AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (5) TMI 405
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...., substance data and inputs on preparation and reaction methods as experimentally validated. By providing access to the database the assessee has earned subscription fee from customers worldwide, including India. For the impugned assessment year, the assessee filed its return of income on 30th March 2012, declaring nil income. In the course of assessment proceedings, in pursuance to a query raised by the Assessing Officer, the assessee submitted that the subscription fee received by the assessee from various customers in India for providing access to its online database is neither in the nature of royalty nor fees for technical services. Thus, it was submitted that in the absence of a Permanent Establishment (PE) in India as per Article-5 of India-Germany Tax Treaty, the subscription fee received by the assessee is not taxable in India. The Assessing Officer after calling for various information including copies of the agreement entered with various Indian entities and invoices raised and examining them was of the view that the subscription fees received by the assessee is in the nature of royalty/fees for technical services, hence, taxable in India. Therefore, he called upon the a....
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....view that the payments made by the Indian entities are for receipt of technical services. Therefore, the subscription fee has to be treated as fees for technical services. In this context, he relied upon various judicial precedents. 5. Further, the Assessing Officer observed that certain copyrighted products of the assessee like cross fire were loaned to the customers in India and were sold. Referring to section 9(1)(vi) of the Act and the provisions of The Indian Copyright Act, 1957 as well as various judicial precedents, the Assessing Officer held that the subscription received by the assessee for providing access to the online database is in the nature of literary work, hence, has to be treated as royalty under section 9(1)(vi) of the Act. Further, referring to Article-12(3) of India-Germany Tax Treaty, the Assessing Officer held that the subscription received by the assessee is also in the nature of royalty under India-Germany Tax Treaty, as it amounts to transfer of right to use of a copyright. Thus, ultimately the Assessing Officer concluded that the subscription fee received by the assessee is in the nature of fees for technical services/royalty under the provisions of Ind....
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....Ltd., [2012] 20 taxmann.com 695 (Bom.); ii) DIT v/s Dun & Bradstreet Information Services India Pvt. Ltd., 338 ITR 95; iii) ITO v/s Cadila Healthcare Ltd., 77 taxmann.com 309; iv) DCIT v/s Welspun Corporation Ltd., 77 taxmann.com 165; v) McKinsey Knowledge Centre India Pvt. Ltd. v/s ITO, ITA no.407/Del./2013; vi) Kitara Capital Pvt. Ltd. v/s ITO, ITA no.130/Mum./2014; vii) DCIT v/s Welspun Corporation Ltd., [2017] 77 taxmann.com 165 (Ahd.); and viii) Authority For Advance Rulings v/s Dun & Bradshtreet Expana, A.A. In re; [20056] 272 ITR 99. 8. Without prejudice to the aforesaid contentions, learned Sr. Counsel submitted, the subscription fees received by the assessee cannot be treated as fees for technical services also as it is not coming within the ambit of fees for technical services as defined under the Act as well as under the India-Germany Tax Treaty. He submitted, the definition of fees for technical services both under Article-12 of the India-Germany Tax Treaty and under the provisions of the Act are similar. He submitted, as per the said definition, payment of any amount for services of managerial, technical or consultancy nature including the provis....
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....Kotak Securities Ltd., 383 ITR 001 (SC); and iii) CIT v/s Bharati Cellular Ltd., 330 ITR 239 (SC). 9. The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and the DRP submitted that the data provided by the assessee through the database are customized data catering to the specific need of the customer. Therefore, the subscription fee received by the assessee is in the nature of royalty/fees for technical services as the assessee has provided technical services and has transferred the right to use the copyright to the customers in India. He submitted, the decisions relied upon by the learned Sr. Counsel are also not applicable to the facts of the present case. 10. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Before we proceed to decide the nature of subscription fee earned by the assessee from Indian entities, whether fees for technical services/royalty or business profit, it is necessary to understand the activities carried on by the assessee for generating such income. Undisputedly, the assessee has created an online database named "reaxys.c....
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....provided the appearance of such link and / or statements accompanying such links shall be changed as per the request of the assessee. Clause 1.4 of the subscription agreement enlists the following restrictions on use of subscribed products. "1.4 Restrictions on Use of Subscribed Products. Except as may be expressly permitted in this Agreement, the Subscriber and its Authorised User may not; 1.4.1 abridge, modify translate or create any derivative work based on the Subscribed Products without the prior written permission of Elsevier, except to the extent necessary to make them perceptible on a computer screen to Authorised Users; 1.4.2 remove, obscure or modify in any way any copyright notices, other notices or disclaimers as they appear in the Subscribed Products; or 1.4.3 Substantially or systematically reproduce, retain or redistribute the Subscribed Products. Authorised Users who are independent contractions may use the Subscribed Products only for the purposes of the contracted work for the Subscriber." 11. Clause 1.5 of the agreement makes it clear that all right, title and interest in the subscribed products remain with the assessee and any unauthorized re....
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....ther state. As per the plain meaning of the aforesaid provision, the subscription fee paid to the assessee is ordinarily taxable in Germany. However, Article-12.2 also provides for taxation of royalty and fees for technical services in India subject to condition that the tax leviable shall not exceed 10% of the gross amount of royalty or fees for technical services. Article-12.3 of the Tax Treaty defines royalty in the following manner. "The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting any patent, trade mark, cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience." 13. As per the aforesaid definition of royalty in the tax treaty, any amount received for use of or right to use of any cop....
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....ranches and divisions, referred with name and D&B D-U-N-S number; and v) A rating which would help to predict which prospect will pay slowly or not at all. 15. A customer/subscriber can access the data stored in the database by paying subscription. The Department held the subscription paid to Dun & Brad Street Espana, S.A., for accessing the data to be in the nature of royalty. The Authority for Advance Ruling after dealing with the issue ultimately concluded that the subscription received by Dun & Brad Street Espana, S.A., for allowing access to the database is not in the nature of royalty/fees for technical services. Following the aforesaid decision, the Tribunal, Ahmedabad Bench, in ITO v/s Cedilla Healthcare Ltd. [2017] 77 taxmann.com 309, while considering the nature of subscription paid to a U.S. based company viz. Chemical Abstract Services, which is in the same line of business and is stated to be the competitor of the assessee, held that the subscription paid for online access to the database system "scifinder" is not in the nature of royalty. The observations of the Tribunal while deciding the issue in favour of the assessee are as under:- "17. We find that as the....
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....7. Having held so, the next issue which arises for consideration is, whether the subscription fee can be treated as fees for technical services. As discussed earlier, it is evident that the assessee has collated data from various journals and articles and put them in a structured manner in the database to make it more user friendly and beneficial to the users/customers who want to access the database. The assessee has neither employed any technical/skilled person to provide any managerial or technical service nor there is any direct interaction between the customer/user of the database and the employees of the assessee. The customer/user is allowed access to the online database through various search engines provided through internet connection. There is no material on record to demonstrate that while providing access to the database there is any human intervention. As held by the Hon'ble Supreme Court in CIT v/s Bharati Cellular Ltd., [2010] 193 taxman 97 (SC) and DIT v/s A.P. Moller Maersk A.S., [2017] 392 ITR 186 (SC), for providing technical / managerial service human intervention is a sin qua non. Further, Article-12(4) of India-Germany Tax Treaty provides that payment for....