AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 105
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....of a technical training is indicative of fulfilment of a 'make available' clause in terms of Article 12(4)(b) of the India-USA Double Taxation Avoidance Agreement [DTAA] as well as Explanation- 2 of Section 9(1)(vii) of the Income Tax Act, 1961 [Act]? 2. The basic facts leading up to the matter travelling to the Tribunal do not appear to be in dispute. However, in order to render context to the question which stands posed, we deem it appropriate to notice the following salient facts. 3. The assessee filed a Return of Income on 30 November 2018 declaring 'Nil' income and thus asserting that no part of it is taxable under the Act. The case is stated to have been picked up for scrutiny assessment and the issue revolved upon the subscription fee of Rs. 18,65,00,000/-, which was received by the assessee from Indian subscribers for the use of its legal database. The database in question is titled 'Lexis Nexis' and enables Indian subscribers to access judgments, articles, legislations and other research material relevant to the legal field. The assessee is stated to have asserted that the income earned from subscription fee is in the nature of 'business income' and in the absence of it ....
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.... of the opinion that the A.O. has committed an error in making the addition. In view of the same, the payment received by the assessee is in the nature of Business Profit which cannot be brought to tax in India in the absence of PE. Accordingly, the ground of both the appeal of the assessee are allowed." 6. It becomes pertinent to note that it was never the case of the Department that the assessee had a fixed place of business and which is a sine qua non for Article 7 of the DTAA getting attracted. It is in the aforesaid context that the assessee appears to have asserted that subscription fee as earned would constitute business profit and would have been taxable only if such income was attributable to a Permanent Establishment [PE] as contemplated under Article 7 read with Article 5 of the DTAA. This stand that the assessee does not have a fixed place of business in India was not questioned even before us in the present appeal. 7. Mr. Bhatia, learned counsel appearing for the Department had essentially sought to place the income generated from subscription fee under Article 12 and Section 9(1)(vii) of the Act. It becomes pertinent to note that Article 12(3) of the DTAA defines th....
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....or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2.-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include....
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....soft 2013 SCC OnLine Del 4694. We deem it apposite to extract the following passages from that decision:- "89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to invoke the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in Article 12 of DTAA. Where the purpose of the licence or the transaction is only to restrict use of the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself or right to use copyright has been transferred to any extent. The parting of intellectual property rights inherent in and attached to the software product in favour of the licencee/customer is what is contemplated by the Treaty. Me....
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....opying, de-compiling, de-assembling, or reverse engineering the software without the written consent of Infrasoft. The licence agreement between the Assessee Company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licencee were owned by Infrasoft and only Infrasoft has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the licencee shall return the software including supporting information and licence authorisation device to Infrasoft. 94. The incorporeal right to the software i.e. copyright remains with the owner and the same was not transferred by the Assessee. The right to use a copyright in a programme is totally different from the right to use a programme embedded in a cassette or a CD which may be a software and the payment made for the same cannot be said to be received as consideration for the use of or right to use of any copyright to bring it within the definition of royalty as given in the DTAA. What the licencee has acquired is only a copy of the copyright article whereas the copyright remains with the....
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....Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in para 3 of this judgment." 14. The distinction between the right of access to copyrighted content as opposed to parting with the copyright itself was again explained by our Court in CIT Vs. Microsoft Corporation 2022 SCC OnLine Del 1514 where the following pertinent observations were made:- "4. Having heard learned counsel for the appellant, this court finds that the issue raised in the present appeals is no longer res integra as the Supreme Court in Engineering Analysis Centre of Excellence Pvt. Ltd. v. CIT [2021] 432 ITR 471 (SC) ; [2021] SCC OnLine SC 159 has held has under (page 488 of 432 ITR): "The appeals before us may be grouped into four categories : (i) The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. (ii) The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident In....
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....n EULA cannot be construed as the licence spoken of in section 30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in sections 14(a) and 14(b) of the Copyright Act.. .. Also, any ruling on the more expansive language contained in the Explanations to section 9(1)(vi) of the Income-tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income- tax Act read with Explanation 4 thereof, and article 3(2) of the DTAA. Further, the expression 'copyright' has to be understood in the context of the statute which deals with it, it being accepted that municipal laws which apply in the Contracting States must be applied unless there is any repugnancy to the terms of the DTAA. For all these reasons, the determination of the Authority for Advance Rulings in Citrix Systems (AAR) (supra) does not state the law correctly and is thus set aside.. .. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer ....
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....elevant is the agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term 'royalty' as held by the Supreme Court in Engineering Analysis Centre (supra). We may also note that the learned Authority for Advance Rulings in its impugned order has relied upon its earlier view in Citrix Systems Asia Pacific Pty. Ltd., In re [2012] 343 ITR 1 (AAR), which has been expressly stated to be bad law in Engineering Analysis Centre (supra). The submission of the learned counsel for the Revenue that the judgment of the Supreme Court in Engineering Analysis Centre (supra) cannot be applied because it confines itself only to the four categories mentioned in paragraph 4, also cannot be accepted. Though the Supreme Court was on facts considering the four categories of cases that arose in the appeals before it, it has laid down the law for general application. The law, as laid down by the Supreme Court, when applied to facts of the present case, squarely covers the same in favour of the petitioners. The submission made by the learned counsel for the Revenue relyin....
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....ly, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extracted hereafter (page 463 of 33 ITR (Trib)-OL) : "A perusal of the aforementioned provision shows that in order to qualify as fees for technical services, the services rendered ought to satisfy the 'make available' test. Therefore, in our considered opinion, in order to bring the alleged managerial services within the ambit of fees for technical services under the India-Singapore Double Taxation Avoidance Agreement, the services would have to satisfy the 'make available' test and such services should enable the person acquiring the services to apply the technology contained therein.. .. .. . agreement is effective from January 1, 2010 and we are in the assessment years 2018-19 and 2019-20. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2009 ? This undisputed fact in itself demolishes the action of the Assessing Officer/Dispute Resolution Panel. The facts on record show that the reci....