TaxTMI 
TaxTMI 
2025 (9) TMI 1029
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.... the final assessment order. At the outset, ld. Counsel appearing for the assessee submitted that he would prefer to address the issues on merits and, if warranted, may press the legal grounds. 4. The learned Departmental Representative ('ld. DR' for short) agreed with the aforesaid suggestion of ld. Counsel for the assessee. 5. In view of the aforesaid, we proceed to deal with the substantive issues on merits as raised in ground nos. 4 to 7, which are as under: 4. On the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in holding the sum of INR 8,17.59,532 as 'Royalty' under Section 9(1)(vi) of the Act read with Article 13 of the Double Taxation Avoidance Agreement ('the DTAA') entered into between India and UK. 5. On the facts and in the circumstances of the case and in law, the Learned AO and the Learned DRP erred in holding that Dow Jones Consulting India Private Limited (DJCIPL) constitutes a dependent agent Permanent Establishment ('PE') of the Appellant. 6. On the facts and in the circumstances of the case and in law, the Learned DRP erred in invoking the provisions of the....
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....h distribution agreement, wherein, the assessee appointed DJCIPL as non-exclusive distributor of its products, such as, text materials, images and other related information, i.e., published therein. The DJCIPL was appointed as a Distributor of assessee's products in the territory of India, Bangladesh and Sri Lanka. As claimed by the assessee, in terms with the distribution agreement entered with DJCIPL on principal-to-principal basis, the assessee supplied its products to DJCIPL for distribution in the designated territories. For performing such distribution activity, the DJCIPL was remunerated with Distributor Cost which shall include expenses connected with selling and distribution of products, excluding any extraordinary expenses incurred by the Distributor that are not part of the Distributor's under the distribution agreement. In consideration of the distribution right granted to DJCIPL, the Distributor has to pay the price of the products to the assessee, which will be an amount equal to the profit earned by the Distributor as reduced by an arm's length return of 5% on the costs (including the purchase price). The payment terms further provide that in case the profit earned b....
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....ribution Agreement dated 01.04.2017 between the assessee and DJCIPL. 10 Finally, in line with the decisions taken by the A.O. in the earlier assessment years, he ultimately concluded that the receipts are in the nature of royalty both u/s. 9(1)(vi) of the Act and Article 13(2) of India-UK DTAA, as there is transfer of right to use the copy-right. Hence, irrespective of the fact whether there is PE in India or not, the amount is taxable. Without prejudice, the A.O. observed that since DJCIPL is a wholly indirect subsidiary of assessee, it will fall within the concept of agency PE. Hence, it would not be correct to say that the assessee does not have any PE in India. However, ultimately, following the decision taken by the Departmental Authorities in A.Ys. 2015-16 to 2019- 20, the A.O. concluded that the receipts from DJCIPL towards 'distribution of assessee's products' and the amount received from KPMG towards 'subscription fee', would be taxable as royalty income u/s. 9(1)(vi) of the Act read with Article 13(2) of India-UK DTAA. In similar line, he framed the draft assessment order adding back the amount of Rs. 8,17,59,532/- as 'royalty income'. 11. Against the draft assessme....
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....itted, in absence of any difference in factual position, the earlier decisions of the Tribunal would govern the issues arising for determination in the present appeal. Without prejudice, he submitted, though ld. DRP was aware of the decisions of ITAT in assessee's case, however, they have attempted to distinguish them by referring to certain change in facts. He submitted, while doing so, ld. DRP has referred to the website of Dow Jones and on mistaken belief that the information contained in such website is that of the assessee has recorded the finding that in addition to the contents kept in the database, the assessee has also provided various value added services and the receipts are for providing such value added services. The ld. Counsel further submitted, the Distribution Agreement between the assessee and DJCIPL would clearly demonstrate that sales of assessee's products are on principal-to-principal basis. He submitted, the Distribution Agreement between the assessee and DJCIPL in the present form continues from the year 2017 and there is no change in the terms of the agreement. Therefore, when the issue is settled in earlier assessment years, at this stage, the Departmental....
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....t) strongly relied upon the observations of the A.O. and ld. DRP. 17. We have given a thoughtful consideration to rival contentions and perused the materials on record. We have also applied our mind to judicial precedents cited before us. As discussed earlier in the order, the assessee is a tax resident of UK, hence, is governed under India-UK DTAA. As per the business model of the assessee, it collates various business-related information/news and has created a database of such content for providing global news and information services to organization across the world, employing content delivery through a suite of products and services under the brand name Factive. From the facts on record, it is quite evident that the assessee is not the creator/author of the content available in the database. For distributing its products through subscription, the assessee has appointed Distributors across the world. Insofar as India is concerned, the assessee has entered into a Distribution Agreement with DJCIPL initially in the year 2013 and after termination of the said agreement, has entered into a fresh distribution agreement effective from 01.04.2017. It is not in dispute that the Distr....
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....eived by the assessee from the distribution of financial products of DJCIPL is a 'royalty' under section 9(1)(vi) of the Act and Article 13 of India-UK DTAA?" 11. When we examine the question framed in the light of the undisputed facts that the purchase price received by the assessee from DJCIPL is at arms length price; that the amount received by the assessee was for providing use of database specifically by not giving any copy right; and that transaction as to granting the right to distribute the Factiva product in the Indian markets to its group company DJCIPL on principle to principle basis, the amount received is not liable to be taxed as 'royalty' in the hands of the assessee. 12. Identical question has been decided by the co-ordinate Bench of the Tribunal in one of the assessee's group company Dow Jones & Company Inc. vs. ACIT (supra) by returning following findings: "4. Briefly stated, the facts of the case are that the appellant company is a business corporation incorporated in USA and engaged in the business of providing information products and services containing global business and financial news to organizations worldwide. It offers informat....
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....ction with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income, derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 10.1.5 Thus, Article 12 of the Tax Treaty brings within the ambit of the definition of royalty, a payment made for the use of or the right to use a copyright of a literary, artistic or scientific work. Thus, only those payments that allow a payer to use / acquire a right to use a copyright in a literary, artistic or scientific work arc covered within the definition of royalty. Payments made for acquiring the right in use the product it sell, without allowing any right to use the copyright in the product, are not covered within the scope of royally winch may gel covered under the term 'Royalty' as per the Act. Further, unless the payments are made towards acquiring the right to use a copyright in a li....
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.... under the term under Royalty as per the Act. 13. The facts of the case in hand show that there is no transfer of legal title in the copyrighted article as the same rests with the assessee. All rights, title and interest in the licensed software which is being claimed to be copyrighted article are the exclusive property of the assessee. DJCIPL has no authority to reproduce the date in any material form to make any translation in the date or to make adaptation in the data. 14. We further find that the end user cannot be said to have acquired a copy right or right to use the copy right in data. A perusal of the agreement with DJCIPL shows that DJCIPL does not acquire any right in relation to the products. In our considered view, in determining whether or not a payment is for use of copyright, it is important to distinguish between 'a payment for right to use the copy right in a program' and 'right to use the program itself'. 15. In the case in hand, the revenue derived by the assessee from granting limited access to its data base is akin to sale of book, wherein purchaser does not acquire any right to exploit the underlying copyright. In the case of a book,....
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....n already available in public domain/publicly disclosed information, and organizes the same at one place, thereby creating a database which is accessed by its customers against payment of subscription fee termed as CAS fee. Thus, prima facie. there is no copyright or intellectual property lying with the assessee itself in relation to such information or the contents of the database. Thus, there cannot be a case that the assessee-company has transacted in the copyrights or intellectual property rights of the contents of the database of information which is merely collated and collected by it. It is abundantly clear from a perusal of some of the sample agreements with customers that what the customers get is only the right to search, view and display information (whether online or by taking a print) and reproducing or exploiting the same in any manner; and its use for purposes other than personal use is strictly prohibited. The OECD commentary referred in the assessment order brings out that the payments which are to be understood as 'royalty' in the context of information concerning industrial, commercial or scientific experience ought to be in relation to information which ....
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....s also relevant. A person can be said to have acquired a copyright or the right to use the copyright in a computer software or database (as described by the Assessing Officer), where he is authorized to do all or any of the acts as per the definition of the term 'copyright' under section 14 of the Copyright Act, 1957. However, mere access to that work or permission to use the work cannot imply that the payer is paying for use or right to use the copyright. In other words, when no copyright is acquired by the payer, question of using it or getting a right to use it does not arise. [Para 11 ] The transfer of a copyrighted right means that the recipient has a right to commercially exploit the database/software, e.g. reproduce, duplicate or sub-license the same; such payments may be classified as royalty, but factually speaking in the present no such rights in database or search tools (SciFinder or STN) are acquired by the customers, as is evident from the terms of the sample agreement of CAS customers. It is to be considered that the transfer of any right in a copyrighted article is analogous to the rights acquired by the purchaser of a book. In the instant case, cust....
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.... purposes. It is a well settled law that copyrighted article is different from a copyright, and that consideration for the former, i.e. a copyrighted article does not qualify as royalties. [Para 18] Thus, the principles noted in the context of the income earned by way of CAS fee are squarely applicable to the subscription revenue received from customers of PUBS division for sale of journal also, and, accordingly, PUBS fee also does not qualify as 'Royalty' in terms of section 9(l)(w) as well as article 12(3) of the India-USA DTAA. [Para 19]" 16. From the discussion made in the preceding paras and following the decision rendered by the co-ordinate Bench of the Tribunal and Hon'ble High Court of Bombay, we are of the considered view that Article 13 of India-UK DTAA defined 'royalty' only when a payment is made for the use or the right to use a copy right of literary, artistic or scientific work. So the only those payments which allow payers to use/acquire a right to use a copy right in literary, artistic or scientific work are commissioned under the definition of 'royalty'. In the instant case the assessee used to collect the information available in the public domai....
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.... we hereby set aside the addition made by the AO under section 9(1)(vi) of the Act read with Article 13(3) of India-UK DTAA and as such ordered to be deleted the same. 19. Identical view has been expressed by the ITAT consistently in subsequent A.Ys. 2016-17, 2017-18, 2018-19, 2019-20 and 2020-21. Even, ld. DRP was conscious of the fact that the decisions of the Tribunal covers the issue in dispute. However, the Panel has made a futile attempt to distinguish the decisions of the Tribunal by providing a new dimension to the factual position referring to certain informations allegedly collected from the website of the assessee. The screenshots of the website appear at pg. nos. 144 and 145 of ld. DRP's directions. Based on such information, ld. DRP has concluded that receipts of the assessee are not for the access to the contents in the database, but for providing access to certain value added services like Risk Management & Compliance, Research, Monitoring & Discovery, Trading, Investing & Advice, Resources, etc. Hence, the receipts are in the nature of royalty u/s. 9(1)(vi) of the Act read with Article 13(2) of India-UK DTAA. 20. Unfortunately, as rightly brought to our notice....
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....not be pending (As for the year under consideration, DRP orders cannot be appealed against by the Department). In this backdrop, it is reiterated that the decision of the DRP is no longer appealable by the Department, apart from limited scenarios of cross-objection. Thus, if the contention of the applicant is to be accepted, the same would tantamount to pre-judging the issue and bringing finality to the issue pending before the Hon'ble High Court and subsequently, Hon'ble Apex Court. In this case, there have been no appeal against the Order of the Hon'ble Income Tax Appellate Tribunal on account of restriction of monetary limit. Hence, it can be taken that the Department has not accepted the decision and ratio of the Hon'ble Income Tax Appellate Tribunal. Thus, allowance of the Objection of the Applicant at this stage would also amount for the Department to giving up the issue, which is under litigation before the Honourable Court. Panel hastens to observe here that the Hon'ble High Court of Bombay in the Writ Petition No. 1877 of 2013 in the case of Vodafone India Services (P.) Ltd. v. Union of India [2013] 39 taxmann.com 201 (Bombay) wherein ....
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....ed the factual as well as legal position relating to the nature and character of the receipts, we are of the view that they are identical to the earlier assessment years. Hence, we find no justifiable reason to deviate from the consistent view expressed by the coordinate benches in assessee's case in A.Ys. 2015-16 to 2020-21. Therefore, respectfully following the consistent view of the Coordinate Benches, we hold that the amount received by the assessee from DJCIPL and KPMG not being in the nature of royalty u/s. 9(1)(vi) read with Article 13(2) of India-UK DTAA, are not taxable in India. 22. Insofar as the second issue relating to existence or otherwise of DAPE, we find that except making some general and passing observations that DJCIPL is DAPE of the assessee in India, there is no other valid reason available to the AO to demonstrate existence of DAPE. In our view, ld. DRP has again misdirected itself in referring to Article 13(4) of MLI while upholding the decision of A.O. on existence of DAPE. 23. Having gone through Article 5 of the Treaty in its entirety and Article 13(4) read with Article 15 of MLI, we are of the view that the reference to Article 13(4) of MLI is tota....