AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2009 (6) TMI 28
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....ave the need for such data. The databases contain the published information collated, stored and displayed in an organized manner by FactSet, though the information contained in the database is available in public domain. The applicant, however, through its database enables the customer to retrieve this publicly available information within a shorter span of time and in a focused manner. The database maintains historical information and all the databases of FactSet are maintained at its datacenters in USA. For a customer to access and view FactSet data, the customer need to down-load client interface software (similar to internet browser). The customer can subscribe to specific database as per its requirement. The 'lion-share' database provides information on the shareholding by global holders of global equities. The 'Shark repellent' database provides information on takeover defence strategies adopted by various U.S. Public companies over a period of time. The Mergerstat database tracks formal transfers of ownership. A Call street database includes transcripts of quarterly conference calls (e.g. analysts's queries) held by public companies. There are some more databases also. A cu....
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....tion fees cannot be taxed as business income in view of Article 7 of India-USA Treaty. 4. Let us now notice the material terms of MCL Agreement. The applicant is the Licensor and the Licensee is the subscriber/customer. Clause 1.a declares that the licensor grants to the licensee "limited, non-exclusive, non-transferable rights to use the software, hardware, consulting services and databases". As regards the consulting service, it is stated that FactSet provides certain consultants who are able to demonstrate the FactSet's products and its uses to the customers. It is clarified in the rejoinder that consulting services are not really required as FactSet provides helpdesk facilitation free of cost, though at present, there is no such facilitation Centre in India. As regards hardware, it is clarified in the rejoinder that at present no hardware is being provided to the customers in India. 4.1 According to cl. 2.a the licensor provides the services solely and exclusively for licensee's own internal use and business purposes only in the licensee's business premises. The licensee's employees having a password or user ID can access the service. Further, the licensee cannot use or....
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....ing the invoice failing which the Licensor may suspend the licensee's access (vide clause 4). The initial term of the agreement is as set forth in Schedule (A) and thereafter the agreement can be renewed for successive one year periods (vide cl. 5). Clause 5.c stipulates that upon termination of the agreement, licensee will cease using all the licensed material, return any licensor hardware upon request and expunge all data and software from its storage facility and destroy all documentation except such copies of data to the extent required by law. Another restriction placed by cl. 5.d is that the Licensee may not use any part of the services (for eg., Index value) to create a proprietary financial instrument or to list on its exchange facilities. In various schedules relating to different databases, the rates of 'fixed price service' and 'Pay-As-you-Go Service' are set out. 5. The contentions of the applicant raised in the application and in the course of arguments are briefly as follows: FactSet provides to the subscriber a mere right to view the information or access to the database while online. No transfer including licensing of any right in respect of copyright is inv....
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.... limbs of 'royalty' definition. Section 9(1)(vi) of the Act brings the income by way of royalty within the ambit of deemed income. Explanation 2 to clause (vi) of Section 9(1) defines 'royalty' as follows: Explanation 2 - For the purposes of this clause "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for - (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; [(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in Section 44BB....
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....sense. The legal sense can only be what it has in the law relating to sale of goods and therefore the said expression shall bear the same meaning as it has in Indian Sale of Goods Act. Looking at the Treaty, we have Art.2.2 which clarifies how the undefined terms shall be understood. In substance, it says that an undefined term shall have the meaning which it has under the taxation law of the State concerned. When the term is not defined in the taxation law (I.T.Act), the definition in the law governing the subject-matter ought to be adopted, more so when there is no basic difference between the statutory definition and the ordinary legal concept. Section 16 of Copyright Act lays down that no person shall be entitled to copyright or any similar right in any work otherwise than under and in accordance with the provisions of this Act or any other law in force. 8.2. Section 14 gives the meaning of copyright. This Section was substituted for the previous one by the Copyright (Amendment) Act of 1994. Section 14 in so far as it is relevant is extracted hereunder: 14. For the purposes of this Act, "Copyright" means the exclusive right subject to the provisions of this Act, to do o....
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....r-licensee for a consideration, can it be said that any rights which the applicant has as a holder of copyright in database are being parted in favour of the customer? The answer, in our view, must be in the negative. No proprietary right and no exclusive right which the applicant has, has been made over to the customer. The copyright or the proprietary rights over the 'literary work' remains intact with the applicant notwithstanding the fact that the right to view and make use of the data for internal purposes of the customer is conferred. Several restrictions are placed on the licensee so as to ensure that licensee cannot venture on a business of his own by distributing the data downloaded by it or providing access to others (vide clause 2.a & 2.c of the Agreement). The licensee has not been given the exclusive right to reproduce or adapt the work or to distribute the contents of data-base to others. The grant of license is only to authorize the licensee to have access to the copyrighted database rather than granting any rights in or over the copyright as such. The consideration paid is for a facility made available to the licensee. The license, it must be noted is a non-exclusiv....
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.... Then, the Departmental Representative has argued that the data can be rearranged according to the needs of the subscriber and therefore it amounts to adaptation. But, that is not the adaptation contemplated by sub-clause (vi) of Section 14(a) of Copyright Act read with the definition of adaptation as per Section 2(a). No right of adaptation of the work within the meaning of that term in Section 2(o) has been conferred on the applicant. 9.3 We are, therefore, of the view that the subscription fee received by the applicant from the licensee (user of data base) does not fall within the scope of clause (v) of Explanation (2) to Section 9(1) of the Act. 10. Even examining from the standpoint of Treaty, we do not think that "the use of or right to use any copyright of a literary or scientific work" is involved in the subscriber getting access to the database for his own internal purpose. It is like offering a facility of viewing and taking copies for its own use without conferring any other rights available to a copyright holder. The expression 'use' (of copyright) is not used in a generic and general sense of having access to a copyrighted work. The emphasis is on the "use of copyrig....
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....ilable for customers to search and retrieve. The principal value to customers is the ability to search and extract a specific item of data from amongst a vast collection of widely available data. Analysis and conclusions 27. The payment arising from this type of transaction would fall under Article 7. Some Member countries reach that conclusion because, given that the principal value of such a database would be the ability to search and extract the documents, these countries view the contract as a contract for services. Others consider that, in this transaction, the customer pays in order to ultimately obtain the data that he will search for. They therefore view the transaction as being similar to those described in category 2 and will accordingly treat the payment as business profits. 28. Another issue is whether such payment could be considered as a payment for services "of a technical nature" under the alternative provisions on technical fees previously referred to. Providing a client with the use of search and retrieval software and with access to a database does not involve the exercise of special skill or knowledge when the software and database is delivered to....
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....l 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. 10.4 The departmental representative tried to distinguish this ruling on the ground that BIRs were in a standard form. This attempted distinction is not correct. Though a standardized digital format was evolved for convenience, the contents and value additions made are quite similar to that of applicant's data base. The BIR even gives the ratings of Companies#, on an evaluation of various factors. 11. The learned departmental representative then invoked clause (iv) of Explanation 2 which speaks of "imparting any information concerning technical, industrial, commercial or scientific knowledge, experience or skill". The DTAA (Art.12.3) uses slightly different language. It speaks of payment received for "information concerning industrial, commercial or scientific experience". We do not think that the payment in question can be brought within the fold of this part of definition of 'royalty'. The clause does not contemplate merely i....
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....her, so that he can use them for his own account, his special knowledge and experience which remain unrevealed to the public". 11.2 The same passage has been quoted by Prof. Klaus Vogel in his treatise on Double Taxation Convention (3rd Edition, page 782). The learned Departmental Representative has invited our attention to Prof. Klaus Vogel's comments at pg.794: "Industrial, commercial or scientific experience: This know-how in the wider sense of the term covers unprotected, non-secret knowledge derived from experience - experience 'acquise' - (cf. the definition given by ANBPPI and reproduced in para 11 MC.Comm., supra m.no.33). In contrast to general specialist knowledge ('knowledge of the state of the art'), experience is, by definition, person-related. Experience that every person (viz. every specialist) acquires or is aware of, is general knowledge and cannot be considered specialist 'knowledge derived from experience'." We do not see anything in the above passage which can lead us to the conclusion that know-how has been transferred in the instant case. 11.3 We may also refer to the case of Anapharm Inc, In re* in which this Authority has given ruling. The observat....
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....on is for availing of the facility of accessing the data/ information collected and collated by the applicant. 12. The income by way of subscription fee having been held to be not in the nature of royalty, the next question is whether it is taxable as business income? The business income is taxable under Art.7.1 of the DTAA only if the enterprise carries on business through a permanent establishment situated in India. If there is a PE, the profits of the enterprise can be taxed only to the extent they are attributable to the PE. The applicant submits that its business is not carried out through any permanent establishment in India and further states that there is no agent in India acting on its behalf or securing orders or having an authority to conclude the contracts. No doubt, on the facts stated in the application, the existence of PE is ruled out. However, some doubt is created by reason of the facts disclosed by the applicant in reply to the queries raised by the Revenue. In the answer to query no.8, it is stated as follows : "The applicant's group's subsidiary has a wholly owned subsidiary in India. The Indian Company has two offices in India (i.e. Hyderabad and Mumbai). Th....