Subscription access to databases is not royalty where no copyright exploitation rights are transferred.

Subscription receipts from the CAS and PUBS divisions were not royalty under section 9(1)(vi) or Article 12(3) of the India-US DTAA because customers only received access to databases, journals and articles, without any right to commercially exploit the underlying copyright. The users could search, view and use the content, but had no right to reproduce, duplicate, sub-license, amend or otherwise use the copyright itself. Applying the distinction between a copyright and a copyrighted article, the payments were treated as consideration for access to protected content, not for use or right to use copyright or industrial, commercial or scientific equipment. The receipts were therefore not taxable as royalty.

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Issues: Whether subscription receipts from the CAS and PUBS divisions were taxable in India as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-US Double Tax Avoidance Agreement.

Analysis: The receipts were examined on the basis of the nature of access granted to customers under the subscription arrangements. The access enabled users to search, view and use databases, journals and articles, but did not transfer any right to commercially exploit the underlying copyright. The customers did not acquire any right to reproduce, duplicate, sub-license, amend or otherwise exploit the copyright in the databases, journals or articles. The reasoning applied the distinction between a copyright and a copyrighted article, and held that mere access to protected content or software does not amount to use or right to use copyright. On the same reasoning, the payments were also not consideration for use of industrial, commercial or scientific equipment.

Conclusion: The subscription receipts from both CAS and PUBS divisions were not royalty and were not taxable in the hands of the assessee.

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