TaxTMI 
TaxTMI 
2022 (6) TMI 342
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....RP') erred in holding the sum of INR2,82,15,036 as 'Royalty' under Section 9(1)(vi) of the Income-tax Act, 1961 ('the Act') read with Article 13 of the Double Taxation Avoidance Agreement ('the DTAA') entered into between India and UK. 2. That on the facts and in the circumstances of the case and in law, the Learned AO erred in alleging that Dow Jones Consulting India Private Limited (DJCIPL) could constitute an Agency PE of the Appellant. 3. That on the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in not considering that the sum of INR 2,82,15,036 is in the nature of "Business Profits" under Article 7 of the DTAA, not taxable in India as the Appellant did not have a Permanent Establishment in India under Article 5 of the DTAA. 4. That on the facts and in the circumstances of the case and in law, the learned AO has erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act without appreciating that none of the provisions of section 271(1)(c) of the Act gets attracted in the facts of the Appellant's case. The Appellant prays to Your Honours to kin....
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....va product is in the nature of royalty as per Article 13 of India-UK DTAA. Consequently, pursuant to the order passed by the Ld. DRP, the AO framed the assessment under section 143(3) read with section 144C(13) of the Act at the total income of Rs.2,82,15,036/-. Feeling aggrieved the assessee has come up before the Tribunal by way of filing present appeal. 6. We have heard the Ld. Authorised Representatives of the parties to the appeal, perused the orders passed by the Ld. Lower Revenue Authorities and documents available on record in the light of the facts and circumstances of the case and law applicable thereto. 7. Undisputedly during the year under assessment assessee received an amount of Rs.2,82,15,036/- for the distribution of financial products of DJCIPL after deducting tax at source under section 195 of the Act. It is also not in dispute that the assessee has claimed the aforesaid amount as its business income on the ground that it does not have a PE in India and as such claimed the same to be not taxed in India. It is also not in dispute that the assessee company has received an amount of Rs.2,82,15,036/- for distribution of financial products in territory of India o....
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....d in the portal and that a dedicated team of around 100 specialists were involved which updated the data on daily basis etc.; and that the payment in question falls within the ambit of use of copy right as well as information concerning industrial scientific or commercial experience and thereby relied upon the order passed by the AO/ Ld. DRP. 10. From the grounds raised by the assessee in the present appeal, undisputed facts and argument addressed by the Ld. A.Rs. of the parties the sole question arises for determination is : "AS to whether amount of Rs.2,82,15,036/- received by the assessee from the distribution of financial products of DJCIPL is a 'royalty' under section 9(1)(vi) of the Act and Article 13 of India-UK DTAA?" 11. When we examine the question framed in the light of the undisputed facts that the purchase price received by the assessee from DJCIPL is at arms length price; that the amount received by the assessee was for providing use of database specifically by not giving any copy right; and that transaction as to granting the right to distribute the Factiva product in the Indian markets to its group company DJCIPL on principle to principle basis, the a....
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.... of India Vs. Azadi Bachao Andalon 263 ITR 706. Accordingly, we will consider the beneficial provisions of the tax treaty to see whether the contention of the assessee that the alleged payment from DJCIPL is not royalty income. 11. As per Article 12 of the Tax Treaty, 'Royalty" is defined as under: "10.1.4.1 (a) "payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income, derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 10.1.5 Thus, Article 12 of the Tax Treaty brings within the ambit of the definition of royalty, a payment made for the use of or th....
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.... it brings within the ambit of the definition of 'Royalty' the payment made for use of, or the right to use any copyright of a literary, artistic, or scientific work. In our understanding of the Article, only those payments that allow a payer to use/acquire a right to use copyright in literary, artistic or scientific work are covered within the definition of 'Royalty'. In our considered view, the payments made for acquiring right to use product itself, without allowing any right to use the copy right in the product are not covered with the scope of 'Royalty' which may get covered under the term under Royalty as per the Act. 13. The facts of the case in hand show that there is no transfer of legal title in the copyrighted article as the same rests with the assessee. All rights, title and interest in the licensed software which is being claimed to be copyrighted article are the exclusive property of the assessee. DJCIPL has no authority to reproduce the date in any material form to make any translation in the date or to make adaptation in the data. 14. We further find that the end user cannot be said to have acquired a copy right or right to use the copy right in da....
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....the identical issue arisen under section 9(1)(vi) of the Act read with Article 12(3) of India-UK DTAA that:- "As to whether the income earned by the assessee from Indian customer for granting online/web based access to its database and general Indian customer in consideration of subscription fees is a 'royalty' to be taxed in India." 15. This question has been decided by the co-ordinate Bench of the Tribunal in favour of the assessee by returning following findings: • It is evident that the assessee merely accumulates and organizes information already available in public domain/publicly disclosed information, and 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 ....
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....ng to them.[Para 8] • In this context the Madhya Pradesh High Court in the case of ClT v. HEG Ltd. [2003] 130 Taxman 72/263 1TR 230 held that purchase of any and every type of commercial information cannot earn the status of royalty. To have the status of royalty, the infonnation transacted should have some special features, which is hitherto not available in public domain. [Para 10] • With respect to the subscription fee for the CAS division being considered as royalty for 'use' of or 'right to use1 of a copyright, a reference to the Copyright Act, 1957 is also relevant. A person can be said to have acquired a copyright or the right to use the copyright in a computer software or database (as described by the Assessing Officer), where he is authorized to do all or any of the acts as per the definition of the term 'copyright' under section 14 of the Copyright Act, 1957. However, mere access to that work or permission to use the work cannot imply that the payer is paying for use or right to use the copyright. In other words, when no copyright is acquired by the payer, question of using it or getting a right to use it does not arise. [Para....
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....e1 in any copyright or any other intellectual property of any kind is provided by the assessee to its customers. Furthermore, the information resides on servers outside India, to which the customers have no right or access, nor do they possess control or dominion over the servers in anyway. 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. [Para 17] • In the instant case, what is acquired by the customer is a copyrighted article, copyrights of which continue to lie with assessee for all purposes. It is a well settled law that copyrighted article is different from a copyright, and that consideration for the former, i.e. a copyrighted article does not qualify as royalties. [Para 18] • Thus, the principles noted in the context of the income earned by way of CAS fee are squarely applicable to the subscription revenue received from customers of PUBS division for sale of journal also, and, accordingly, PUBS fee also does not qualify as 'Royalty' in terms of section 9(l)(w) as well as article 12(3) of the India-USA DTAA. [Para 19]" 16....
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....ific specialized knowledge portal as the assessee has a dedicated team of 100 specialists to collate and update the data on daily basis and as such fall within the ambit of use of copy right as well as information concerning industrial scientific or commercial experience is not sustainable in the eyes of law. 20. Even otherwise this issue is covered in favour of the assessee in its group company case M/s. Dow Jones and Company India Pvt. Ltd. (supra). So the question framed is answered in the negative and as such the payment received by the assessee is not a 'royalty' under Article 13 of India-UK DTAA. So we hereby set aside the addition made by the AO under section 9(1)(vi) of the Act read with Article 13(3) of India-UK DTAA and as such ordered to be deleted the same. 21. Assessee company has also raised ground No.2 & 3 challenging the findings returned by the AO/ Ld. DRP that DJCIPL could constitute an agency PE of the assessee and as such amount of Rs.2,82,15,036/- is in the nature of "business profits" under Article 7 of India-UK DTAA. 22. We have perused the findings returned by the AO as well as Ld. DRP. AO in para 8.6 of its order has given a stray remarks that DJCI....