TaxTMI 
TaxTMI 
TaxTMI 
2023 (4) TMI 273
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....is a non-resident corporate entity incorporated in USA and a tax resident of USA. For the assessment year under dispute, the assessee filed its return of income on 30.11.2016 declaring income of Rs.18,71,520/-. In course of assessment proceeding, the Assessing Officer, after calling for and examining various information from the assessee, noticed that during the year, the assessee has received an amount of Rs.3,52,84,277/- from customers in Indian for providing access to online data base created by the assessee. Noticing that the assessee has not offered this income for taxation, the Assessing Officer called upon the assessee to explain as to why the amount received, being in the nature of royalty, should not be brought to tax. In reply to the show-cause notice issued by the Assessing Officer, the assessee furnished a detailed submission. Vehemently opposing taxability of the amount received assessee pleaded that while granting access to the online database it has not transferred any copyright or licence. Therefore, the amount received is not in the nature of royalty, either under the treaty provisions or under the provisions of the Act. The Assessing Officer, however, was not conv....
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.... under Article 12(3) of India - USA DTAA. Further, he submitted, though the departmental authorities relied upon the decision of the Hon'ble Karnataka High Court in case of CIT Vs. Samsung Electronic Pvt. Ltd. (surpa), however, the aforesaid decision of the Hon'ble Karnataka High Court has been reversed by the Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence Pvt. Ltd. 432 ITR 471. Thus, he submitted, the addition should be deleted. In support of his contention, learned counsel relied upon the following decisions: 1. Engineering Analysis Centre of Excellence (P.) Ltd. Vs. CIT [2021] 125 taxmann.com 42 (SC) 2. ITO Vs. Cadila Healthcare Ltd. (77 taxmann.com 309) (ITAT, Ahmadabad) 3. Reliance Corporate IT Park Ltd. Vs. Dy. Commissioner of Income Tax, Mumbai [ITA No.7300/Mum/2016] [Mumbai-Trib.] 4. Elsevier Information Systems GmbH Vs. Dy. Commission of Income Tax (IT), Circle Mumbai [2019] 106 taxmann.com 401 (Mumbai - Trib.) 5. Strongly relying upon the observations of the departmental authorities, learned Departmental Representative submitted, subscription received by the assessee allowing access to the online database amounts to royalty as in t....
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....ted to update or revise the contents of the licensed products. The subscription agreement further provides that upon termination of all rights, products are required to be deleted by the licensee from any place of storage. Thus, from the aforesaid facts, it is clear that the assessee is neither the creator of the content put in the database, nor it has transferred any such non-existent right. Article 12(3) of India - USA DTAA defines royalty as under: "3. The term "royalties" as used in this Article means: (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, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) payments of any kind received as consideration for the use of, or the right to use....
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.... subscription basis. Therefore, in our view, the amount received will not fall within the ambit of royalty as defined under Article 12(3) of the tax treaty. It is relevant to observe, while treating the subscription fee received by the assessee as royalty, the Departmental Authorities have heavily relied upon the decision of the Hon'ble Karnataka High Court in case of CIT Vs. Samsung Electronics Co. Ltd. (supra). The other decision cited by learned Departmental Representative has simply relied upon the decision rendered in case of Samsung Electronics Co. Ltd. (supra). However, the decision of the Hon'ble Karnataka High Court stands recovered by the decision of Hon'ble Supreme Court in case of Engineering Analysis (supra) 9. On the contrary, the decisions cited by learned counsel for the assessee squarely apply to the facts of the present appeal. In fact, in our view, the issue is no more res-integra in view of the ratio laid down by the Hon'ble Supreme Court in case of Engineering Analysis Centre of Excellence (P.) Ltd. (supra). However, for the sake of completeness, we must observe, while deciding identical issue in case of assessee's sister concern, the Tribunal in case of Ovid ....
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....as considered the decision of the Hon'ble High Court of Karnataka [supra] at para 103 of its order and at Para 105 has observed as under: "105. The reasoning of the High Court of Karnataka in Synopsis International Old Ltd. (supra) does not commend itself to us. First and foremost, as held in Swastik Tobacco Factory (supra), the expression "in respect of, when used in a taxation statute, is only synonymous with the words "on" or "attributable to". Such meaning accords with the meaning to be given to the expression "in respect of' contained in Explanation 2(v) to section 9(l)(vz) of the Income-tax Act, and would not in any manner make the expression otiose, as has wrongly been held by the High Court of Karnataka." 15. The Hon'ble Supreme Court has settled the impugned quarrel in favour of the assessee and against the Revenue by concluding as under: 168. Given the definition of royalties contained in Article 12 of the DTAAs mentioned in paragraph 41 f this judgment, it is clear that there is no obligation on the persons mentioned in section 195 of the income-tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not c....