2022 (10) TMI 78 - AT - Income Tax

Assessee wins: Subscription charges not 'Royalty' under DTAA. Tax rate issue resolved. TDS credit granted.

The Tribunal ruled in favor of the assessee, holding that the subscription charges did not qualify as 'Royalty' under the India-USA DTAA or the Income Tax ... Income accrued in India - royalty receipt - taxability of subscription charges received by the assessee as “Royalty” under the provisions of Article–12(3) of India–USA Double Taxation Avoidance Agreement (“DTAA’) and under section 9(1)(vi) - HELD THAT:- We find that the Co–ordinate Bench of the Tribunal in assessee’s own case in American Chemical Society 2019 (4) TMI 1818 - ITAT MUMBAI] for the assessment year 2014–15 held that subscription revenue received by the assessee in Chemical Extract Service and Publication division does not qualify as “Royalty” in terms of section 9(1)(vi) of the Act as well as Article–12(3) of the India–USA DTAA. The issue arising in the present appeal is recurring in nature and has been decided by the Co–ordinate Bench of the Tribunal in preceding assessment years. Respectfully following the orders passed by the Co–ordinate Bench of the Tribunal in assessee’s own case (Supra) we uphold the plea of the assessee and delete the impugned addition in respect of subscription fee received by the assessee under Chemical Abstract Service and Publications division. As a result, ground raised by the assessee is allowed. Issues Involved:1. Taxability of subscription charges as 'Royalty' under Article 12(3) of the India-USA DTAA and Section 9(1)(vi) of the Income Tax Act, 1961.2. Computation of tax payable on assessed income at the rate of 15% instead of 10%.3. Non-grant of credit for taxes deducted at source (TDS).4. Levy of interest under Section 234B of the Income Tax Act.Detailed Analysis:1. Taxability of Subscription Charges as 'Royalty':The primary issue in both assessment years 2018-19 and 2019-20 was whether the subscription charges received by the assessee from Indian customers should be classified as 'Royalty' under Article 12(3) of the India-USA DTAA and Section 9(1)(vi) of the Income Tax Act, 1961.- Facts of the Case: The assessee, a US-based corporation, provided access to its Chemical Abstracts Service (CAS) and Publications (PUBS) divisions' databases and journals to Indian customers for a subscription fee. The databases and journals were maintained on servers located outside India.- Arguments by the Assessee: The assessee contended that the subscription charges did not qualify as 'Royalty' or 'Fee for Included Services' under the DTAA. It was highlighted that the business model and revenue streams were consistent with previous years, where similar issues had been decided in the assessee's favor by the Co-ordinate Bench of the Tribunal.- Assessment by AO and DRP: The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that the subscription charges constituted 'Royalty' under Article 12(3) of the DTAA and Section 9(1)(vi) of the Act. They based their decision on the premise that the subscription charges were for the use or right to use the copyright in artistic, literary, or scientific work, or information concerning industrial, commercial, or scientific experience.- Tribunal's Findings: The Tribunal referred to its previous rulings in the assessee's own case for assessment years 2014-15 to 2017-18, where it was held that the subscription revenue from CAS and PUBS divisions did not qualify as 'Royalty'. The Tribunal emphasized that the assessee merely provided access to publicly disclosed information and did not transfer any copyright or intellectual property rights to its customers. The Tribunal also noted that the DRP had not followed the Supreme Court's decision in the case of Engineering Analysis Centre of Excellence Private Limited.- Conclusion: The Tribunal upheld the assessee's plea and deleted the addition of subscription charges as 'Royalty'. It reiterated that the subscription fees were not taxable in India under the DTAA or the Income Tax Act.2. Computation of Tax Payable:The assessee argued that the AO erred in computing the tax payable on assessed income at the rate of 15% instead of 10%, inclusive of surcharge and cess.- Tribunal's Decision: Since the Tribunal allowed the assessee's appeal on the primary issue of taxability of subscription charges, this ground was rendered academic and did not require separate adjudication.3. Non-Grant of Credit for TDS:The assessee contended that the AO had not granted credit for taxes deducted at source (TDS) amounting to INR 1,38,19,694, which was duly claimed in the return of income and reflected in Form 26AS.- Tribunal's Decision: The Tribunal restored this issue to the file of the AO with directions to grant TDS credit in accordance with the law after necessary verification.4. Levy of Interest Under Section 234B:The assessee challenged the levy of interest under Section 234B of the Income Tax Act.- Tribunal's Decision: The Tribunal noted that the issue of interest under Section 234B was consequential in nature and allowed this ground for statistical purposes.Summary:The Tribunal ruled in favor of the assessee on the primary issue of taxability of subscription charges, holding that such charges did not constitute 'Royalty' under the India-USA DTAA or the Income Tax Act. Consequently, the computation of tax at a higher rate was rendered academic. The Tribunal directed the AO to grant TDS credit after verification and noted that the levy of interest under Section 234B was consequential. Both appeals by the assessee were allowed for statistical purposes.