TMI Blog2019 (5) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... journals and articles and allowed access to the users to use such material as required by them. Keeping in view the ratio laid down in the decisions (supra), the payment received by the assessee has to be held to have been received for use of copyrighted article rather than for use of or right to use of copyright. Whether the subscription fee can be treated as fees for technical services ? - It is evident that the assessee has collated data from various journals and articles and put them in a structured manner in the database to make it more user friendly and beneficial to the users/customers who want to access the database. The assessee has neither employed any technical/skilled person to provide any managerial or technical service nor there is any direct interaction between the customer/user of the database and the employees of the assessee. The customer/user is allowed access to the online database through various search engines provided through internet connection. There is no material on record to demonstrate that while providing access to the database there is any human intervention. Department has not brought any material on record to demonstrate that the assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and inputs on preparation and reaction methods as experimentally validated. By providing access to the database the assessee has earned subscription fee from customers worldwide, including India. For the impugned assessment year, the assessee filed its return of income on 30th March 2012, declaring nil income. In the course of assessment proceedings, in pursuance to a query raised by the Assessing Officer, the assessee submitted that the subscription fee received by the assessee from various customers in India for providing access to its online database is neither in the nature of royalty nor fees for technical services. Thus, it was submitted that in the absence of a Permanent Establishment (PE) in India as per Article 5 of India Germany Tax Treaty, the subscription fee received by the assessee is not taxable in India. The Assessing Officer after calling for various information including copies of the agreement entered with various Indian entities and invoices raised and examining them was of the view that the subscription fees received by the assessee is in the nature of royalty/fees for technical services, hence, taxable in India. Therefore, he called upon the assessee to explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that the payments made by the Indian entities are for receipt of technical services. Therefore, the subscription fee has to be treated as fees for technical services. In this context, he relied upon various judicial precedents. 5. Further, the Assessing Officer observed that certain copyrighted products of the assessee like cross fire were loaned to the customers in India and were sold. Referring to section 9(1)(vi) of the Act and the provisions of The Indian Copyright Act, 1957 as well as various judicial precedents, the Assessing Officer held that the subscription received by the assessee for providing access to the online database is in the nature of literary work, hence, has to be treated as royalty under section 9(1)(vi) of the Act. Further, referring to Article 12(3) of India Germany Tax Treaty, the Assessing Officer held that the subscription received by the assessee is also in the nature of royalty under India Germany Tax Treaty, as it amounts to transfer of right to use of a copyright. Thus, ultimately the Assessing Officer concluded that the subscription fee received by the assessee is in the nature of fees for technical services/royalty under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) DIT (IT) v/s Dun Bradstreet Information Service India Pvt. Ltd., [2012] 20 taxmann.com 695 (Bom.); ii) DIT v/s Dun Bradstreet Information Services India Pvt. Ltd., 338 ITR 95; iii) ITO v/s Cadila Healthcare Ltd., 77 taxmann.com 309; iv) DCIT v/s Welspun Corporation Ltd., 77 taxmann.com 165; v) McKinsey Knowledge Centre India Pvt. Ltd. v/s ITO, ITA no.407/Del./2013; vi) Kitara Capital Pvt. Ltd. v/s ITO, ITA no.130/Mum./2014; vii) DCIT v/s Welspun Corporation Ltd., [2017] 77 taxmann.com 165 (Ahd.); and viii) Authority For Advance Rulings v/s Dun Bradshtreet Expana, A.A. In re; [20056] 272 ITR 99. 8. Without prejudice to the aforesaid contentions, learned Sr. Counsel submitted, the subscription fees received by the assessee cannot be treated as fees for technical services also as it is not coming within the ambit of fees for technical services as defined under the Act as well as under the India Germany Tax Treaty. He submitted, the definition of fees for technical services both under Article 12 of the India Germany Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it taxable in India. In support of such contention, learned Sr. Counsel for the assessee relied upon the following decisions: i) DIT v/s A.P. Moller Maersk A.S., 392 ITR 186 (SC); ii) CIT v/s Kotak Securities Ltd., 383 ITR 001 (SC); and iii) CIT v/s Bharati Cellular Ltd., 330 ITR 239 (SC). 9. The learned Departmental Representative strongly relying upon the observations of the Assessing Officer and the DRP submitted that the data provided by the assessee through the database are customized data catering to the specific need of the customer. Therefore, the subscription fee received by the assessee is in the nature of royalty/fees for technical services as the assessee has provided technical services and has transferred the right to use the copyright to the customers in India. He submitted, the decisions relied upon by the learned Sr. Counsel are also not applicable to the facts of the present case. 10. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Before we proceed to decide the nature of subscription fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view the subscribe product. Further, the customer or user can print, make electronic copies of and store for its exclusive use individual items from the subscribed products. Further, it can incorporate links to the subscribed products to the subscriber s intranet and internet websites provided the appearance of such link and / or statements accompanying such links shall be changed as per the request of the assessee. Clause 1.4 of the subscription agreement enlists the following restrictions on use of subscribed products. 1.4 Restrictions on Use of Subscribed Products. Except as may be expressly permitted in this Agreement, the Subscriber and its Authorised User may not; 1.4.1 abridge, modify translate or create any derivative work based on the Subscribed Products without the prior written permission of Elsevier, except to the extent necessary to make them perceptible on a computer screen to Authorised Users; 1.4.2 remove, obscure or modify in any way any copyright notices, other notices or disclaimers as they appear in the Subscribed Products; or 1.4.3 Substantially or syst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Germany is governed by India Germany DTAA. Therefore, it is necessary to examine whether the subscription fee received by the assessee fits into the definition of royalty as provided under Artricle 12 of the India Germany Tax Treaty. Article 12.1 of the Tax Treaty provides that royalty and fees for technical services arising in a contracting state and paid to a resident of the other contracting state may be taxed in the other state. As per the plain meaning of the aforesaid provision, the subscription fee paid to the assessee is ordinarily taxable in Germany. However, Article 12.2 also provides for taxation of royalty and fees for technical services in India subject to condition that the tax leviable shall not exceed 10% of the gross amount of royalty or fees for technical services. Article 12.3 of the Tax Treaty defines royalty in the following manner. 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 or films or tapes used for radio or television broadcasting any patent, trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rts (BIRs). BIR is a standardized product of Dun Brad Street Espana, S.A., providing the following information in respect of a company: i) Factual information on the existence, operations, financial condition, management experience, line of business, facilities and locations of prospect; ii) Special Events as well as any suits, leans, judgments or previous data being bankrupts; iii) Banking relationship and accounts; iv) Parent company affiliated concern, subsidiaries branches and divisions, referred with name and D B D U N S number; and v) A rating which would help to predict which prospect will pay slowly or not at all. 15. A customer/subscriber can access the data stored in the database by paying subscription. The Department held the subscription paid to Dun Brad Street Espana, S.A., for accessing the data to be in the nature of royalty. The Authority for Advance Ruling after dealing with the issue ultimately concluded that the subscription received by Dun Brad Street Espana, S.A., for allowing access to the database is not in the nature of royalty/fees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ., [2017] 77 taxmann.com 165. If we examine the facts of the present appeal in juxtaposition to the facts of the decisions referred to herein before, it can be seen that the facts are almost identical and akin. In the referred cases the assessees were also maintaining databases of information collated from various journals and articles and allowed access to the users to use such material as required by them. Keeping in view the ratio laid down in the decisions (supra), the payment received by the assessee has to be held to have been received for use of copyrighted article rather than for use of or right to use of copyright. 17. Having held so, the next issue which arises for consideration is, whether the subscription fee can be treated as fees for technical services. As discussed earlier, it is evident that the assessee has collated data from various journals and articles and put them in a structured manner in the database to make it more user friendly and beneficial to the users/customers who want to access the database. The assessee has neither employed any technical/skilled person to provide any managerial or technical service nor there is any direct interactio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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