CRM Services Receipts Not Taxable as Royalty or FTS: ITAT Delhi

Salesforce.com Singapore Pte Ltd. Vs ACIT (ITAT Delhi)

The recent case of Salesforce.com Singapore Pte Ltd. vs ACIT, adjudicated by the Income Tax Appellate Tribunal (ITAT) in Delhi, addressed crucial tax implications concerning Customer Relationship Management (CRM) services. This detailed analysis delves into the intricacies of the case, examining the nature of receipts from CRM services and their taxability under Indian law and the India-Singapore Double Taxation Avoidance Agreement (DTAA).

The crux of the matter revolved around whether receipts from CRM services provided by Salesforce.com Singapore Pte Ltd., a non-resident corporate entity, should be treated as Fee for Technical Services (FTS) under the Income-tax Act, 1961, or the India-Singapore DTAA. The Assessing Officer contended that these services constituted consultancy of a technical nature, qualifying as FTS, and hence, taxable in India. However, Salesforce.com Singapore Pte Ltd. argued that the receipts from CRM services shouldn’t be considered as royalty or FTS. They emphasized that no copyright in the software was transferred to Indian customers, thereby negating the classification of receipts as royalty. Moreover, they cited previous rulings in their favor by the Tribunal and the High Court for earlier assessment years. The ITAT’s analysis involved a comprehensive review of past decisions, notably those pertaining to assessment years 2010-11 to 2017-18. These decisions consistently held that receipts from CRM services couldn’t be categorized as royalty or FTS. The Hon’ble Jurisdictional High Court further reinforced this stance, affirming that neither the Income-tax Act nor the DTAA deemed such receipts taxable. The Tribunal’s scrutiny extended to specific provisions of the Income-tax Act and the DTAA, concluding that the rights conferred through CRM services didn’t align with the definitions of royalty or FTS. Notably, the Tribunal underscored that the right of subscription to cloud-based software didn’t equate to the ‘use’ or ‘right to use’ industrial, commercial, or scientific equipment.

In light of the consistent legal interpretations and precedents, the ITAT Delhi ruled in favor of Salesforce.com Singapore Pte Ltd., affirming that receipts from CRM services aren’t taxable in India as royalty or FTS.

FULL TEXT OF THE ORDER OF ITAT DELHI

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