CIT (International Tax)-1 Vs Goto Technologies Ireland Unlimited Company (Delhi High Court)
Delhi High Court has dismissed an appeal filed by the Commissioner of Income Tax (CIT), upholding the Income Tax Appellate Tribunal’s (ITAT) decision that subscription payments received by Goto Technologies Ireland Unlimited Company for providing cloud services are not taxable as royalties. This ruling reinforces a consistent judicial stance on the characterization of such digital payments under Indian tax law and Double Taxation Avoidance Agreements (DTAAs).
The appeal by the Revenue challenged an ITAT order dated August 5, 2024, concerning the Assessment Year (AY) 2021-22 for Goto Technologies Ireland Unlimited Company (formerly Logmein Ireland Unlimited Company), a tax resident of the Republic of Ireland. The core controversy revolved around whether the subscription receipts derived by the assessee from its Software as a Service (SaaS) business model, which allows customers to access application software via cloud computing technology, should be treated as taxable royalty income in India.
The Dispute:
The Revenue’s position was that these cloud service payments constituted royalty under both Section 9(1)(vi) of the Income Tax Act, 1961, and Article 12(3) of the India-Ireland DTAA. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) had previously assessed these receipts as royalty income.
