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2023 (4) TMI 239 - AT - Income TaxIncome deemed to accrue or arise in India - applicable treaty is Indo-US Tax Treaty - PE in India - Receipts from the Indian customers as subscription fees - treating it as Fees for Technical Services ( FTS ) - HELD THAT - Article 7 of India-US DTAA the income from subscription to Assessee s data base is in the nature of business profit therefore the same is not taxable in India as the assessee has no permanent establishment in India. By respectfully following the ratio laid down by the Mumbai Tribunal in the case of Elsevier Information System GmbH 2019 (5) TMI 405 - ITAT MUMBAI in the absence of any material available on record to prove that the assessee is providing full fledged service and solutions for legal professions we are of the opinion that the A.O. has committed an error in making the addition.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 grounds of both the appeals of the assessee are allowed.
Issues Involved:
1. Classification of subscription fees as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income-tax Act, 1961. 2. Classification of subscription fees as Fees for Included Services (FIS) under Article 12 of the India-USA DTAA. 3. Classification of subscription fees as Business Profits under Article 7 of the India-USA DTAA and the existence of a Permanent Establishment (PE) in India. 4. Initiation of penalty proceedings under Section 270A of the Income-tax Act. Summary: Issue 1: Classification of Subscription Fees as Fees for Technical Services (FTS) The assessee contested the addition of INR 18,65,00,000 (A.Y 2018-19) and INR 7,36,93,619 (A.Y 2019-20) by the Deputy Commissioner of Income-tax, treating these amounts as Fees for Technical Services (FTS) under Section 9(1)(vii) of the Income-tax Act, 1961. The assessee argued that no technical services were rendered. The Tribunal found that the assessee provides access to a database without any human intervention or technical service, thus the subscription fees do not qualify as FTS. Issue 2: Classification of Subscription Fees as Fees for Included Services (FIS) The assessee also challenged the classification of the same amounts as Fees for Included Services (FIS) under Article 12 of the India-USA DTAA. The Tribunal noted that the services provided did not "make available" any technical knowledge to the recipient, and therefore, the subscription fees could not be considered FIS. Issue 3: Classification of Subscription Fees as Business Profits and Existence of Permanent Establishment (PE) The assessee contended that the subscription fees should be classified as Business Profits under Article 7 of the India-USA DTAA and not taxable in India due to the absence of a Permanent Establishment (PE). The Tribunal agreed, citing the Mumbai Tribunal's decision in a similar case involving Elsevier Information Systems GmbH, which held that income from subscription to a database is in the nature of business profit and not taxable in the absence of a PE in India. Issue 4: Initiation of Penalty Proceedings under Section 270A The assessee opposed the initiation of penalty proceedings under Section 270A of the Act. Given the Tribunal's decision to classify the subscription fees as Business Profits and not FTS or FIS, the initiation of penalty proceedings was deemed erroneous and was dropped. Conclusion: The Tribunal allowed the appeals for both assessment years, concluding that the subscription fees are in the nature of Business Profits and not taxable in India due to the absence of a Permanent Establishment. Consequently, the penalty proceedings initiated under Section 270A were also dropped.
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