Online database subscription fees not royalty where users only access content without copyright rights, know-how transfer, or equipment use.

Subscription revenue for access to an online learning database was held not to be royalty because subscribers received only a non-exclusive, non-transferable licence to view content, with no transfer of copyright rights under section 14 of the Copyright Act. The payment was for access to copyrighted material, not for use of copyright. It also did not represent consideration for industrial, commercial or scientific experience, since the provider did not impart its own know-how or methodology and users only accessed information in the database. Nor was there use of equipment, as users had no access to or control over the servers. The amount was therefore not taxable as royalty under Article 12(3) of the India-USA DTAA or section 9(1)(vi), and the addition was deleted.

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Issues: Whether subscription revenue received for access to an online learning database constituted royalty as consideration for (i) use of, or right to use, copyright, (ii) information concerning industrial, commercial or scientific experience, or (iii) use of, or right to use, equipment.

Analysis: The subscribers received only a non-exclusive, non-transferable licence to access and view videos through the website. No exclusive rights comprised in copyright under section 14 of the Copyright Act, 1957 were transferred, and the customers were not permitted to download, reproduce, store, edit, transmit, or otherwise exploit the proprietary material. The payment was therefore for access to copyrighted products and not for use of copyright. The assessee also did not impart its own knowledge, experience, techniques, or methodology in creating or maintaining the database; the customers merely accessed information contained in it, so the consideration did not fall within the phrase relating to industrial, commercial or scientific experience. Nor did the customers obtain any access to or control over the servers or equipment; the consideration was for access to data, not use of equipment.

Conclusion: The subscription revenue was not royalty under Article 12(3) of the India-USA DTAA or section 9(1)(vi) of the Income-tax Act, 1961, and the addition was deleted.

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