TMI Blog2019 (4) TMI 1818X X X X Extracts X X X X X X X X Extracts X X X X ..... normal course of his business. Similarly, in the instant case, customers of the assessee only enjoy the benefits of using SciFinder and STN and do not acquire the right to exploit any copyright in these software. The difference between a copyright and a copyrighted article in context of software has been brought out very clearly by the Hon'ble Supreme Court of India in the case of Tata Consultancy Services vs. State of Andhra Pradesh [ 2004 (11) TMI 11 - SUPREME COURT] The income earned by the assessee from the Indian Customers with respect to the subscription fees for CAS cannot be taxed as royalty as per section 9(1)(vi) of the Act as well as Article 12(3) of the India-USA DTAA. Thus, assessee succeeds on this issue. Whether income earned by the assessee from the Indian Customers with respect to the subscription fees for PUBS division be taxed as royalty in terms of section 9(1)(vi) of the Act as well as Article 12(3) of the India-USA DTAA? - As purchaser of the assessee's journals, articles or database access does not have the right to make copies for re-sale and does not have the right to make derivative works. In short, the purchaser has not acquired the copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of copyright of artistic, literary or scientific work and/or for use of information concerning industrial, commercial or scientific experience. 2.2 That on the facts and in the circumstances of the case and in law, the AO/DRP have erred in holding that the subscription charges received under CAS and PUBS divisions would be chargeable to tax in India under India-US DTAA being received for use of ACS databases /software. 3. Without prejudice to the above grounds of appeal, the AO has erred in determining tax payable on the assessed income @ 20 percent instead of 15 percent as prescribed in Article 12(2) of the India-US DTAA. 4. That on the facts and circumstances of the case and in law, the Ld.AO has erred in charging interest under section 234A and 234B of the Act. 3. Briefly put, the relevant facts are that the appellant assessee is a not-for-profit corporation based in USA, established to promote and support development of knowledge in the field of chemistry. Assessee filed its Return of income for Assessment Year 2014-15 declaring income at NIL on the plea that it was a tax resident of USA and entitled to be taxed in accordance with the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assignable right to use SciFinder/ similar search tools to search for material stored and organized in the databases on servers located in the USA; that the customers are allowed to log-in to the online site using the assigned usernames / login ids; and, that the agreement provides for restricted rights in relation to data retrieved using the search tools - access, download or save records for internal and private use only. The Ld. Senior Counsel also submitted that mere access to the database is provided by the assessee and in terms of the arrangement, no copyright can be said to be acquired by the customer; and, what is provided to the subscriber/customer in the instant case is neither a copyright and nor any full-fledged right to use, but only a limited right to use of a copyrighted article, which does not give rise to any royalty income in the hands of the assessee company. Further, the Ld. Senior Counsel relied on the judgment of the Hon'ble Supreme Court in the case of Tata Consultancy Services vs State of Andhra Pradesh, 271 ITR 401 (SC) to bring out the difference between a copyright and a copyrighted article in context of software products. In support of its contenti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 (placed in the Paper book at pages 15 to 42) 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. Further, in para 7.12 of the assessment order, the Assessing Officer has stated that the assessee has a wealth of industrial, commercial and scientific experience collected, developed and systemized over a period of time. Further, in para 7.13 of the assessment order, the Assessing Officer has also referred to paragraph 11 of OECD commentary on Article 12 to hold that the payment in question is to be understood as royalty . As per the Assessing Officer, the technical, commercial or scientific information provided by the assessee to the Indian customers through SciFinder arises from its previous experience which gives economic benefit to the customers. The Assessing Officer also points out that ACS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 ruling in the case of Dun and Bradstreet Espana S.A.(supra), which has been upheld by the Hon'ble Bombay High Court in the case of DIT vs. Dun and Bradstreet Information Services India (P) Ltd. (supra). In this case, the applicant, a non-resident company of Spain was engaged in the business of compilation and selling Business Information Reports ('BIR') in their local markets and to other associate companies worldwide. On the issue of whether the payment made for the purchase of BIRs would be in the nature of Royalty, the AAR opined that the applicant has rightly equated the transaction of sale of Business Information Reports in electronic form to a sale of book, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 provided in the BIRs would be similar to that of providing a technical or consultancy services. We have already mentioned above that a BIR is a standardized product of D B, it provides factual information on the existence, operation, financial condition, management and experience line of business, facility and location of a company; it also provides special events like any suit, lien, judgment or previous or pending bankruptcy. Further, banking relationship and accountants, information like whether it is a patent company or authority concerned, has any branches etc. It also gives a rating of the company. The information s that are provide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatus of royalty. There are various kinds of categories of information. Solely because an entry of the commercial nature would not make it a royalty. That cannot be exclusive base or foundation. Some sort of expertise or skill is required. The aforesaid factor would be the requisite one. We are not inclined to accept the submission of Mr. Arya that every information if it concerns the industries or commercial venture would be a royalty. That would tantamount to state the law quite broadly. That does not seem to be the purpose of the statute or that of the treaty. (Emphasis supplied) 11. With respect to the subscription fee for the CAS division being considered as Royalty for use of or right to use of a copyright, a reference to Copyright Act, 1957 is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unsel pointed out that the characteristics of the PUBS divisions is similar to CAS division, which has been dealt at length by us in the foregoing paragraphs. The Learned Senior Counsel submitted that the PUBS division of the assessee reviews and publishes research work submitted by scientists worldwide, organizes the same into research journals/ e-books and engages in subscription sales of internet and print copies of such research journals. The assessee grants online/ web-based access to e-journals, e-books, chapters, articles, proceedings, etc., stored on the server, in consideration for an annual fee /subscription charges. Such e-journals / e-books can be searched by a subscriber by using relevant keywords on PUBS website after logging in by using their log-in credentials. Customers are merely granted access to search and view the e-journals and obtain standardized reports / research articles available therein with no right to use the copyright in the e-journals/ articles. The agreements (as filed in the Paper book at page 43 to 71) entered by the assessee with the customers provide that copyright in the e-books, e-journals etc., remain with the assessee and the customers do no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id is not for the use of the copyright in the book/ article. The purchaser of a book does not acquire the right to make multiple copies for re-sale or to make derivative works of the book, i.e., the purchaser of a book does not obtain the copyright in the book. Similarly, the purchaser of the assessee's journals, articles or database access does not have the right to make copies for re-sale and does not have the right to make derivative works. In short, the purchaser has not acquired the copyright of the article or of the database. What the buyer gets is a copyrighted product, and accordingly the consideration paid is not royalty, but for purchase of a product. In the instant case too, what is acquired by the customer is a copyrighted article, copyrights of which continue to lie with assessee for all purposes. lt 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. 19. Thus, the principles noted by us in the earlier part of this order in the context of the income earned by way of CAS fee are squarely applicable to the subscription revenue received from c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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