TMI Blog2023 (9) TMI 252X X X X Extracts X X X X X X X X Extracts X X X X ..... for access to copyrighted products, i.e., the videos on the assessee s database. In view of the above, we hold that the subscription fees received by the assessee does not amount to royalty for use of or right to use of any copyright . The subscription revenue received by the assessee whether it is for any information concerning industrial, commercial or scientific experience - Since the assessee receives subscription fees merely to grant access to the database of videos and not for imparting any information concerning the assessee s own knowledge or experience of creating/maintaining the database, the said subscription fees cannot be said to be for imparting of any information concerning industrial, commercial or scientific experience of the Appellant . The subscription revenue received by the assessee whether it is for granting any right to use of equipment - The consideration received by the assessee is merely for granting access to the database of videos and not for the use or right to use any equipment whatsoever. The subscribers have no access, right or control of any manner whatsoever over the server on which the assessee maintains the database. Therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rutiny and notice under section 143(2) of the Act was issued to the assessee on 01.08.2017. During the course of assessment proceedings, assessee filed submissions in support of its contentions that the subscription earned by the assessee from its Indian customers were not taxable in India under the provisions of India-US DTAA as well as the Act. The AO, however, rejected the said contentions of the assessee and held that subscription revenue received by the assessee from the subscribers in India is towards granting of right to use any copyright of a literary, artistic or scientific work and thereof, hence, the same amounts to royalty . The AO also stated that the subscription fee received by the assessee is royalty for information concerning industrial, commercial or scientific experience as per Article 12 of the DTAA. Furthermore, the AO also remarked that the subscription fee could also be the royalty for the use, or the right to use any equipment as the server containing the database is used by the customers as a point of interface. Accordingly, the AO completed the assessment under section 143 of the Act vide order dated 26.09.2019 by holding that the subscription fees re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nline viewing facility of these courses/video content is provided to customers through the assessee's website or mobile application. The assessee sells subscription plans to customers in India and prices are agreed between the assessee and the customers. In this regard, sample Master Subscription Agreement ( MSA ) which the assessee enters with subscribers/customers is enclosed at pages 97-108 of the Paper Book. Subsequent to entering into agreements and payment of subscription amount, the customers are provided with login information (login ID and password). After the customers log in on the website, the customers/subscribers can view all or any of the 5000+ online videos/courses stored in the content library for the duration of the subscription period, based on their choice and interest at subscription charges (currently Rs. 1,499 per month for standard plan providing access to 2500+ courses and Rs. 2,299 per month for premium plan providing access to 7,000+ courses) Along with the same, there are certain ancillary add-on features, such as short quizzes, exercises, discussion board etc. Prima facie, the online video content is very generic and routine in nature. The custo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11. Based on the definition of Royalty under the India-USA DTAA, it is important to understand the meaning of the term copyright . The term copyright is not defined under the provisions of the Act. Therefore, the provisions of the Copyright Act, 1957 ( Copyright Act ) has to be examined. As per section 14 of the Copyright Act, copyright means the exclusive right to do any of the acts specified therein, viz., to reproduce the work, to issue copies of the work to public, to make any translation or adaptation of the work, etc. Unless any of the exclusive rights or a combination thereof as stated under section 14 of the Copyright Act are transferred by the copyright holder, it cannot be said that the use or right to use the copyright has been granted. Thus, payment made for acquiring the right to use any copyrighted product, wherein the payer does not get any of the exclusive right as stated in section 14 of the Copyright Act, does not amount to payment made for the use or right to use the copyright in the product and therefore, shall not be covered within the scope of royalty . The aforesaid principles have been upheld by the Hon ble Supreme Court in the case of Engineeri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions of the AAR in Dassault Systems K.K. (supra) and Geoquest Systems B.V. (supra) and the judgments of the High Court of Delhi in Ericsson A.B. (supra) , Nokia Networks OY (supra) , Infrasoft Ltd. (supra) , ZTE Corporation (supra) , state the law correctly and have our express approval . We may add that the view expressed in the aforesaid judgments and determinations also accords with the OECD Commentary on which most of India's DTAAs are based. (emphasis supplied) 12. The assessee in the instant case also does not transfer any copyright or the right to use any copyright of any nature to any of the subscribers. The relevant clauses of the sample MSA which the assessee enters with the subscribers read as under: MASTER SUBSCRIPTION AGREEMENT .. Pluralsight provides an online technology learning platform on its websites http://www.pluralsight.com and any applicable sub domains thereof, and through any applications, functionalities, content, materials, Interactive Features (as defined below), or other online services provided by Pluralsight (collectively, the site ). Custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rses and specifically identified as available for download , including exercise files, course slides, and sample code ( Authorized Downloadable Materials ). Authorized Downloadable Materials are held by Customer or its business Users pursuant to a limited right only, and are subject to all restrictions described in this Agreement , including the prohibition on further transfer, sale , creation of derivative works, or exploitation in any manner. Customer shall not, directly or indirectly: (a) sublicense , resell, rent, lease, distribute or otherwise transfer rights or usage in the Proprietary Material ; (b) provide the Proprietary Material on a timesharing, service bureau, service provider or other similar basis ; or (c) remove or alter any copyright, trademark or proprietary notice in the Proprietary Material. b. Reservation of Rights. Pluralsight reserves all intellectual property rights to the Proprietary Materials , other than as specifically granted under the License contained in this Agreement. No posting, copying, transmission, retransmission, distribution, redistribution, publication, republication, or otherwise reproducing , storing transmitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interrupt, destroy, or limit the functionality of any computer software, hardware, or telecommunications equipment; or 9. manually or systematically harvest, scrape, collect or otherwise extract information or data contained on the Site, other than permitted use of Authorized Downloadable Materials or temporary storage of video materials for offline viewing as permitted by the Site s intended features. (Emphasis supplied) 13. From a perusal of the MSA, we find that the subscribers only get a nonexclusive, non-transferable license to view the videos on the website. Neither any copyright in the software/database, nor any copyright in the videos is granted to the subscribers. The assessee reserves all intellectual property rights in its Proprietary Material, which includes the source code, videos, text, software, intellectual property of the assessee etc. The subscribers are not even allowed to download, store, transmit or edit such videos. Further, while the subscribers are allowed to download certain ancillary course material (Authorized Downloadable Materials) such as exercise files, course slides etc., are subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, sample copies of which are placed in the paper book, it is noticed that the subscription is period based and further the subscriber may not even use the data stored in the database . That being the case, the payment made cannot be treated as royalty under Article 12(3) of the India Germany Tax Treaty. . . . . 17. By way of illustration we may further observe, online databases are provided by Taxman, CTR online, etc. which are accessible on subscription not only to professionals but also any person who may be having interest in the subject of law. When a subscriber accesses the online database maintained by Taxman/CTR online etc. he only gets access to a copyrighted article or judgment and not the copyright. Similar is the case with the assessee. Therefore, in the facts of the present case, the subscription fee received by the assessee cannot be treated as royalty under Artile 12(3) of India Germany Tax Treaty. (emphasis supplied) 15. Similar view has been taken in the following cases: a) Elsevier BV, In re: (2021) 123 taxmann.com 143 (AAR) b) Dow Jones Company Inc. vs. ACIT: (2022) 135 taxmann.com 270 (Del ITAT) c) DIT(IT) vs. Dun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mann.com 253 (Mum ITAT), wherein on similar facts, the Mumbai Bench of the Tribunal held that the customers do not make payments for availing the knowledge of assessee's experience of creating/maintaining database; on the contrary, what they pay for is to access the information that such database encompasses. Therefore, it was concluded by the Mumbai Bench of the Tribunal that the payment does not constitute payment made for information concerning industrial, commercial or scientific experience. Relevant finding of the Tribunal reads as follows: 8. 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 experien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng industrial, commercial or scientific experience of the Appellant . iii) The subscription revenue received by the assessee whether it is for granting any right to use of equipment: 20. In the impugned assessment order, the AO also made a remark that the subscription fee could also be for the use of, or right to use, any industrial, commercial or scientific equipment as the server containing the database is used by the customers as a point of interface (refer page 13 of the assessment order). The consideration received by the assessee is merely for granting access to the database of videos and not for the use or right to use any equipment whatsoever. The subscribers have no access, right or control of any manner whatsoever over the server on which the assessee maintains the database. Therefore, the subscription fee received by the assessee cannot, in any manner, be termed as consideration for use or right to use any industrial, commercial or scientific equipment. In the case of Factset Research Systems Inc. (supra), the Revenue raised an identical contention that the server is used by the customers as a point of interface . However, the said contention of Revenue was r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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