Online database subscription fee is not royalty where only limited access is granted and no copyright rights are transferred.

Subscription fee for access to an online database of journals and books was held not to constitute royalty under section 9(1)(vi) of the Income-tax Act or Article 12 of the India-USA DTAA. The database was compiled from public-domain material with limited value additions, and subscribers received only viewing access subject to strict restrictions on copying, reproduction, modification, reverse engineering and exploitation. Because no copyright right, equipment right or similar property right was transferred, the payment was treated as consideration for limited access to information rather than for use of, or right to use, royalty-bearing rights. The earlier contrary view was displaced by Engineering Analysis, and the receipt was not taxable in India absent a permanent establishment.

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Issues: Whether subscription fee received for granting access to an online database of journals and books constitutes royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12 of the India-USA DTAA.

Analysis: The database contents were collated from the public domain and the assessee merely created a user-friendly database with limited value additions such as indexing, analysis and notes. Customers were only given access to view the database and were expressly barred from copying, reproducing, modifying, reverse engineering or exploiting the contents. No right in the copyright or any industrial, commercial or scientific equipment was transferred to the subscribers. The payment was therefore for limited access to information, not for use of, or right to use, copyright or any other property falling within the treaty definition of royalty. The earlier view favouring taxation as royalty stood displaced by the ratio of Engineering Analysis.

Conclusion: The receipt was not royalty and was not taxable in India in the absence of a permanent establishment.

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