Sum paid for ‘Red Hat Subscription’ to obtain support services can’t be held as FTS: ITAT

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  • Last Updated on 29 December, 2022

Fees for Technical Services; FTS

Case Details: Red Hat India (P.) Ltd. v. DCIT - [2022] 145 462 (Mumbai-Trib.)

Judiciary and Counsel Details

    • Amit Shukla, Judicial Member & S. Rifaur Rahman, Accountant Member
    • Ajit JainSiddesh Chaugule, Ld. AR’s for the Appellant.
    • Ms Bharati Singh, Ld. DR for the Respondent.

Facts of the Case

Assessee-company engaged in the business of marketing, promotion, and distribution of ‘Red Hat Subscriptions’ to Indian customers. It made payment to its Singapore-based Associate Enterprise (AE) for the import of software. Through this, the user can avail of support services for software such as Linux and enables the user to modify the software as per its needs.

During the year under consideration, Assessing Officer (AO) contended that the payment made by the assessee to its Singapore-based AE was in the nature of royalty and Fees for Technical Services (FTS). Thus, the payment was liable to tax deduction as per the India- Singapore treaty. Since the assessee failed to deduct TDS on this amount under section 195, AO disallowed the same under section 40(a)(i).

The matter was reached before the Mumbai Tribunal.


The Tribunal held that the subscription amount paid by the assessee was in the nature of support services. The payments were not made for the use of software but for convenient installation, ongoing maintenance, and support services. The services were provided by the engineers for Red Hat Subscription and not towards Red Hat Software. Therefore, the payment couldn’t be treated as payment of Royalty.

Further, the assessee was mainly purchasing subscription and reselling the same to Indian customers. Indian customers were only eligible for support services like error solving, and troubleshooting with respect to the freely available software. Singapore-based AE does not make available any kind of managerial or technical skills, knowledge, process, or know-how to the assessee or its customers.

The payment made by the assessee to AE was only limited to the supply of subscriptions for maintenance and support services and not to any license granted. Thus, it cannot be considered Fees for Technical Services. Therefore, the Tribunal allowed the assessee’s appeal.

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