ITAT Deletes FTS Addition as Standard Cybersecurity Software Sales Were Not Technical Services

Fireeye Ireland Limited Vs ACIT (ITAT Delhi)

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) partly allowed the appeals filed by FireEye Ireland Limited for Assessment Years 2020-21 and 2021-22, holding that consideration received from the sale and grant of restricted rights to use standard cybersecurity software products and related support services could not be taxed in India as Fees for Technical Services (FTS).

The assessee, a tax resident of Ireland, was engaged in selling standard cybersecurity software products through restricted user licences or subscriptions, along with related support services. For AY 2020-21, it had received Rs. 53.39 crore from such software offerings, which was not offered to tax in India. During assessment proceedings, the Assessing Officer treated these receipts as FTS under Article 12(3)(b) of the India-Ireland Double Taxation Avoidance Agreement (DTAA) and Section 9(1)(vii) of the Income-tax Act, reasoning that the products involved sophisticated technologies such as machine learning, behavioural analysis, threat intelligence, and artificial intelligence-based security solutions that were customised and specific to customers.

The assessee contended that it sold standard software products through distributors under non-exclusive, non-transferable licences. It submitted that end users received only limited rights to use the software and were prohibited from modifying, sublicensing, reverse engineering, decompiling, or commercially exploiting the software. The support services provided were stated to be incidental to the sale of software and primarily related to updates and upgrades. The assessee relied upon the Supreme Court’s decision in Engineering Analysis Centre of Excellence Pvt. Ltd. and other judicial precedents to argue that the receipts were neither royalty nor FTS.