ITAT Delhi Rules Standard SaaS Payments Not Fees For Included Services Under India-US DTAA

In a significant ruling on cross-border taxation of software services, the Income Tax Appellate Tribunal (ITAT) Delhi has held that payments received by US-based Branch Metrics Inc. from Indian customers for its standard Software-as-a-Service (SaaS) products do not qualify as "Fees for Included Services" (FIS) under Article 12(4)(b) of the India-US Double Taxation Avoidance Agreement (DTAA). The tribunal, comprising Judicial Member Vikas Awasthy and Accountant Member Manish Agarwal, deleted the ₹24.16 crore addition made by the Assessing Officer for Assessment Year 2021-22, finding that the "make available" condition under the treaty was not satisfied.

The Core Issue: Standard Product or Customized Service?

Branch Metrics, a California-incorporated company and tax resident of the USA, provides a cross-linking and attribution platform through a Software Development Kit (SDK). Customers integrate this SDK into their own mobile applications or websites to generate and track links. During AY 2021-22, Branch Metrics received ₹24.16 crore from Indian customers, which it claimed as business profits not taxable in India in the absence of a Permanent Establishment. The Assessing Officer, however, treated the entire amount as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income Tax Act, read with Article 12 of the DTAA, on the grounds that the services were customized, involved human intervention, and made available technical knowledge.

The Revenue relied on responses from customers such as Shemaroo Entertainment Limited and Balance Hero India Private Limited, who described Branch Metrics' offerings as "marketing support services" and a "third party tool." The AO and the Dispute Resolution Panel (DRP) concluded that the inputs were customer-specific, outputs were tailored, and face-to-face meetings demonstrated a human element, thus satisfying the test for FIS.

A Tilt Towards Standardization

The tribunal examined the standard Terms and Conditions and Order Forms, noting that they applied uniformly to all customers with no obligation on Branch Metrics to develop, modify, or customize anything. Clause 3 of the Terms recorded that the customer is "solely responsible for its integration and launch of the Services," and that services are provided "without regard for Customer's particular use." The Order Form for Balance Hero India Private Limited listed only standard components of the Enterprise Package with pre-printed descriptions.

The ITAT found that the variability of output based on customer data is inherent in any software and does not convert a uniform automated facility into a customized service. "There is no material on record to show that the assessee wrote code, configured algorithms or developed any functionality specially for any Indian customer," the tribunal observed. Relying on the Supreme Court 's ruling in CIT vs. Kotak Securities Ltd. (2016) and the Delhi High Court's decision in SFDC Ireland Ltd. vs. CIT (2024), the tribunal held that what Branch Metrics offers is a standard, non-customized, off-the-shelf SaaS product.

The 'Make Available' Test Decisive

Under Article 12(4)(b) of the India-US DTAA, technical or consultancy services are covered as FIS only if they " make available technical knowledge, experience, skill, know-how, or processes , or consist of the development and transfer of a technical plan or technical design ." The Protocol to the DTAA explicitly provides that " the use of a product which embodies technology shall not per se be considered to make the technology available ."

Applying this test, the ITAT concluded that the SDK and dashboard are products embodying sophisticated technology, but the underlying algorithms, source code, and processes remain exclusively with Branch Metrics. The Terms prohibit sublicensing, transfer, or circumvention of security features. The recurring nature of subscriptions—customers renew year after year—demonstrated that no technology had been transmitted; otherwise, recourse to the assessee would be unnecessary.

The tribunal quoted extensively from CIT vs. De Beers India Minerals (P.) Ltd. ( Karnataka High Court ), which held that " technical knowledge or skills must be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider ." Since Branch Metrics' customers were merely enabled to use the platform but not to apply the underlying technology, the " make available " condition failed.

Key Observations from the Judgment

The bench made several pivotal observations:

"The SDK and the dashboard are products which embody sophisticated deep linking and attribution technology; the customers use those products, but the underlying technology... remains at all times exclusively with the assessee."

"Recurring, year on year subscriptions, a fact not controverted by the Revenue, themselves demonstrate that nothing has been made available; had the technology been transmitted, recourse to the assessee in subsequent years would have been unnecessary."

"Assistance which merely enables a customer to use a product does not transmit any technology; as has been held by the Hon’ble Jurisdictional High Court in the case of SFDC Ireland Ltd. vs. CIT (2024), 'imparting training or educating a person with respect to the functionality and attributes of a software or application would clearly not amount to the rendering of technical service under the DTAA.'"

The tribunal also distinguished the Revenue's reliance on the Kalpataru Power Transmission case, noting it arose under a different DTAA without a "make available" condition and involved the development and transfer of technical plans.

Decision and Implications

The ITAT held that the receipts of ₹24.16 crore are consideration for the use of a standard, non-customized facility and do not constitute FIS under Article 12(4) of the DTAA. Since Branch Metrics is entitled to the beneficial provisions of the DTAA under Section 90(2) of the Act, it was unnecessary to record a conclusive finding under Section 9(1)(vii). The addition was deleted.

For AY 2022-23, the parties admitted identical facts, and the tribunal followed its earlier ruling to delete the corresponding additions. The issue of TDS credit was restored to the Assessing Officer for verification, and interest under Sections 234A and 234B was directed to be recomputed. The challenge to penalty initiation was dismissed as premature. Both appeals were partly allowed.

This ruling reinforces the principle that standard SaaS offerings, even if marketed as "services," will not attract tax as FIS under the India-US DTAA unless the recipient is truly enabled to absorb and independently deploy the provider's technology. It provides welcome clarity for US-based tech firms operating in India through subscription-based software platforms.