TaxTMI 
TaxTMI 
2023 (7) TMI 394
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....International Taxation Circle 1(1)(1), Mumbai ("Ld. AO") under section 143(3) read with section 144C(13) of the Act. 1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in assessing the total income of the Appellant under section 143(3) read with section 144C(13) of the Act at INR 2,14,76,13,270 as against Nil returned income. 2. That on the facts and circumstances of the case and in law, the Ld. AO / Dispute Resolution Panel ("DRP") have erred in holding that the receipts from Indian customers amounting to INR 2,14,76,13,270 are chargeable to tax as royalty in terms of Article 12(3) of India-US Double Tax Avoidance Agreement ("DTAA") and under section 9(1)(vi) of the Act. 2.1 That on the facts and in the circumstances of the case and in law, the Ld. 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 or right to use of copyright in artistic, literary or scientific work and / or for use of information concerning industrial, commercial or scientific ex....
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.... the United States of America that supports scientific enquiry in the field of chemistry. The assessee is the world's largest scientific society by membership. For the year under consideration, the assessee filed its return of income on 02/11/2020 declaring a total income of Rs. Nil. During the year, the assessee received payment for providing the following products/services from outside India to Indian customers:- 1. Fee for providing access (by subscription) to online chemistry databases (CAS division) Rs. 51,54,87,392 2. Subscription revenue from sale of online journals (PUBS division) Rs. 1,63,21,25,879 3. Subscription revenue from membership of M&SA division Rs. 52,05,699 4. Advertising revenues Rs. 16,14,076 6. During the assessment proceedings, the assessee submitted that none of these receipts qualify as royalty or fee for included services under the India-USA DTAA. During the course of assessment proceedings, it was found that the return of income of the assessee for the assessment years 2014-15 to 2019-20 were also scrutinized and in these years, the Assessing Officer has treated all the above revenues of the assessee except membersh....
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....on does not qualify as "Royalty" in terms of section 9(1)(vi) of the Act as well as Article-12(3) of the India-USA DTAA. The relevant findings of the Co-ordinate Bench of the Tribunal are as under:- "7. We have carefully considered the rival submissions, perused the relevant material, including the orders of the lower authorities as well as the case laws referred at the time of hearing. Notably, the controversy before us primarily revolves around the characterization of the income earned by the assessee from the Indian subscribers. The income-tax authorities have invoked section 9(1)(vi) of the Act and/or Article 12(3) of the India-USA Treaty in order to say that the receipts are in the nature of royalty, and therefore the same is taxable in India. On the contrary, as per the assessee, the impugned receipts are in the nature of business profits, and in the absence of any PE in India, the same are not taxable in India. In the earlier part of this order, we have noted in sufficient detail, the manner in which the assessee earns the CAS fee from Indian subscribers, and the same is not being repeated for the sake of brevity. "Factually speaking, it is evident that the assessee....
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....f information concerning industrial, commercial or scientific experience ought to be in relation to information which is undivulged and/or arises from previous experience. In other words, in order to be understood as 'royalty', the payment must be for information which is exclusively possessed or secret under the ownership of the grantor of such information. In our considered opinion, the fact-situation in the instant case does not comply with the aforesaid requirement so as to be treated as a payment for 'royalty'. 8. As discussed earlier, in the instant case, the assessee merely identifies, aggregates, and organizes publicly disclosed chemistry related scientific information or publishes research work submitted by scientists worldwide. Thus, this information is clearly not undivulged; rather, it is an Information which is available in public domain, as is also evident from the factual position noted by the Assessing Officer himself in the assessment order. Further, chemistry and related scientific information accumulated by the assessee in the form of a database is the experience of various scientists, researchers and various other persons and not that of....
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....d associates of D&B US in each country are engaged in compilation and selling BIRS in their local markets and to other associate companies worldwide as their core business. Each associate company of D&B compiles the information in respect of companies functioning in its country in the standardized D&B format which is electronically uploaded on the server of the associates companies and is copied (mirrored) on the Central data base server situated in US. DBIS is also engaged in a similar business of compilation and selling BIRs in respect of business entities, either they are incorporated in their respective countries or doing business in their country. The US server farm is owned and operated by D&B US and it contains mirror servers of all the D&B associate companies. The modus operandi of the business of DBIS is that whenever an Indian customer places an order for a BIR in respect of a company situated in Spain, DBIS would access the master server of D&B US. Thereupon, the master server would identify DBIS and would allow access to connect to the mirror server of the applicant which is situated in US server farm. It was then DBIS would request the applicant for a BIR of the compan....
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....erver in India for the use of DBIS. Indeed the applicant has specifically averred that the copyright in the BIR would neither be licensed nor assigned to either the DBIS or the Indian customer. From these aspects it is clear that the aforementioned ruling of the Authority is distinguishable on facts. If a group of companies collects information about the historical places and places of interest for tourists in each country and all informations are maintained on a central computer which is accessible to each constituent of the Group in each country, can a supply of such information electronically on payment of price be treated as royalty or fee for technical services? We think not. (underlined for emphasis by us) 10. In this context, we also think it apposite to refer to the judgment rendered by the Hon'ble Madhya Pradesh High Court in the case of CIT vs. HEG Limited [2003] 263 ITR 230 (MP). In the aforesaid case, the assessee paid certain amount to a firm of USA for purchase of some information. The Assessing Officer held that the said transaction involved imparting of information concerning technical, industrial, commercial or scientific knowledge, experience....
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....e terms of the sample agreement of CAS customers in our considered view, transfer of any right in a copyrighted article is analogous to the rights acquired by the purchaser of a book. In the case of a book, the publisher of the book grants the purchaser certain rights with respect to the use of the content of the book, which is copyrighted, but the purchaser of the book does not acquire the right to exploit the underlying copyright. When the purchaser reads the book, he only enjoys its contents. Similarly, the user of the copyrighted software does not receive the right to exploit the copyright in the software; he only enjoys the product/benefits of the product in the normal course of his business. Similarly, in the instant case, customers of the assessee only enjoy the benefits of using SciFinder and STN and do not acquire the right to exploit any copyright in these software. The difference between a copyright and a copyrighted article in context of software has been brought out very clearly by the Hon'ble Supreme Court of India in the case of Tata Consultancy Services vs. State of Andhra Pradesh (supra). 13. In view of the aforesaid discussion, in our considered view,....
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....rival submissions and perused the relevant material on record including the order of the lower authorities on the issue in dispute. We find that issue with respect to the PUBS division coincides with the issues on the CAS fee. The journal provided by the PUBS division do not provide any information arising from assessee's previous experience. The assessee's experience lies in the creation of maintaining such information online. By granting access to the journals, the assessee neither shares its experiences, techniques or methodology employed in evolving databases with the users, nor imparts any information relating to them. As is clearly evident from the sample agreements, all that the customers get is the right to search, view and display the articles (whether online or by taking a print) and reproducing or exploiting the same in any manner other than for personal use is strictly prohibited. Further, the customers do not get any rights to the journal or articles therein. They can only view the article in the journal that they have subscribed to and cannot amend or replicate or reproduce the journal. Thus, the customers are only able to access journal/articles for personal ....