TMI Blog2024 (3) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... mere access granted to a subscriber to the legal data base would clearly not fall within the ambit of Section 9(1)(vii) of the Act. All that the assessee does is provide access to the database. It has not been shown to be providing any further managerial, technical or consultancy service to a subscriber. We, in any case, find ourselves unable to countenance the contention that the access so granted could be construed as providing services of the nature spoken of in Section 9(1)(vii) of the Act. We find that similar would be the position which would obtain when subscription fee is examined on the anvil of Article 12 of the DTAA. If the Department were to describe subscription fee as royalty , they would necessarily have to establish that the payments so received by the assessee was consideration for the use of or the right to use any copyright or a literary, artistic or scientific work as defined by Article 12(3) of the DTAA. Granting access to the database would clearly not amount to a transfer of a right to use a copyright. We must bear in mind the clear distinction that must be recognised to exist between the transfer of a copyright and the mere grant of the right to use and tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. Ruchir Bhatia, SSC with Ms. Deeksha Gupta Mr. Pratyaksh Gupta, Advs. For the Respondent Through: Mr. Ajay Vohra, Sr. Adv. with Mr. Aditya Vohra, Adv. ORDER 1. The Income Tax Department [Department] questions the correctness of the view taken by the Income Tax Appellate Tribunal [Tribunal] as comprised in the impugned order dated 05 April 2023 and seeks consideration of the following proposed questions of law: A. Whether the Tribunal has erred in law in holding that receipts of subscription fees is in the nature of business income and is not taxable as assessee has no Permanent Establishment [PE] in India without taking into account the fact that the solution provided by the assessee has attributes of independent performance and as per the examples provided in the MoU in this case, imparting of a technical training is indicative of fulfilment of a make available clause in terms of Article 12(4)(b) of the India-USA Double Taxation Avoidance Agreement [DTAA] as well as Explanation- 2 of Section 9(1)(vii) of the Income Tax Act, 1961 [Act] ? 2. The basic facts leading up to the matter travelling to the Tribunal do not appear to be in dispute. However, in order to render context to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, wherein the Tribunal Bench of Mumbai adjudicated the issue regarding treaty of Indo-German Tax Treaty wherein the provisions of FTS are similar to Section 9(1)(7) of the Act . The only difference to the present appeal is that the applicable treaty is Indo-US Tax Treaty. The 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 (supra), 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. In view of the same, 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 ground of both the appeal of the assessee are allowed. 6. It becomes pertinent to note that it was never the case of the Department that the assessee had a fixed pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment described in paragraph 3 is received ; or ( b) make available technical knowledge, experience, skill, know how, or processes, or consist of the development and transfer of a technical plan or technical design . 9. The income of an assessee which may be discerned to fall within the ambit of Fee for Technical Services would be governed by Section 9(1)(vii) of the Act and which reads as follows: 9. Income deemed to accrue or arise in India. (1) The following incomes shall be deemed to accrue or arise in India- xxxx xxxx xxxx (vii) income by way of fees for technical services payable by (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to any income by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y Article 12(3) of the DTAA. Granting access to the database would clearly not amount to a transfer of a right to use a copyright. We must bear in mind the clear distinction that must be recognised to exist between the transfer of a copyright and the mere grant of the right to use and take advantage of copyrighted material. Neither the subscription agreement nor the advantages accorded to a subscriber can possibly be considered in law to be a transfer of a copyright. In fact, it was the categorical assertion of the assessee that the copyright remains with it at all times. 12. This issue in any case no longer appears to be res integra in light of the judgment of this Court in Director of Income Tax Vs. Infrasoft 2013 SCC OnLine Del 4694. We deem it apposite to extract the following passages from that decision:- 89. There is a clear distinction between royalty paid on transfer of copyright rights and consideration for transfer of copyrighted articles. Right to use a copyrighted article or product with the owner retaining his copyright, is not the same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article and they have not acquired any copyright in the software. In the case of the Assessee Company, the licencee to whom the Assessee Company has sold/licenced the software were allowed to make only one copy of the software and associated support information for backup purposes with a condition that such copyright shall include Infrasoft copyright and all copies of the software shall be exclusive properties of Infrasoft. Licencee was allowed to use the software only for its own business as specifically identified and was not permitted to loan/rent/sale/sub- licence or transfer the copy of software to any third party without the consent of Infrasoft. 93. The licencee has been prohibited from copying, de-compiling, de-assembling, or reverse engineering the software without the written consent of Infrasoft. The licence agreement between the Assessee Company and its customers stipulates that all copyrights and intellectual property rights in the software and copies made by the licencee were owned by Infrasoft and only Infrasoft has the power to grant licence rights for use of the software. The licence agreement stipulates that upon termination of the agreement for any reason, the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f], which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 181. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in Section 195 of the Income Tax Act were not liable to deduct any TDS under Section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in para 3 of this judgment. 14. The distinction between the right of access to copyrighted content as opposed to parting with the copyright itself was again explained by our Court in CIT Vs. Microsoft Corporation 2022 SCC OnLine Del 1514 where the following pertinent observations were made:- 4. Having heard learned counsel for the appellant, this court finds that the issue raised in the present appeals is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; This ruling of the Authority for Advance Rulings flies in the face of certain principles. When, under a non-exclusive licence, an end-user gets the right to use computer software in the form of a CD, the end- user only receives a right to use the software and nothing more. The end-user does not get any of the rights that the owner continues to retain under section 14(b) of the Copyright Act read with sub-section (a)(i)-(vii) thereof. Thus, the conclusion that when computer software is licensed for use under an EULA, what is also licensed is the right to use the copyright embedded therein, is wholly incorrect. The licence for the use of a product under an EULA cannot be construed as the licence spoken of in section 30 of the Copyright Act, as such EULA only imposes restrictive conditions upon the end-user and does not part with any interest relatable to any rights mentioned in sections 14(a) and 14(b) of the Copyright Act.. .. Also, any ruling on the more expansive language contained in the Explanations to section 9(1)(vi) of the Income-tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r which the licensee has no exclusive rights, no copyright is parted with and therefore, the payment received cannot be termed as 'royalty'. In the present case, the EYGBS (India), in terms of the Service Agreement and the memorandum of understanding, merely receives the right to use the software procured by the EYGSL (UK) from third- party vendors. The consideration paid for the use of the same therefore, cannot be termed as 'royalty' as held by the Supreme Court in Engineering Analysis Centre (supra). In determining the same, the rights acquired by the EYGSL (UK) from the third-party software vendors are not relevant. What is relevant is the agreement between the EYGSL (UK) and the EYGBS (India). As the same does not create any right to transfer the copyright in the software, the same would not fall within the ambit of the term 'royalty' as held by the Supreme Court in Engineering Analysis Centre (supra). We may also note that the learned Authority for Advance Rulings in its impugned order has relied upon its earlier view in Citrix Systems Asia Pacific Pty. Ltd., In re [2012] 343 ITR 1 (AAR), which has been expressly stated to be bad law in Engineering Ana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner of Income Tax (International Taxation) v. Bio-Rad Lab (Singapore) Pte. Ltd. (2023) SCC OnLine Del 6770 had affirmed the following opinion as expressed by the Tribunal. This is evident from a reading of paras 14, 14.1 and 15, which is extracted below: 14. According to the Tribunal, the agreement between the respondent-assessee and its Indian affiliate had been effective from January 1, 2010, and if, as contended by the appellant- Revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period. 14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extracted hereafter (page 463 of 33 ITR (Trib)-OL) : A perusal of the aforementioned provision shows that in order to qualify as fees for technical services, the services rendered ought to satisfy the 'make available' test. Therefore, in our considered opinion, in order to bring the alleged managerial services within the ambit of fees for technical services under the India-Singapore Double Taxation Avoidance Agreement, the service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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