AI Drafter 
TaxTMI 
TaxTMI 
2024 (1) TMI 269
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.... On the facts and in the circumstances of the ease and in late, the Hon'ble DRP / Learned AO erred in making an addition of INR 40,0072,256/- received from the Indian customers as subscription fees by treating it as 'Royalty' u/s 9(1)(vi) ('the Act') and Article 12(3) of the of the tax treaty between India and the. United States of America ('India-USA DTAA'). Accordingly, the Appellant prays that the aforesaid addition made by the Learned AO ought to be deleted. Ground No. 3 3.1 On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in not quoting computer-generated DIN on the body of DRP directions u/s. 144C(5) of the Act, in contravention to Circular No. 19 of 201g issued by the CBOT, deeming such an order to be invalid and never to have been issued as per para 4 to the said Circular. 3,2. On the facts and in the circumstances of the case and in law, the final assessment order dated 7 July 2023 under section 143(3) read with section 144C(13) of the Act passed by the I,d. AO pursuant to invalid directions passed by Hon'ble DRP, is illegal, thus making the final assessment order bad....
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....ed the entire submissions and they upheld that the amount received from the Indian entities shall be treated as a royalty within the meaning of sec. 9(1)(vi) of the Act and rejected the contention of the assessee. Accordingly, the AO passed the final assessment order on 30/09/2022. 6. Aggrieved from the above order, the assessee filed appeal before the Income Tax Appellate Tribunal. 7. The learned AR reiterated the submission made before the lower authorities and submitted that the case is squarely covered in favour of the assessee in assessee's own case decided by the coordinate bench of the Tribunal in ITA No.37/Bang/2023 vide order dated 21/08/2023 and the facts and agreements remains same for the assessment year 2016-17 also. 8. On the other hand, the ld. DR relied on the order of the lower authorities. 9. After hearing the rival contentions, we note from the submissions that the issue has been decided by the coordinate bench of the Tribunal in assessee's own case for assessment year 2016-17 in ITA No.37/Bang/2023 and considering the submissions of the assessee that the facts and agreement made with the Indian entities are the same as submitted by the ld.AR in this ....
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.... etc. Prima facie, the online video content is very generic and routine in nature. The customers/subscribers can only view the videos and are not allowed to download, store, transmit or edit such videos. Further, the customers/subscribers do not get any right on the content or the infrastructure facilities. However, the customers are allowed to download certain ancillary course material such as exercise files, course slides, course index etc., but even such material cannot be shared, transferred, sold or exploited in any manner. 8. The AO had given three reasons to bring to tax the subscription amount received by assessee as "royalty". The three reasons are as follows: i) The subscription revenue is towards use of, or right to use any copyright. ii) The subscription revenue is for information concerning industrial, commercial or scientific experience. iii) The subscription revenue is received by assessee for granting right to use of equipment. 9. The provisions of India-USA DTAA have a more restrictive scope than the provisions of the Act (in view of section 90(2) of the Act), hence, we confine our adjudication of taxability of subscript....
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....e, shall not be covered within the scope of 'royalty'. The aforesaid principles have been upheld by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT (supra). The Hon'ble Supreme Court has held that the amount paid by resident Indian enduser/ distributors to non-resident computer software manufacturers/suppliers is not payment of royalty for use of copyright since the end-use/distributor does not get any of the rights under section 14 of the Copyright Act and does not get the right to reproduce a computer programme and exploit the reproduction by way of sale, transfer, license etc., which is at the heart of the definition of 'copyright' under the Copyright Act. While holding so, the Apex Court has upheld the conclusions derived from the judgements of the Hon'ble Delhi High Court on the said issue as under: "117. The conclusions that can be derived on a reading of the aforesaid judgments are as follows: . . . iv. A licence from a copyright owner, conferring no proprietary interest on the licensee, does not entail parting with any copyright, and is different from a licence issued under section 30 of the Copy....
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....r other online services provided by Pluralsight (collectively, the "site"). Customer desires to acquire business subscriptions for a number of its employees or its Affiliates' employees (collectively, the "Business Users") to access the Site, and Pluralsight agreed to grant such subscriptions subject to the terms and conditions set forth in this Agreement. TERMS AND CONDITIONS 1. GRANT OF LICENSE a. License Grant. Subject to the terms and conditions set forth in this Agreement, Pluralsight grants Customer a worldwide, non-exclusive, non-transferable License (the "License") to use the Site. The License is for use by a specific number of Customer's Business Users to whom Customer has assigned a valid business subscription (the "Business Subscriptions") to access the Site by way of the License. The License and each Business Subscriptions are to be used solely internal purposes of Customer, for which the applicable Business License Fees have been paid. The number of Business Subscription granted hereunder will be set forth in a separate sales order form (each, a "Sales Order") to be signed by Customer. Customer acknowledges and agrees that any breach of the terms and condition....
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.... any purpose, is permitted without the express written permission of Pluralsight. Customer and Subscribers may not decompile, disassemble , or reverse engineer any software comprised in the Proprietary Material except to the limited extent as it permitted by law notwithstanding contractual prohibition. 3. PROHIBITED CONDUCT a. Prohibited Conduct. Customer will use the Site in compliance with applicable law and acknowledges and agrees that neither it nor its Business Users may: 1. reproduce , redistribute, transmit, assign, sell, broadcast, rent, share, lend, modify, adapt, edit, create derivative works of , license, capture, download, save , upload, print, or otherwise retain information and content available on the Site other than with regard to Authorized Downloadable Materials, subject to the limited permissions set forth in this Agreement; 2. permit or provide others access to the Site's library using a Business User username and password or otherwise, or the username and password of another authorized user; 3. remove or modify any copyright, trademark, legal notices, or other proprietary notations from the Proprietary Materials or any other content available on ....
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.... • to further distribute, sell, sub-license, rent, lease or issue copies of the Proprietary Material; • to create any derivative work or exploit the Proprietary Material in any manner; • to remove or alter any copyright, trademark or proprietary notice in the Proprietary Material; • to decompile, disassemble, or reverse engineer the Proprietary Material/database. 14. Therefore, by subscribing to the assessee's database, the subscribers merely get 'access' to the database to view the videos - which are akin to 'copyrighted articles'. The subscribers do not receive any right to use the copyright in the videos/database at any point in time. Thus, in view of the principle laid down by the Hon'ble Supreme Court in the case of Engineering Analysis (supra), the subscription fees received by the assessee does not amount to payment for the 'use of or right to use copyright' but rather payments for access to copyrighted products, i.e., the videos on the assessee's database. The Mumbai Bench of the Tribunal in the case of Elsevier Information Systems GmbH v. DCIT: ITA No. 1683/Mum/2015, wherein on similar facts, has held as under: ....
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....poration Ltd.: (2017) 183 TTJ 697 (Ahd ITAT) g) ITO (IT) vs. Cadila Healthcare Ltd.: (2017) 184 TTJ 178 (Ahd ITAT) h) Iqvia AG v. DCIT: ITA No. 1203/Mum. /2021 (Mumbai ITAT) 16. In view of the above, we hold that the subscription fees received by the assessee does not amount to 'royalty' for use of or right to use of any 'copyright'. ii) The subscription revenue received by the assessee whether it is for any information concerning industrial, commercial or scientific experience: 17. In the impugned assessment order, while alleging that the subscription fees received by the assessee is for the use of copyright, the AO has also made a remark that there is a transfer of copyright to the extent of having access to the database and such access to videos would also amount to access to information concerning industrial, commercial or scientific experience (refer page 17 of the assessment order). The assessee is in the business of aggregating videos, creating a database on its website and earning subscription revenue by granting access to such database. Thus, the skill and experience of the assessee lies in creating and evolving the database of ....
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.... of Factset Research Systems Inc., reported in 317 ITR 169 (AAR) had held as under in Para 11 of the ruling: "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 (Article 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 imparting information on technical, industrial or commercial matters. The requirement is imparting of information concerning technical, commercial or scientific knowledge, experience or skill. The information which the licensee gets through the database does not relate to the underlying experience or skills which contributed to the end-product. The applicant does not share its experiences, techniques or methodology employed in evolving the database with the subscribers. The applicant does not impart any information relating ....