TaxTMI 
TaxTMI 
2019 (4) TMI 1818
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.... 730,429,685 are chargeable to tax as royalty in terms of Article 12(3) of India-US Double Tax Avoidance Agreement ("DTAA"). 2.1 That on the facts and in the circumstances of the case and in law, the AO/DRP have erred in holding that the subscription charges received under Chemical Abstract Service (CAS) division and Publications (PUBS) division would be chargeable to tax in India under India-US DTAA being received for use of copyright of artistic, literary or scientific work and/or for use of information concerning industrial, commercial or scientific experience. 2.2 That on the facts and in the circumstances of the case and in law, the AO/DRP have erred in holding that the subscription charges received under CAS and PUBS divisions would be chargeable to tax in India under India-US DTAA being received for use of ACS databases /software. 3. Without prejudice to the above grounds of appeal, the AO has erred in determining tax payable on the assessed income @ 20 percent instead of 15 percent as prescribed in Article 12(2) of the India-US DTAA. 4. That on the facts and circumstances of the case and in law, the Ld.AO has erred in charging interest under section 234A and 234....
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....it can be understood as 'royalty' within the meaning of section 9(1)(vi) of the Act as well as Article 12(3) of the India-USA DTAA. 5. Before us, Ld. Senior Counsel for the assessee has explained key features of the agreement with various customers, samples of which are filed in the Paper book at page 15 to 42, which are as follows - that the assessee grants the customer a non-perpetual, non-exclusive and non-assignable right to use SciFinder/ similar search tools to search for material stored and organized in the databases on servers located in the USA; that the customers are allowed to log-in to the online site using the assigned usernames / login ids; and, that the agreement provides for restricted rights in relation to data retrieved using the search tools - access, download or save records for internal and private use only. The Ld. Senior Counsel also submitted that mere access to the database is provided by the assessee and in terms of the arrangement, no copyright can be said to be acquired by the customer; and, what is provided to the subscriber/customer in the instant case is neither a copyright and nor any full-fledged right to use, but only a limited right to use of a ....
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....organizes the same at one place, thereby creating a database which is accessed by its customers against payment of subscription fee termed as CAS fee. Thus, prima facie, there is no copyright or intellectual property lying with the assessee itself in relation to such information or the contents of the database. Thus, there cannot be a case that the assessee company has transacted in the copyrights or intellectual property rights of the contents of the database of information which is merely collated and collected by it. It is abundantly clear from a perusal of some of the sample agreements with customers (placed in the Paper book at pages 15 to 42) that what the customers get is only the right to search, view and display information (whether online or by taking a print) and reproducing or exploiting the same in any manner; and its use for purposes other than personal use is strictly prohibited. Further, in para 7.12 of the assessment order, the Assessing Officer has stated that the assessee has a wealth of industrial, commercial and scientific experience collected, developed and systemized over a period of time. Further, in para 7.13 of the assessment order, the Assessing Officer h....
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....ssessee's own previous experience or knowledge of the subject. The assessee's experience lies in the creation and maintaining the database, which cannot be labelled as industrial or commercial or scientific in any way in the context of the receipts in question. In fact, it is nobody's plea that such experience is shared by the assessee with the Indian customers. The Indian customers do not make payments for availing the knowledge of assessee's experience of creating/maintaining database; what they pay for is access to information that such database encompasses. By granting access to the information forming part of the database, the assessee neither shares its own experience, technique or methodology employed in evolving databases with the users, nor imparts any information relating to them. 9. In this context, the learned Counsel pointed out that similar situation has been considered by the AAR ruling in the case of Dun and Bradstreet Espana S.A.(supra), which has been upheld by the Hon'ble Bombay High Court in the case of DIT vs. Dun and Bradstreet Information Services India (P) Ltd. (supra). In this case, the applicant, a non-resident company of Spain was engage....
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....r an obligation not to take additional copies or reproduce the BIR in any manner or sell it to any customer other than Indian customer on whose requisition the BIR is ordered because the BIR is copyright protected with the copy right vested in the applicant who prepares the BIR. There is further obligation on the Indian customer to use the BIR for its own purpose, the copyright in the BIR would neither be licensed nor assigned to either the DBIS or the Indian customer............ 7. It will be ................................. The instant case it is not a case of paying consideration for the use of or right to use any copyright of literary, artistic or scientific work or any patent trade mark or for information of commercial experience. The Commissioner sought to bring the payments under royalty/fees for technical service for the reason that the BIRs are copyright protected and end-users are required to use for their own purpose and the analysis of raw data provided in the BIRs would be similar to that of providing a technical or consultancy services. We have already mentioned above that a BIR is a standardized product of D&B, it provides factual information on the existence, o....
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.... High Court and it held that purchase of any and every type of commercial information cannot earn the status of royalty. To have the status of royalty, the information transacted should have some special features, which is hitherto not available in public domain. The relevant extract of the said ruling is as follows: "20. ..... That apart we have already indicated that every information would not have in the status of royalty. There are various kinds of categories of information. Solely because an entry of the commercial nature would not make it a royalty. That cannot be exclusive base or foundation. Some sort of expertise or skill is required. The aforesaid factor would be the requisite one. We are not inclined to accept the submission of Mr. Arya that every information if it concerns the industries or commercial venture would be a royalty. That would tantamount to state the law quite broadly. That does not seem to be the purpose of the statute or that of the treaty." (Emphasis supplied) 11. With respect to the subscription fee for the CAS division being considered as Royalty for "use" of or "right to use" of a copyright, a reference to Copyright Act, 1957 is also relevant. A....
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.... Article 12(3) of the India-USA DTAA. Thus, assessee succeeds on this issue. 14. We shall now advert to another issue, which pertains to whether income earned by the assessee from the Indian Customers with respect to the subscription fees for PUBS division be taxed as royalty in terms of section 9(1)(vi) of the Act as well as Article 12(3) of the India-USA DTAA. 15. Before us, the Ld. Senior Counsel pointed out that the characteristics of the PUBS divisions is similar to CAS division, which has been dealt at length by us in the foregoing paragraphs. The Learned Senior Counsel submitted that the PUBS division of the assessee reviews and publishes research work submitted by scientists worldwide, organizes the same into research journals/ e-books and engages in subscription sales of internet and print copies of such research journals. The assessee grants online/ web-based access to e-journals, e-books, chapters, articles, proceedings, etc., stored on the server, in consideration for an annual fee /subscription charges. Such e-journals / e-books can be searched by a subscriber by using relevant keywords on PUBS website after logging in by using their log-in credentials. Customers ar....
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....on servers outside India, to which the customers have no right or access, nor do they possess control or dominion over the servers in any way. Therefore, the question of such payments qualifying as consideration for use or right to use any equipment, whether industrial, commercial or scientific, does not arise. 18. To put a comparison, if someone purchases a book, then the consideration paid is not for the use of the copyright in the book/ article. The purchaser of a book does not acquire the right to make multiple copies for re-sale or to make derivative works of the book, i.e., the purchaser of a book does not obtain the copyright in the book. Similarly, the purchaser of the assessee's journals, articles or database access does not have the right to make copies for re-sale and does not have the right to make derivative works. In short, the purchaser has not acquired the copyright of the article or of the database. What the buyer gets is a copyrighted product, and accordingly the consideration paid is not royalty, but for purchase of a product. In the instant case too, what is acquired by the customer is a copyrighted article, copyrights of which continue to lie with assesse....