2012 (5) TMI 104 - AAR - Income Tax

Social media monitoring subscription fees taxed as royalty under India-Singapore DTAC

The court ruled that subscription fees for social media monitoring services are taxable in India as royalty under the Double Taxation Avoidance Convention ... Whether the amount received by offering subscription based service is taxable in India – social media monitoring service - . It is a platform for users to hear and engage with their customers, brand ambassadors etc. across the internet. - The applicant is wholly controlled and managed from Singapore where the company was incorporated. It was not having a permanent establishment in India. All its directors are non-residents. - Held that:- amount received from offering the particular subscription based service is taxable in India as ‘royalty’ in terms of paragraph 2 of Article 12 of the DTAC between India and SingaporeWhether tax is required to be deducted from such amount by the subscribers who are resident in India – Held that:- tax is required to be deducted in terms of section 195 of the Act from the payment made to it by the subscribers who are resident in India Issues:1. Taxability of subscription fees for social media monitoring services in India.2. Requirement of tax deduction by Indian subscribers.Analysis:Issue 1: Taxability of subscription feesThe applicant, a tax resident of Singapore, provides social media monitoring services through its platform, generating reports based on client inputs from various online sources. The applicant argues that the subscription fees received are not royalty under Section 9(1)(vi) of the Income-tax Act and Article 12 of the DTAC between India and Singapore, as no exclusive rights or copyrights are transferred to customers. The Revenue contends that the subscription fees constitute royalty as per the Act and the DTAC, as they enable access to the applicant's proprietary processes and information. The Revenue argues that the fees are paid for the imparting of technical, industrial, commercial, or scientific knowledge, making it royalty.Issue 2: Requirement of tax deductionThe Revenue asserts that tax should be deducted by Indian subscribers when making payments to the applicant, as the subscription fees qualify as royalty. The applicant, on the other hand, argues that there is no direct use or right to use the applicant's equipment by clients in exchange for the subscription fees. The applicant maintains that it only provides information over the web without any intellectual property rights. However, the Revenue highlights that the subscription fees cover commercially exploitable proprietary processes, making them subject to tax deduction under Section 195 of the Act.In the judgment, it is ruled that the subscription fees for the social media monitoring services are taxable in India as royalty under the DTAC between India and Singapore. Consequently, tax deduction is required under Section 195 of the Act from payments made by Indian subscribers to the applicant. The ruling emphasizes that the applicant's activities involve imparting industrial and commercial knowledge, qualifying the payments as royalty. The judgment underscores the importance of considering the DTAC provisions in determining tax liability for cross-border transactions, ensuring compliance with international tax agreements.