For a Payment to Qualify as ‘Fees for Technical Services’ Under DTAA, It Must Entail Specialized, Customized, and Exclusive Technical Service – Delhi High Court Quashes Order Against SFDC Ireland Limited
The Delhi High Court, in a landmark judgment dated March 11, 2024, quashed the order and certification dated October 16 and 18, 2023, respectively, by the Commissioner of Income Tax, which denied a Nil withholding tax certificate to SFDC Ireland Limited. The Court remitted the matter for a fresh evaluation, focusing on whether the remittances constituted consideration for technical services under the India-Ireland Double Taxation Avoidance Agreement (DTAA).
Legal Point: The central legal issue revolved around the interpretation of “Fee for Technical Services” under Section 197 of the Income Tax Act, 1961, in relation to payments received by SFDC Ireland Limited from salesforce.com India Private Limited.
Facts and Issues: SFDC Ireland, engaged in providing cloud-based customer management platforms, entered into a Reseller Agreement with SFDC India. The payments received were subject to an application for a Nil withholding tax certificate, which was denied by the Commissioner, categorizing the remittances as ‘Fee for Technical Services’ under the DTAA.
Court’s Assessment: The Court meticulously examined the nature of services provided by SFDC Ireland and its relationship with SFDC India. It emphasized that for a payment to qualify as ‘Fees for Technical Services’ under the DTAA, it must entail specialized, customized, and exclusive technical service. The training and assistance provided were aligned more with enabling SFDC India to understand and market the products rather than being technical services.
Decision: The High Court instructed a fresh consideration of SFDC Ireland’s application, with an emphasis on the nature of technical services and the revenue structure of SFDC India. It was held that the denial of a Nil withholding tax certificate lacked a thorough examination of whether the remittances were indeed consideration for technical services.
Date of Decision: March 11, 2024
SFDC Ireland Limited vs Commissioner of Income Tax & Anr
