TaxTMI 
TaxTMI 
2023 (9) TMI 252
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....platform on its website and earns subscriptions revenue by facilitating viewing of online videos by customers who can acquire business subscriptions for their employees or affiliates' employees. During the relevant Assessment Year, assessee was in receipt of subscription charges from its Indian customers to the tune of Rs. 11,75,30,601/-. The said receipts were not offered to tax in the return of income filed by the assessee. The assessment was selected for scrutiny and notice under section 143(2) of the Act was issued to the assessee on 01.08.2017. During the course of assessment proceedings, assessee filed submissions in support of its contentions that the subscription earned by the assessee from its Indian customers were not taxable in India under the provisions of India-US DTAA as well as the Act. The AO, however, rejected the said contentions of the assessee and held that subscription revenue received by the assessee from the subscribers in India is towards granting of right to use any copyright of a literary, artistic or scientific work and thereof, hence, the same amounts to "royalty". The AO also stated that the subscription fee received by the assessee is "royalty" for inf....
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....ored on its online content library which is hosted on servers located in the United States of America and also in other parts of the world other than India. The online videos are pre-recorded (i.e., not live) and are audio visual in nature. Using such videos, the assessee compiles different kinds of courses in areas such as manufacturing, software development, etc. The online videos/courses are segregated on the basis of variety of users from various fields. Online viewing facility of these courses/video content is provided to customers through the assessee's website or mobile application. The assessee sells subscription plans to customers in India and prices are agreed between the assessee and the customers. In this regard, sample Master Subscription Agreement ('MSA') which the assessee enters with subscribers/customers is enclosed at pages 97-108 of the Paper Book. Subsequent to entering into agreements and payment of subscription amount, the customers are provided with login information (login ID and password). After the customers log in on the website, the customers/subscribers can view all or any of the 5000+ online videos/courses stored in the content library for the dura....
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.... consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8." 10. Now let us examine each of the reasonings given by the AO for bringing to tax subscription revenue as "royalty". i) Whether the subscription revenue is towards use of, or right to use any copyright: 11. Based on the definition of 'Royalty' under the India-USA DTAA, it is important to understand the meaning of the term 'copyright'. The term 'copyright' is not defined under the provisions of the Act. Therefore, the provisions of the Copyright Act, 1957 ('Copyright Act') has to be examined. As per section 14 of the Copyright Act, 'copyright' means the exclusive right to do any of the acts specified therein, viz., to reproduce the work, to issue copies of the work to public, to make any translation or adaptation of the work, etc. Unless any of the exclusive rights or a combination thereof as stated under section 14 of the Copyright Act are transferred by the copyright holder, it cannot be said tha....
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.... mentioned in section 14 of the Copyright Act, or create any interest in any such rights so as to attract section 30 of the Copyright Act. vi. The right to reproduce and the right to use computer software are distinct and separate rights, as has been recognized in Starte Bank of India (supra) (see paragraph 21), the former amounting to parting with copyright and the latter, in the context of non-exclusive EULAs, not being so. 118. Consequently, the view contained in the determinations of the AAR in Dassault Systems K.K. (supra) and Geoquest Systems B.V. (supra) and the judgments of the High Court of Delhi in Ericsson A.B. (supra), Nokia Networks OY (supra), Infrasoft Ltd. (supra), ZTE Corporation (supra), state the law correctly and have our express approval. We may add that the view expressed in the aforesaid judgments and determinations also accords with the OECD Commentary on which most of India's DTAAs are based." (emphasis supplied) 12. The assessee in the instant case also does not transfer any copyright or the right to use any copyright of any nature to any of the subscribers. The relevant clauses of the sample MSA which the assessee enters with t....
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....y this Agreement is a right of access through the Site only, and does not grant Customer or its Business Users any right to download or store any Proprietary Materials in any medium, other than that downloadable content that is provided for certain training courses and specifically identified as available for download, including exercise files, course slides, and sample code ("Authorized Downloadable Materials"). Authorized Downloadable Materials are held by Customer or its business Users pursuant to a limited right only, and are subject to all restrictions described in this Agreement, including the prohibition on further transfer, sale , creation of derivative works, or exploitation in any manner. Customer shall not, directly or indirectly: (a) sublicense , resell, rent, lease, distribute or otherwise transfer rights or usage in the Proprietary Material ; (b) provide the Proprietary Material on a timesharing, service bureau, service provider or other similar basis ; or (c) remove or alter any copyright, trademark or proprietary notice in the Proprietary Material. b. Reservation of Rights. Pluralsight reserves all intellectual property rights to the Proprietary Materials, other ....
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....ed to interrupt, destroy, or limit the functionality of any computer software, hardware, or telecommunications equipment; or 9. manually or systematically harvest, scrape, collect or otherwise extract information or data contained on the Site, other than permitted use of Authorized Downloadable Materials or temporary storage of video materials for offline viewing as permitted by the Site's intended features. (Emphasis supplied) 13. From a perusal of the MSA, we find that the subscribers only get a nonexclusive, non-transferable license to view the videos on the website. Neither any copyright in the software/database, nor any copyright in the videos is granted to the subscribers. The assessee reserves all intellectual property rights in its Proprietary Material, which includes the source code, videos, text, software, intellectual property of the assessee etc. The subscribers are not even allowed to download, store, transmit or edit such videos. Further, while the subscribers are allowed to download certain ancillary course material (Authorized Downloadable Materials) such as exercise files, course slides etc., are subject to all the restrictions mentioned in the agreement a....
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.... by the assessee, sample copies of which are placed in the paper book, it is noticed that the subscription is period based and further the subscriber may not even use the data stored in the database. That being the case, the payment made cannot be treated as royalty under Article-12(3) of the India-Germany Tax Treaty. . . . . 17. ... By way of illustration we may further observe, online databases are provided by Taxman, CTR online, etc. which are accessible on subscription not only to professionals but also any person who may be having interest in the subject of law. When a subscriber accesses the online database maintained by Taxman/CTR online etc. he only gets access to a copyrighted article or judgment and not the copyright. Similar is the case with the assessee. Therefore, in the facts of the present case, the subscription fee received by the assessee cannot be treated as royalty under Artile-12(3) of India-Germany Tax Treaty." (emphasis supplied) 15. Similar view has been taken in the following cases: a) Elsevier BV, In re: (2021) 123 taxmann.com 143 (AAR) b) Dow Jones & Company Inc. vs. ACIT: (2022) 135 taxmann.com 270 (Del ITAT) ....
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....ical Society vs. DCIT(IT) reported in (2019) 106 taxmann.com 253 (Mum ITAT), wherein on similar facts, the Mumbai Bench of the Tribunal held that the customers do not make payments for availing the knowledge of assessee's experience of creating/maintaining database; on the contrary, what they pay for is to access the information that such database encompasses. Therefore, it was concluded by the Mumbai Bench of the Tribunal that the payment does not constitute payment made for information concerning industrial, commercial or scientific experience. Relevant finding of the Tribunal reads as follows: "8. ... 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 ....
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.... to be for imparting of 'any information concerning industrial, commercial or scientific experience of the Appellant'. iii) The subscription revenue received by the assessee whether it is for granting any right to use of equipment: 20. In the impugned assessment order, the AO also made a remark that the subscription fee could also be for the use of, or right to use, any industrial, commercial or scientific equipment as the server containing the database is used by the customers as "a point of interface" (refer page 13 of the assessment order). The consideration received by the assessee is merely for granting access to the database of videos and not for the use or right to use any equipment whatsoever. The subscribers have no access, right or control of any manner whatsoever over the server on which the assessee maintains the database. Therefore, the subscription fee received by the assessee cannot, in any manner, be termed as consideration for use or right to use any industrial, commercial or scientific equipment. In the case of Factset Research Systems Inc. (supra), the Revenue raised an identical contention that the server is used by the customers as 'a point of interface'.....