TMI Blog2022 (4) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... nting any control over the equipment belonging to the assessee to its customers, the allegation of the AO that the amount so received will constitute Royalty is not acceptable. Assessee does not provide any information concerning industrial, commercial, scientific experience. The assessee only processes the proprietary data of the customers and provides the result in form of desired reports etc. On this count also, it cannot be said that consideration for CRM services are in the nature of royalty. If the services have been rendered de hors imparting of knowledge or transfer of any knowledge, experience or skill, then such services will not fall within the ambit of Article 12 of the treaty. By granting access to the information forming part of the database, the assessee neither shares its own experience, technique or methodology employed in evolving databases with the users, nor imparts any information relating to them. The income earned by the assessee from the Indian customers with respect to the subscription fees for CRM cannot be taxed as royalty as per section 9(1)(vi) of the Act as well as Article 12(3) of the treaty. As in light of the Master Subscription Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions which have been duly considered. 5. Briefly stated, the facts of case are that the assessee is engaged in providing comprehensive Customer Relationship Management (CRM) services which enable customers and subscribers to systematically record, store and act upon business data, and to help businesses manage customer accounts, track sales, lead, evaluate marketing campaigns, and provide better post-sales service. 6. The assessee is a company incorporated in Singapore and is a tax resident of Singapore and is a leading provider of comprehensive Customer Relationship Management (CRM) services to its customers. Services rendered by the assessee help the client in generating reports and summaries of the data which is fed into the salesforce database by the client itself. 7. It is pertinent to understand the services provided by the assessee. Client inputs, stores and retrieves its proprietary data on the Salesforce through the CRM application software portal. The assessee s database provides access for client s own use to generate reports, basis the information fed in by the client in the desired format. The access to the assessee s database is for a limited duration and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted it and the customer gets the right to use the process embedded in the software. 12. In so far as the consideration received for subscription service to data base and custom research is concerned, the ld. DR stated that the assessee has comprehensive data bases, which contains research themes gathered from different sources. The data base subscription service provides access to various customized reports and other data which is made available to subscribers via interactive website. 13. We have given thoughtful consideration to the contentions of the ld. DR and have duly considered the written submissions. In our understanding of the facts, the assessee provides web-based online access to its customer s data hosted on servers located in data centers maintained by the assessee outside India. The assessee does not have any data centers in India and hence it cannot be considered to have a fixed place of business in India. The assessee neither has a place of management in India nor has any equipment or personnel in India. This fact has also been accepted by the ld. CIT(A) in his order. Therefore, in the absence of granting any control over the equipment belonging to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a database is the experience of various scientists, researchers and various other persons and not that of the assessee. Thus, what the assessee collates is experience of others and provides access thereto. The database does not provide any information arising from assessee's own previous experience or knowledge of the subject. The assessee's experience lies in the creation and maintaining the database, which cannot be labelled as industrial or commercial or scientific in any way in the context of the receipts in question. In fact, it is nobody's plea that such experience is shared by the assessee with the Indian customers. The Indian customers do not make payments for availing the knowledge of assessee's experience of creating/maintaining database; what they pay for is access to information that such database encompasses. By granting access to the information forming part of the database, the assessee neither shares its own experience, technique or methodology employed in evolving databases with the users, nor imparts any information relating to them. 9. In this context, the learned Counsel pointed out that similar situation has been considered by the AAR ru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in US server farm. It was then DBIS would request the applicant for a BIR of the company for which the Indian customer has placed an order. On locating the required BIR, DBIS would download, print and deliver a copy thereof to the customer. DBIS is under an obligation not to take additional copies or reproduce the BIR in any manner or sell it to any customer other than Indian customer on whose requisition the BIR is ordered because the BIR is copyright protected with the copy right vested in the applicant who prepares the BIR. There is further obligation on the Indian customer to use the BIR for its own purpose, the copyright in the BIR would neither be licensed nor assigned to either the DBIS or the Indian customer 7. It will be .. The instant case it is not a case of paying consideration for the use of or right to use any copyright of literary, artistic or scientific work or any patent trade mark or for information of commercial experience. The Commissioner sought to bring the payments under royalty/fees for technical service for the reason that the BIRs are copyright protected and end-users are required to use for their own purpose and the analysis of raw data p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use such knowhow. In case of industrial, commercial and scientific experience, if services are being rendered simply as an advisory or consultancy, then it cannot be termed as royalty , because the advisor or consultant is not imparting his skill or experience to other, but rendering his services from his own knowhow and experience. All that he imparts is a conclusion or solution that draws from his own experience. The eminent author Klaus Vogel in his book Klaus Vogel On Double Tax Convention has reiterated this view on difference between royalty and rendering of services in the following manner:- 'Imparting of experience: Whenever the term royalties relates to payments in respect of experience (knowhow) the condition for applying art. 12 is that the remuneration is being paid for imparting such knowhow . In contrast, the criterion used to distinguish the provisions of know-how from rendering advisory services is the concept of imparting. An advisor or consultant, rather than imparting this experience, uses it himself (BFH BStBI.II 235 (1971); Minister des Relations exterieures, Reponses a M. Bockel, 36 Dr. Fisc. Commn. 1956 (1984). All that he imparts is a conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of scientific, technical, industrial or commercial knowledge or information , the same shall be considered as royalty for the purposes of article 12 of the treaty. By no stretch of logic, it could be said that the payment is made to the Australian company for the supply of any knowledge or information or any nature whatsoever. Learned Departmental Representative could not point out any legally sustainable reasons on the basis of which the payment can be said to be covered by article 12(3)(c). We have also carefully considered factual matrix of the case and are of the considered view that the payment in question cannot be said to be for the supply or any knowledge or information. The information is in fact furnished by the Indian company, the same is processed in Australia and transmitted back to the Indian company. This activity only involves processing, and not supply of information. Accordingly, the provisions of article 12(3)(c) will also not have any application in the matter. 17. It is not also the case of the revenue that remaining parts of article 12(3), i.e., article 12(3)( d) to article 12(3)(l ), will have any application in the matter. No specific arguments are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Double Taxation Avoidance Agreement. Since the Australian company admittedly does not have any permanent establishment (PE) in India, this payment cannot also be taxed as a business profit of the Australian company in India. It is so in view of the fact that article 7(1) of the applicable tax treaty specifically provides that, The profits of the enterprises of one of the Contracting States shall only be taxable in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein . This leads us to the conclusion that the right of Indian tax jurisdiction does not extend to taxing the impugned payment of A$ 3,25,000 to the Australian company, i.e., FCAL, for specialized data processing of information furnished by the Indian company. 22. In light of the aforesaid discussion, we will now revert to the master subscription agreement wherein Customer Data has been defined as: all electronic data or information submitted by the customer to the service 23. Users Means: individuals who are authorized by Customer to use the Service, for whom subscriptions to the Service have been purchased, and who have ..... 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