ITAT Delhi orders fresh examination of FTS taxability on software and SaaS receipts of SFDC Ireland Ltd

1. Background of the dispute

SFDC Ireland Ltd, an Irish tax resident and successor to Tableau International, Unlimited Company, Ireland, appealed against a final assessment order dated 27.06.2023 passed under Section 143(3) read with Section 144C(13) for AY 2020-21. The controversy centred on whether receipts from Indian customers were taxable in India as “Fees for Technical Services” (FTS) under Section 115A and Article 12 of the India-Ireland DTAA.

The core receipt under dispute amounted to ₹73,41,69,869 and comprised:

  • Revenue from non-customised shrink‑wrapped/off‑the‑shelf/electronically downloadable Tableau software and software upgrades
  • Subscription revenue from Software as a Service (SaaS)
  • Support and maintenance services incidental to software supply
  • Training services
  • Partner/reseller fees

The assessee treated the receipts as business income not chargeable to tax in India in the absence of a Permanent Establishment (PE), and claimed that the transactions involved sale of copyrighted articles only, without transfer of copyright rights.

The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) rejected this position and characterised the entire stream of receipts as FTS both under the Income Tax Act 1961 and under Article 12(3)(b) of the India‑Ireland DTAA.

The appeal before the Income Tax Appellate Tribunal (ITAT) Delhi therefore raised two central questions:

  1. Whether the receipts from software licences, SaaS, support, training and partner arrangements constituted FTS under Section 9(1)(vii) and Article 12(3)(b) of the India‑Ireland DTAA; and
  2. If taxable, what rate should apply under the DTAA.

2. Assessee’s profile and nature of Indian receipts

2.1 Corporate status and filing

  • The assessee is a company incorporated in Ireland, tax resident there, and successor to Tableau International, Unlimited Company, Ireland, pursuant to a merger effective 01.04.2024 under Irish law.
  • For AY 2020-21, it filed a return on 08.02.2021 declaring NIL income and claiming a refund of ₹6,12,87,570 on the basis that Indian receipts were not taxable in India under the India-Ireland DTAA.

The case was selected for complete scrutiny and notices under Section 143(2) and Section 142(1) were duly issued and responded to.

2.2 Business model and revenue streams

During the relevant year, the assessee’s stated business was distribution of non-customised Tableau software (including shrink‑wrapped/off‑the‑shelf/e‑downloadable versions) to customers across multiple jurisdictions, including India.

The AO noted the following revenue components from Indian customers:

  1. Supply of non-customised software and upgrades

    • Products such as Creator, embedded Analytics, Explorer etc.
    • Included periodic software upgrades to address security, bug fixes etc., treated as incidental to sale of software
    • Amount: ₹64,16,22,654

  2. Provision of SaaS

    • Standard services such as Tableau Online, Creator Online, Explorer Online
    • Claimed to be fully automated, standard facility
    • Amount: ₹6,53,66,384

  3. Support and maintenance services

    • Incidental to supply of software
    • Amount: ₹2,45,83,137

  4. Training services

    • Standardised training, largely via pre-recorded videos
    • Amount: ₹76,568

  5. Partner/reseller fees

    • Fees from resellers for being authorised Tableau resellers
    • Amount: ₹25,21,125

Total: ₹73,41,69,869

The assessee argued that:

  • The software transactions represented sale of copyrighted articles without grant of any copyright rights.
  • SaaS, support and training were standard automated or standardised facilities, not technical services.
  • Partner fees were pure business income arising from distribution arrangements.
  • In the absence of a PE in India under Article 5 of the India‑Ireland DTAA, such business profits were taxable only in Ireland.

Tax residency certificates for 2019 and 2020 were produced to substantiate its Irish residence for treaty purposes.

3. AO’s findings: characterisation as “Fees for Technical Services”

3.1 Reliance on website, case studies and contractual framework

The AO recorded that the assessee did not give a detailed, functional description of its products and services in response to notices. Consequently, the AO examined:

  • Content on the assessee’s global website
  • Case studies of end users, including Sysco (an American multinational) and DTDC (an Indian customer)
  • Reseller arrangements and partner framework
  • End User Licence Agreements (EULAs) and reseller contracts

On that basis, the AO concluded:

  • The assessee was not engaged in mere resale of standard off‑the‑shelf software but was delivering integrated technology‑based solutions.
  • The software environment, training, tutorials, professional services and support collectively equipped customers to exploit sophisticated business intelligence and analytics technology.
  • Technology, knowledge and technical capability were “made available” to customers to enable them to independently use Tableau tools for data analytics and related tasks.

3.2 Role of reseller partners and Indian subsidiary

The AO noted that:

  • The assessee operated in India through independent reseller partners, other service partners, and its subsidiary Tableau Software India Pvt. Ltd.
  • Reseller agreements typically required partners to:
    • Certify a specified number of personnel as technology and sales representatives; and
    • Develop in‑house capability to deliver training and support to end users.
  • Case material showed that Indian resellers such as Team Computers Pvt. Ltd. not only concluded the software sale but also provided technical services and implementation for customers like DTDC.

The AO held that:

  • The overall arrangement was designed so that the substantive technical services were delivered to Indian customers while formal contractual documentation downplayed or dispersed such services.
  • The end effect was that technology and know‑how were made available in India, while the assessee sought to avoid source‑based taxation on a formal reading of the contracts.

3.3 EULA clauses and sample source code

On remand, the AO analysed the EULA and highlighted: