The Income Tax Appellate Tribunal, Delhi, has clarified that the sale of standard software licenses and incidental support services by a foreign entity does not constitute Fees for Technical Services (FTS) under the India-Ireland Double Taxation Avoidance Agreement, even in the absence of a 'make-available' clause. This ruling aligns with the jurisdictional High Court’s decision in Amazon Web Services Inc. and reinforces the principle that mere access to automated, standardized cloud-based services does not equate to the transfer of technical knowledge or know-how.
Background & Facts
The Dispute
The assessee, Fireeye Ireland Limited, an Irish company and tax resident under the India-Ireland Double Taxation Avoidance Agreement (DTAA), sells standardized cybersecurity software products in India through distributors and direct end-user licenses. The Assessing Officer (AO) treated the consideration received for these software sales and related support services as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income-tax Act, 1961, and Article 12(3)(b) of the DTAA, and added Rs. 53,39,55,995 to the assessee’s income for Assessment Year (AY) 2020-21. Similar treatment was applied for AY 2021-22.
Key Facts
- The assessee offers standard FireEye software products including Network Security, Endpoint Protection, Cloudvisory, Helix XDR Platform, and Detection on Demand.
- Sales are made primarily through distributors: Inflow Technologies Private Limited and iValue Info Solutions Private Limited.
- End users access software via cloud platforms or download licensed copies; no source code is provided.
- The End User License Agreement (EULA) and Distributor Agreement explicitly prohibit reverse engineering, decompilation, modification, sublicensing, or commercial exploitation of the software.
- The software is not customized per customer; users select from a catalog of standardized products.
- Support services include updates, upgrades, and incidental troubleshooting - none involve code development, debugging, or administrative task assistance.
- The assessee declared Rs. 22,07,61,870 as income for AY 2020-21, excluding software sale proceeds.
- The AO relied on the nature of AI-driven threat detection, machine learning, and behavioral analytics to conclude services were "customized, individualized, and specific," thereby qualifying as FTS.
Procedural History
- 31.03.2021: Assessee filed return for AY 2020-21 declaring income of Rs. 22,07,61,870.
- Draft Assessment Order: Proposed addition of Rs. 53,39,55,995 as FTS.
- 22.08.2022: Assessee filed objections before the Dispute Resolution Panel (DRP), citing Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT.
- 21.09.2023: DRP directed AO to pass a reasoned order on applicability of Engineering Analysis.
- 30.01.2023: AO issued Final Assessment Order for AY 2020-21, treating software proceeds as FTS.
- 23.10.2023: AO issued Final Assessment Order for AY 2021-22 with identical treatment.
- 19.03.2026: Hearing before ITAT Delhi.
- 05.06.2026: Judgment pronounced.
The Parties' Positions
For the Assessee
- Relied on Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT [2021] 125 taxmann.com 42 (SC), which held that sale of standard software licenses is not royalty or FTS.
- Emphasized that software is standardized, non-customized, and sold under non-transferable, non-sublicensable EULAs.
- Cited Amazon Web Services Inc. v. CIT [2025] 174 taxmann.com 1188 (Del.) to show that automated cloud services with incidental support do not constitute FTS.
- Argued that AI-driven threat detection is a feature of the software, not a service rendered by the assessee to the customer.
- Contended that support services are ancillary and do not involve transfer of technical knowledge, skill, or process.
For the Revenue
- Argued that the nature of services - machine learning, behavioral analysis, neural networks, and XDR platforms - constitutes high-end technical consultancy.
- Asserted that the India-Ireland DTAA’s definition of FTS does not require a "make-available" clause, unlike the India-US DTAA.
- Claimed that the software’s functionality mimics human security experts, thereby qualifying as technical services.
- Maintained that customer-specific threat intelligence and adaptive responses indicate customization and service delivery.
Relief Sought
The assessee sought deletion of the FTS addition of Rs. 53,39,55,995 for AY 2020-21 and AY 2021-22, reversal of interest levied under Sections 234A and 234B, and remand of the refund adjustment issue for verification.
The Legal Issue
The central question was whether the consideration received by a foreign entity for the sale of standardized cybersecurity software licenses and incidental support services constitutes "Fees for Technical Services" under Section 9(1)(vii) of the Income-tax Act and Article 12(3)(b) of the India-Ireland DTAA, in the absence of a "make-available" clause and without transfer of technical knowledge or know-how to the end user.
Arguments Presented
For the Appellant/Petitioner
The assessee relied on the Supreme Court’s decision in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT, which held that sale of standard software licenses does not amount to royalty or FTS, as no right to use copyright or technical know-how is transferred. The assessee further cited Amazon Web Services Inc. v. CIT (Delhi HC), where the court held that automated cloud computing services, even with AI-driven features, do not constitute FTS if no technical knowledge, skill, or process is imparted to the customer. The EULA and Distributor Agreement were presented to demonstrate that users are granted only a non-exclusive, non-transferable license to access software, with no right to decompile, modify, or exploit intellectual property. Support services were argued to be incidental and ancillary, akin to customer service, not technical consultancy.
For the Respondent/State
The Revenue contended that the India-Ireland DTAA’s definition of FTS under Article 12(3)(b) is broader than other treaties, as it omits the "make-available" requirement. It argued that the use of neural networks, machine learning, and behavioral analytics to mimic security experts’ judgment constitutes a technical service. The Revenue maintained that the software’s adaptive threat detection, predictive analytics, and automated response mechanisms reflect the provision of specialized technical knowledge, even if delivered via software. It distinguished Engineering Analysis on grounds that the software in that case was static, whereas FireEye’s platform was dynamic and intelligence-driven.
The Court's Analysis
The Tribunal carefully examined the nature of the services rendered, the contractual terms, and the precedents cited. It noted that the assessee does not transfer source code, intellectual property rights, or technical know-how to end users. The software operates as a closed system; users interact with it via a standardized interface without access to its underlying architecture. The Tribunal emphasized that the mere use of advanced technology - such as machine learning or AI - does not transform a product sale into a service delivery if no knowledge or skill is imparted to the customer.
"The Assessee's customers do not acquire any right to commercially exploit any of the Assessee's IPRs. The provision of cloud computing services does not entail placing any hardware at the exclusive disposal of the customer. The Assessee grants access to standard and automated services, which are available online."
The Tribunal found the facts of the present case indistinguishable from those in Amazon Web Services Inc. v. CIT, where the Delhi High Court held that automated cloud services - even those involving AI and machine learning - are not FTS if they do not involve the transfer of technical knowledge, skill, or process. The Tribunal observed that the Revenue’s reliance on the absence of a "make-available" clause was misplaced, as the definition of FTS under both the Act and the DTAA requires the rendering of managerial, technical, or consultancy services. Merely using advanced technology does not equate to rendering a service.
The Tribunal further held that the AI-driven threat detection and response features are inherent functionalities of the software product, not services rendered by the assessee to the customer. The support services provided - updates, troubleshooting, and guidance - are incidental and do not constitute technical consultancy under the statutory definition.
The Tribunal also rejected the Revenue’s argument that the software was "customized" or "individualized." The fact that a company offers multiple standardized products does not mean each product is customized per customer. Users select from a catalog; no bespoke development or configuration is performed.
The Verdict
The assessee succeeded on the principal issue. The Tribunal deleted the addition of Rs. 53,39,55,995 for AY 2020-21 and AY 2021-22, holding that the consideration received for sale of standard software licenses and incidental support services does not constitute Fees for Technical Services under Section 9(1)(vii) of the Act or Article 12(3)(b) of the India-Ireland DTAA. The interest levied under Sections 234A and 234B was set aside as consequential. The issue of refund adjustment of Rs. 8,23,834 was remanded to the AO for verification and appropriate relief. The Tribunal directed compliance with the order within 4 weeks.
What This Means For Similar Cases
Software Sales Are Not FTS Without Knowledge Transfer
- Practitioners must now argue that the mere use of AI, machine learning, or automation in software does not convert a product sale into a technical service.
- The burden is on the Revenue to prove actual transfer of technical knowledge, skill, or process - not just the sophistication of the software.
- Standardized SaaS models with non-transferable licenses are protected under Engineering Analysis and Amazon Web Services precedents.
"Make-Available" Clause Is Not a Prerequisite for Exemption
- The absence of a "make-available" clause in the India-Ireland DTAA does not broaden the scope of FTS.
- The definition of FTS under Section 9(1)(vii) and Article 12(3)(b) still requires the rendering of services, not just the use of advanced technology.
- Revenue authorities cannot equate complex software functionality with service delivery without evidence of knowledge transfer.
Support Services Remain Ancillary
- Updates, patches, and basic troubleshooting are ancillary to software sales and do not trigger FTS liability.
- Any support that does not involve code development, debugging, or administrative task assistance falls outside the scope of FTS.
- Taxpayers should document support service terms clearly to distinguish them from consultancy.
