcerning 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)areancillaryandsubsidiarytotheapplication or enjoyment of the right, property,or information for which a payment describedin paragraph 3 is received; orb)makeavailabletechnicalknowledge,experience, skill, know-how, or processes, orconsist of the development and transfer of atechnical plan or technical design.”application or enjoyment of the right, property,or information for which a payment describedin paragraph 3 is received; orb)makeavailabletechnicalknowledge,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 Indo-US DTAA, the receipts cannot be treated as FIS as they did notinclude any element of included services. 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 are concerned, the Assessee provided services for (i) preparing customisedlanding 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 are 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 ₹36,62,79,706/- to the Assessee’sreturned income (which was ₹1,03,070/-). 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. The relevant extract ofthe directions issued by the DRP on 21.09.2023 are extracted below: “ 8.4 Directions of Panel: (i) The Panel has considered the rival averments asmentioned above. (ii) The Panel takes note of the fact that Assesseecompany is an aggregator. It acts as a platform forcontent providers and brings numerous courses invariousdisciplineatoneplatformforeaseofavailability to the learners who may be individuals,education institutes or corporates. It provides servicesto the users when users are pursuing the course. ThePanel takes a note of the AO's remarks made at parano. 9.3 to 9.4 of the draft order wherein it is mentioned that assessee is not only providing content services tothe customers in India but also providing whole rangeof user services which involve a high degree of humanintervention.InthisregardthePaneladdsitsobservationfromthe'orderform'ofCoursera,submitted by the assessee company, wherein it hasbilledM/sGandhiInstituteofTechnologyandManagement. At the bottom of the page is very smallfont following is written for internal accountingpurpose, Coursera will allocate 70% of these fees forContent Service and 30% for User Services.' Thisreveals that the claim of assessee company that it is notcharging user fee is not a correct claim. The words arevery carefully drafted but their meaning is the samethat whatever is being charged includes 30% as fee foruser services that it provides to its customers.(iii) The Panel agrees with the observation in the draftorder that there is an element of training involved withrespect to the customers which has been furtherverified on the basis of the information received u/s133(6) of the Act. When a corporate avails the servicesof the assessee company, it does so to impart trainingand upgrade the skills of its employees. Corporates arenot NGOs they are profit making organisation thatspend money to enhance skills of their employees forenduring benefits it will bring to their organisationpost training of the employee. And for the same reasonthat corporates are not NGOs, they have specificcriteria for making these training facilities available totheir employees. The employees cannot avail thesecourses on the basis of their likes and dislikes, insteadthey can avail it on the basis of its utility to theirorganisation. This learning has commerce at the centreof it and not personal growth of an individual forpersonal gains. When an educational institution whichis teaching in avails services of the assessee company,it does so as a business just like its business of makingother services like food, books, clothing etc. In itsinstitute it is already teaching its students, as per theircurriculum, what they need to learn. What comes byway of Coursera to the students is the training they receive that aids their course content in the educationalinstitute. Students when avail such courses it is as perthe need that the educational institute identifies, andoften educational institutes mark its students on thebasis of their completion/ performance at such courses.This is not the same as a person sitting at home, takingsubscription of the course from Coursera, at individuallevel, for personal growth. It is about business ofseeking courses for students to give them the trainingthey require for performing better in the educationalinstitute. The purpose here is not the same as for acorporate client but it is business none the less for acommercial gain coming from extra training/educationin the chosen discipline. ********** (vi) When assessee company is examined on the basisof above provisions it is found that ********** (vi) When assessee company is examined on the basisof above provisions it is found that a) Coursera is a service provider that is in business ofproviding material for training of employees/ studentsof corporates/ educational institutes for profit as abusiness concern. The nature of material provided fortraining is as technical as it can get in field ofeducation. It cannot be compared with the technicalaspect in other fields since it would amount tocomparing“appleswithoranges”.Thecontentprovided is curated and has specialized studyingmaterial including video sessions. They are highlyspecialized courses for learning at ones own pace.Despite the content / course being the same, the natureof these courses acquires different dimension when itis being taken up by an individual for personal reasonsverst/s when it is taken up by a corporate / educationalinstitute for commercial reasons.b) Coursera charges user fee @30% for the userservices it provides for the course content whichrequires use of work force working remotely online forease of learning. c) The services that coursera provides (out of the 7mentioned attributes above in 4 (b) of Article 12 ofIndia US DTAA) imparts skill to the employee ofcorporate houses and student of the educational institute. It is not as if a Microsoft Subscription onexcel has been given for the users to work upon.Nature of all businesses differ hence 'one size fits all'cannot be used for all businesses. What is 'makeavailable' differ with nature of business. In case ofassessee company if we interpret make available withthe argument that no technology or right transfer isbeing done, it will make the argument haywire sincethe minute this argument is applied the nature ofservices will become royalty and not remain FTS.Hence arguments has to be of a nature where it morethan a simple service but less than royalty. Theservices provided were if like an 'e-book' it would not'make available' anything but the minute specializedcontent with specialized methods of imparting trainingare applied it 'make available' skill/experience to theuser in a predigested, better retention capacity andmore eye catching manner that aids learning. Ifassessee company presents its argument like an 'e-book' seller would present its arguments, it will be avery erroneous argument. In case of assessee 'makeavailable' has to be seen differently as described above.d)Assesseecompanyisaserviceproviderofeducational material, it is neither an educator in ateaching institute nor a teaching institute itself. It hascollaborated with universities across the world to bringcourses under one platform for ease of choice in takingup courses. It is doing business of facilitating forwhich it charges user fee, it is not an educator itself. Infact the universities that it caters to as content partnersare the educators. e) The very aim of learning is towards enduringbenefits that arise from it for acquiring job in future ordoing better at the current job. Hence, this argumentsquarely applies in the case of the assessee company.f) The videos involved in teaching and involvement ofguidance to the learners through employees for whichuser charges are being taken by the assessee companyprove the human element. In an era of fast digitizationand minimal human intervention, the way we definehuman intervention, has to be recalibrated, for such Signature Not Verified services. For a 'mortar and brick' human interventionwould differ from an 'on line' coaching institute. Here'video content' and other services provided to aidlearning will be the test(vii) In view of the above there is no infirmity foundwith the order of the assessing Officer who is directedto pass a well reason speaking final assessment order.The grounds of objection in this regard, are disposedoff accordingly.” 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 31.10.2023. Signature Not Verified services. For a 'mortar and brick' human interventionwould differ from an 'on line' coaching institute. Here'video content' and other services provided to aidlearning will be the test(vii) In view of the above there is no infirmity foundwith the order of the assessing Officer who is directedto pass a well reason speaking final assessment order.The grounds of objection in this regard, are disposedoff accordingly.” 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 31.10.2023. 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 onone 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.Necessary “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.Necessary forms 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 toinitiate 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 utilizesuchtechnicalknowledge,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 in nature as stated by the learned ITAT, the Assessee’sreceipts would not be chargeable to tax as FTS/FIS under the Act read withthe Indo-US DTAA. In any event, the amount receipt is not chargeable totax as FIS within the scope of Article 12 of the Indo-US DTAA. 16.In view of the above, we find that no substantial question of law arisesfor consideration of this Court. 17.The appeal is accordingly dismissed. The pending applications arealso disposed of. VIBHU BAKHRU, J MAY 19, 2025M TEJAS KARIA, J