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TMI Blog2020 (2) TMI 1482X X X X Extracts X X X X X X X X Extracts X X X X ..... ary India does not agree with the interpretation that information concerning industrial, commercial or scientific experience is confined only to previous experience. Assimilating the facts of the case with the views offered in OECD commentary and India position thereon we are of the view that there is no transfer of any know-how or previous or new experience to subscriber. Hence, the third limb of the definition thus does not apply to the applicant and the receipt by the applicant from the Indian subscribers and customers for e-books/e-journals/e-articles is not taxable as Royalty as per article 12 of the Double Tax Avoidance Agreement (the DTAA) but is in the nature of business income. Ruling:- 1. The receipt by the applicant from the Indian subscribers and customers for e-books/e-journals/e-articles is not taxable as 'Royalty' as per article 12 of the Double Tax Avoidance Agreement (the DTAA) but is in the nature of Business Income . 2. The Assessing Officer may ascertain whether permanent establishment (PE) exists in India or not. 3. The Indian subscribers are not required to withhold any tax on the payment made to the applicant under section 195 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.1 In these types of transactions, the customer in India can purchase a book chapter/journal article in an electronic format from the website of the applicant after making online payment for the same. A customer in India desirous of purchasing a perpetual subscription to an e-book chapter, e-journal article visits the website of the applicant either through a third party search engine, e. g., Google or by directly logging into the website of the applicant. Once the customer is logged in by click of a mouse, he makes a request for purchase of a specific book chapter/journal article sub scription available on the website of the applicant. The customer is directed to either accept or reject the terms and conditions as laid down by the applicant. Only after the customer accepts the terms and conditions, he/ she is directed to the payment gateway, wherein online payment for purchase of e-book chapter/e-journal/article, has to be made. After the online payment is made, the customer is entitled to view, download and print the content (e-book chapter, e-journal article) for its personal, non-commercial use on a pre-condition that the customer will keep intact all copyright and other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be directed to Elsevier Global Rights. 2.7 You may not use the services on the site to publish or distribute any information (including software or other content) which is illegal, which violates or infringes upon the rights of any other person, which is abusive, hateful, profane, pornographic, threatening or vulgar, which contains errors, viruses or other harmful components, or which is otherwise actionable at law. Elsevier may at any time exercise editorial control over the content of any information or material that is submitted or distributed through its facilities and/or services. 2.8 You may not, without the approval of Elsevier, use the site to publish or distribute any advertising, promotional material, or solicitation to other users of the site to use any goods or services. For example (but without limitation), you may not use the site to conduct any business, to solicit the performance of any activity that is prohibited by law, or to solicit other users to become subscribers of other information services. Similarly, you may not use the site to download and redistribute public information or shareware for personal gain or use the facilities and/or services to dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the subscribed products, except to the extent necessary to make them perceptible on a computer screen to authorised users ; (b) remove, obscure or modify in any way any copyright notices, other notices or disclaimers as they appear in the subscribed products ; (c) use any robots, spiders, crawlers or other automated downloading programs, algorithms or devices to continuously and automatically search, scrape, extract, deep link, index or disrupt the working of the subscribed products ; or (d) substantially reproduce, retain or redistribute the subscribed pro ducts. 2.10 The authorised users who are independent contractors may use the subscribed products only for the purposes of the contracted work for the subscriber. 3. The access to the subscribed products shall be authenticated by the use of Internet Protocol (IP) address(es) indicated by the subscriber under the agreement and/or use names and passwords and/or a delegated authenticated mechanism, identified under the agreement requiring at least two different credentials. Further, the subscriber shall use the following reasonable efforts for protection from unauthorised access and use : -Limit access to and use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntions 6. On question No. 1, it is submitted that section 9(1)(vi) of the Income-tax Act provides that- (vi) income by way of royalty payable by- (a) the Government ; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business 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 royalty is payable in respect of any right, property or information used or services utilised for the purposes of 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 : 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss amount of the royalties or the fees for technical services. . . . 4. The term 'royalties' as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinemat ograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. 8. The expression copyright is not defined in the Act. Therefore, it must be understood in accordance with the law governing copyright in India, viz., Copyright Act, 1957. The relevant Copyright Act, 1957 are as under : Section 2(o) 'literary work' includes computer programmes, tables and compilations including computer databases. Section 14. Meaning of Copyright.-For the purposes of this Act, 'copyright' means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely :- (a) in the case of a literary, dramatic or musical work, not being a computer programme,- (i) to reproduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dapt the work or to distribute the contents of database to others. Further, under the subscription agreement, the subscribers, i. e., authorized users are allowed to login to the database only from the pre-designated computers. The applicant merely collects and collate the data and bestow its effort, experience and expertise to present the information/data in a presentable manner so as to facilitate easy and convenient reference to the user. Both the transactions in essence are similar to purchase of a book, journal or an article in an electronic format. Purchasing of a book, journal or article in an electronic format does not amount to use of copyright. It can, at best, be termed as use of a copyrighted article. The applicant places reliance on the decision of the hon'ble Authority for Advance Rulings in the case of Dun and Bradstreet Espana S. A., In re [2005] 272 ITR 99 (AAR). The applicant also places reliance on the decision of the hon'ble AAR ruling in the case of ABC Ltd., In re [2006] 284 ITR 1 (AAR). The reliance is also placed on the decision of the hon'ble AAR ruling in the case of Factset Research Systems Inc., In re [2009] 317 ITR 169 (AAR). 11. On quest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge, 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 ; (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinemato graphic films ; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v). 15. India-Netherlands DTAA defines Royalty as under :- 12. (4) The term 'royalties' as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. 16. The learned Departmental representative argues that it can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on the decision of the hon'ble Karnataka High Court in the case of CIT v. Synopsis International Old Ltd. [2012] 28 taxmann.com 162 (Karn) wherein it is held that the expression in respect of used in Explanation 2 denotes the intention of Parliament to give a broader meaning and wider connotation that covered all the income from transfer of all or any of the rights in respect of a copyright. The hon'ble High Court observed that when the meaning of the words used are clear, unambiguous merely because it is a fiscal legislation, the meaning cannot be narrowed down and it cannot be interpreted so as to give benefit to the assessee only. Then it would be rewriting the section, under the guise of interpreting a fiscal legislation, which is totally impermissible in law. The Karnataka High Court held that in terms of DTAA, the consideration paid for use or right to use the said confidential information in the form of computer programme software would itself constitute royalty and attract tax and that it is not necessary that there should be a transfer of exclusive right in copyright and where consideration paid was for rights in respect of copyright and for user of confid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th Manipal Institute of Technology authorises 200 users to access the science database and to take print outs, make electronic copies etc. and also allows third party colleagues to use the material for their scholarly or research use. Articles can also be provided to fulfil requests known as inter library loan from non-commercial libraries. Hence, the consideration received by the applicant by way of subscription fees is covered by the definition of royalty in clause (iv) of Explanation 2 to section 9(1)(vi) of the Income-tax Act, 1961 which covers a situation of royalty wherein consideration is received for the imparting of any scientific knowledge. 23. As already brought out the subscription agreement of the applicant with Manipal Institute of Technology provides that the authorised user of Manipal Institute of Technology could print, make electronic copies and store for the exclusive use of authorised user individual items from the subscribed products. It also provides that the authorised user could provide print or electronic copies of individual items from the subscribed products to other authorised users and to third party colleagues for their scholarly or research use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR (Trib) 767 (Delhi) ; [2013] 31 taxmann.com 119 (Delhi-Trib), the assessee in Factset Research Systems Inc., In re [2009] 317 ITR 169 (AAR) was also pro viding access to information in a database which was available in public domain. The database of the assessee only contained published information collated, stored and displayed in an organised manner. -Decision of the Karnataka High Court in the case of CIT v. Wipro Ltd. [2013] 355 ITR 284 (Karn) ; [2011] 203 Taxman 621/16 taxmann.com 275. -Decision of the hon'ble Authority for Advance Ruling, New Delhi in the case of Cargo Community Network Pte. Ltd., In re [2007] 289 ITR 355 (AAR) ; [2007] 159 Taxman 243 (AAR). -Decision of the hon'ble Authority for Advance Ruling, New Delhi in the case of Thoughtbuzz (P.) Ltd., In re [2012] 346 ITR 345 (AAR) ; [2012] 21 taxmann.com 129 (AAR-New Delhi). -Decision of Mumbai Bench of the Income-tax Appellate Tribunal in case of Gartner Ireland Ltd. v. Asst. DIT (IT) [2013] 37 tax mann.com 16 (Mumbai-Trib). 27. Further, it is added that the subscription fees received by the applicant from the Indian customers/subscribers is taxable as royalty under the India-Netherlands DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y individual, firm or corporate pay subscription amount to Taxman, AIR, ITR, etc. there is an option to pay for an e-format or physical format of the journals, but the content in both the cases shall be the same. 32. The nature of payment in all such cases shall be the price paid and not royalty. Similarly, when copies of such journal are stored either in physical or e-format or copies are taken for use personally for its own business (such by lawyers, CAs or other professionals), no use or right to use is at all exploited. All the journals referred in the above examples are publically available to one and all. The applicant's case is no different than Taxman, AIR, ITR, etc. The e-books, e-journals and e-articles on science direct and publicly available to be one and all in the world. 33. In support of the above contention, the applicant wishes to rely upon the recent decision of the hon'ble Mumbai Tribunal in the case of American Chemical Society v. Dy. CIT [2019] 106 taxmann.com 253 (Mumbai) wherein under similar facts and circumstances as that of the applicant, the hon'ble Tribunal has held that subscription fee received from Indian subscribers does not amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e distinguished by contending that the applicant therein was providing access to information in a database which was available in public domain and the applicant had only collated, stored and displayed such information in an organised manner. 37. In this regard, the applicant submits that the Revenue principally approves the rulings of the hon'ble Authority for Advance Rulings in the case Dun and Bradstreet Espana (supra) and Factset Research Systems (supra) wherein it was held that income was not taxable as royalty since the information available on the databases in those cases were of the nature that were publicly available. It can be implied/concluded from the report that the Revenue is in agreement of the view that if consideration is received for providing access to a database having information which was publicly available, then it shall not amount to royalty. Further, the Revenue has nowhere pointed out how the information provided by the applicant on science direct database is not publicly available. It is stressed that the submissions by the applicant very clearly and categorically demonstrate that the information available on the applicant's portal is publicly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. 42. The definition of Royalty above has 3 limbs- (i) payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, (ii) payments of any kind received as a consideration for the use of, or the right to use cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, (iii) payments of any kind received as a consideration for the use of, or the right to use for information concerning industrial, commercial or scientific experience. Only (i) and (iii) are pertinent to the facts of the case at hand. 43. The learned authorised representative has strenuously argued that providing e-books, e-journals and e-articles on science direct web portal is akin to selling physical books and journals in a book store. In the case of the book the author transfers his copyrights in the book to the publisher to enable him to make copies and distribute/sell the book to the public and that when any person buys a book from the bookseller there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or disclaimers as they appear in the subscribed products ; -Use any robots, spiders, crawlers or other automated downloading programs, algorithms or devices to continuously and automatically search, scrape, extract, deep link, index or disrupt the working of the subscribed products ; or -Substantially or systematically reproduce, retain or redistribute the subscribed products. Authorized users who are individuals, who are or are employed by independent contractors may use the subscribed products only for the purpose of the contracted work for the subscriber. 1.5 Intellectual Property Ownership. The subscriber acknowledges that all right, title and interest in and to the subscribed products remain with Elsevier and its suppliers, except as expressly set forth in this Agreement, and that the unauthorized redistribution of the subscribed products could materially harm Elsevier and its suppliers. 45. The above stipulations outline grant of non-exclusive, non-transferable and restricted rights permitting subscribed products for self use and not for commercial purposes. We are in agreement with learned authorised representative that purchasing books/articles/journals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xperience to the subscriber. The OECD commentary suggests that the work scientific experience is to be construed as non-copyrighted know how. It is also noticed that India does not seem to have any observation or reservation on above referred paras of OECD commentary. However, on positions on article 12 of the commentary (page 478) at para 18, India does not agree with the interpretation that information concerning industrial, commercial or scientific experience is confined only to previous experience. 49. Assimilating the facts of the case with the views offered in OECD commentary and India position thereon we are of the view that there is no transfer of any know-how or previous or new experience to subscriber. Hence, the third limb of the definition thus does not apply to the applicant and the receipt by the applicant from the Indian subscribers and customers for e-books/e-journals/e-articles is not taxable as Royalty as per article 12 of the Double Tax Avoidance Agreement (the DTAA) but is in the nature of business income. 50. Now examine the case law cited by the applicant and the Revenue. After perusing these decisions it is noticed that they broadly fall under thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software/propriety software or web based restricted or specialised services are rendered. Our Ruling relates to web based offering of compiled and collated information on non-exclusive basis to public at large. 53. Before us the arguments presented by both sides related to the aspect whether the receipt from the subscriber is in the nature of royalty or not. No contentions were raised about existence or otherwise of permanent establishment in India. In any case existence of permanent establishment is a fact specific exercise and this can vary from year to year and the Assessing Officer is best suited to carry out this exercise and also determine profit attributed to permanent establishment, if need be. 54. In view of the foregoing the questions raised in the application are answered as under : 1. The receipt by the applicant from the Indian subscribers and customers for e-books/e-journals/e-articles is not taxable as 'Royalty' as per article 12 of the Double Tax Avoidance Agreement (the DTAA) but is in the nature of Business Income . 2. The Assessing Officer may ascertain whether permanent establishment (PE) exists in India or not. 3. The Indian subscribers ..... X X X X Extracts X X X X X X X X Extracts X X X X
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