Slack Technologies Limited Vs ACIT (ITAT Mumbai)
Slack Subscription Is Not “Process Royalty”: Customer Pays for the Digital Dish, Not the Secret Recipe Behind It
Summary: The Mumbai Bench of the ITAT has held that subscription charges received by Slack Technologies Ltd., an Irish tax resident, from Indian customers for accessing its online communication platform did not constitute “royalty” either u/s 9(1)(vi) of the Income-tax Act or under Article 12(3) of the India-Ireland DTAA. The Tribunal explained the distinction through an interesting restaurant analogy: a customer purchasing a gourmet dish pays for the dish and not for the secret process or recipe used to prepare it. Likewise, a Slack subscriber pays for using the communication platform and does not obtain the technology, source code or proprietary process underlying the platform.
Slack Technologies Ltd. is incorporated and tax resident in Ireland. It provides a cloud-based communication platform which enables subscribers to conduct meetings, exchange messages, share files, create workspaces and collaborate on business projects. Access is provided through subscription plans for a specified period by using login credentials.
During AYs 2021-22 & 2022-23, Slack received subscription charges of ₹14.48 crore & ₹74.11 crore, respectively, from Indian customers. It did not offer these receipts to tax in India on the ground that they were neither royalty under the Act nor royalty under the India-Ireland DTAA. It relied principally upon the Supreme Court’s landmark ruling in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT [2021] 432 ITR 471 (SC).
