Tax v. Service Now Nederland Bv

$~66 & 67 * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA 340/2024 THE COMMISSIONER OF INCOME INTERNATIONAL TAXATION -3 TAX - .....Appellant Through: Mr. Ruchir Bhatia, SSC along with Mr. Anant Mann and Mr. Pratyaksh Gupta, JSCs. versus SERVICE NOW NEDERLAND BV .....Respondent Through: Mr. Aditya Vohra and Mr. Hardeep Singh Chawla, Advs. 67 + ITA 341/2024 THE COMMISSIONER OF INTERNATIONAL TAXATION -3 OF INCOME TAX - .....Appellant Through: Mr. Ruchir Bhatia, SSC along with Mr. Anant Mann and Mr. Pratyaksh Gupta, JSCs. versus SERVICE NOW NEDERLAND BV .....Respondent Through: Mr. Aditya Vohra and Mr. Hardeep Singh Chawla, Advs. CORAM:HON'BLE MR. JUSTICE YASHWANT VARMAHON'BLE MR. JUSTICE RAVINDER DUDEJA O R D E R % 11.07.2024 CM APPL. 38542/2024 (Ex.) in ITA 340/2024 Allowed, subject to all just exceptions. The application stands disposed of. 1.We note that we had in terms of our decision rendered on 18 March 2024 in ITA 143/2024 inter partes considered an identical question and dismissed that appeal in the following terms:- “5. The India-Netherlands Double Taxation Avoidance Agreement while speaking of „fee for technical services‟ also embodies the „make available‟ clause. We note that insofar as the aforesaid expression is concerned, we had in SFDC Ireland Limited vs. Commissioner of Income Tax observed as under: - “34. The aforenoted observations of the Supreme Court were not only apt but also prophetic when viewed in the context of software driven platforms. However, while explaining what would constitute “technical services”, the Supreme Court in Kotak Securities had observed that it must be a service which is provided to cater to the special needs of the client. A self-automatized analytical or predictive software or platform which caters to the requirement of multifarious clients as opposed to one created with special attributes or characteristics tailored to the need of a particular client was stated to fall outside the ken of technical services. It was in the above context pertinently observed that a distinction must be acknowledged to exist between a “service provided” and a “facility offered”. xxxx xxxx xxxx 38. As is manifest from the above, the Committee of Experts understood the word “technical” to entail the application of specialised knowledge, skill or art to a particular art, science, skill or expertise. Equally instructive in this context is the exemplar discussed in paras 90 and 91 and which reemphasized the existence of specialised rendering and solution providing as being key elements to answering the question of FTS. However, and insofar as we are concerned, the issue of technical service has to be examined on the anvil of not only a specially crafted and individualised rendition but additionally upon it being found that services of a technical character were provided. The Reseller Agreement may now be tested on the aforenoted precepts. 39. In order for receipts of SFDC Ireland being characterized as FTS, one would have to discern and find the existence of an exclusive and special service of a technical character which was provided to the recipient. Not only would that service have to be unique and tailored to the requirements of the seeker, it must also be technical. Unless one finds the transfer of technological knowledge which is exclusive and specialised to the need of the recipient, it would clearly not fall within the scope of technical service. While in today's age it may not be appropriate to understand the word technical to be confined to industrial or applied sciences or for that matter the use of an instrument or facility, the test of exclusivity, individualization and specially crafted solutions would continue to govern. 39. In order for receipts of SFDC Ireland being characterized as FTS, one would have to discern and find the existence of an exclusive and special service of a technical character which was provided to the recipient. Not only would that service have to be unique and tailored to the requirements of the seeker, it must also be technical. Unless one finds the transfer of technological knowledge which is exclusive and specialised to the need of the recipient, it would clearly not fall within the scope of technical service. While in today's age it may not be appropriate to understand the word technical to be confined to industrial or applied sciences or for that matter the use of an instrument or facility, the test of exclusivity, individualization and specially crafted solutions would continue to govern. 40. As we read the terms of the Reseller Agreement, its stipulations do not appear to contemplate any technology transfer to SFDC India. The Indian entity appears to have been designated merely to act as the Reseller which would engage with and onboard customers within the territory for use of SFDC products. As is evident from the definition of SFDC Products, it speaks of customer relationship management offerings, applications, platforms, products and offerings exclusively for resale in the territory. The obligation of SFDC Ireland as per Section 4 of the Reseller Agreement was to provide SFDC products as notified from time to time. The price for those products was to be as per the stipulations contained in Exhibit A. The aforesaid clauses merely speak of the Reseller being accorded the right to sell SFDC products as distinct from what would constitute technical service. xxxx xxxx xxxx 45. In any case the respondent has failed to allude to any material which would have lent credence to its conclusion that SFDC Ireland was not selling a “standard off the shelf/non customized/electronically downloadable software”. The respondent fails to found this conclusion on any stipulation of the contract or any other material that was gathered in the course of evaluation of the application of SFDC Ireland. The impugned order also fails to advert to any material to indicate that the supply of SFDC Products departed from a standard scope of services. Even before us, the respondents failed to allude to any material which may have even remotely established that the platform or for that matter the software was being customized or specially designed for a consumer and which constituted the basis of the consideration received.” 6. Insofar as the royalty question is concerned, the same also would merit being negated, bearing in mind the principles which were elucidated by the Supreme Court in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Anr. 7. In view of the aforesaid, we find no merit in the instant appeal. No substantial question of law arises. Consequently, the appeal shall stand dismissed. ” 2.Following the aforesaid decision, these appeals shall stand dismissed. YASHWANT VARMA, J. JULY 11, 2024/RW RAVINDER DUDEJA, J.