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TMI Blog2025 (4) TMI 1626X X X X Extracts X X X X X X X X Extracts X X X X ..... s involved in the appeals were common and therefore heard the appeals together and disposed of the same by the common order. 2. The controversy involved in the present appeals pertains to the treatment of "commission income" and the amounts received by the Assessee as "subscription fee". 3. The Assessee had filed its returns declaring 'Nil' income for AY 2020-21 and Rs. 43,75,330/- for AY 2021-22. These returns were picked up for scrutiny. The AO held that the commission income and the subscription fee received by the Assessee from entities in India were required to be construed as fees for technical services [FTS] and were chargeable to tax under the Act and passed the draft assessment orders. 4. The Assessee had filed objections to the draft assessment orders before the Dispute Resolution Panel [DRP] which were rejected by orders dated 02.03.2023 and 22.06.2023 passed in respect of AY 2020-21 and AY 2021-22 respectively. Pursuant to the directions issued by DRP, the AO passed final assessment orders dated 27.06.2023 and 27.09.2023 for AY 2020-21 and AY 2021-22 respectively. 5. The AO assessed the income chargeable to tax under the Act at Rs. 63,71,49,019/- and Rs. 69,63,30,10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e context of software royalty income whereas in the instant case the transactions are related to right to use the copy rights in the books and Journals published by the assessee?" Factual Context 8. The Assessee is a company incorporated under the German laws and is a tax resident of Germany. The Assessee is a part of Springer Nature Group which is a publisher of books, journals and content relating to science and technology. It is stated that Springer Nature Group has a leading global scientific, technical and medical portfolio. 9. The Assessee has entered into a Commissionaire Agreement dated 01.01.2014 with Springer Nature India Pvt. Ltd. [SNIPL] - which is also one of the entities of the Springer Nature Group-by virtue of which the Assessee was appointed as a non-exclusive sales representative to promote, sell and distribute printed products (books and journals) and e-products (online books, journals and their archives). The Assessee earned commission income amounting to Rs. 5,31,86,587/- during financial year [FY] 2019-20 and Rs. 6,05,11,416/- during FY 2020-21. The Assessee also collected subscription fees amounting to Rs. 58,39,62,432/- and Rs. 63,14,43,357/- during FYs 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing passages from the said judgment [Commissioner of Income-tax, International Taxation v. Springer Nature Customers Services Centre GMBH (supra)] in support of his contentions: "25. This brings us to the second addition. We must note that in the course of arguments, Mr Bhatia had indicated that the addition of Rs. 16,67,83,110/- received by the respondent/assessee as a subscription fee for e-journals from its affiliates, could not be treated as royalty, given the judgment of the Supreme Court rendered in Engineering Analysis. However, in the written submissions, for the first time, contrary to the submission, an argument has been advanced that the subscription fee should be treated as FTS, and in the alternative, as royalty. 25.1 We are of the opinion, the submission that subscription fee should be treated as FTS cannot be accepted, as this was not the stand of the appellant/revenue before the Tribunal. This is a flip-flop which the respondent/assessee would do well to abjure. 15. Mr. Himanshu S. Sinha, the learned counsel appearing for the Assessee contested the aforesaid contentions. He submitted that the learned ITAT had rightly followed the decision in the Assessee's own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tionary is adjective 1. of or relating to a particular subject, art or craft or its techniques: technical terms (especially of a book or article) requiring special knowledge to be understood: a technical report. 2. of involving, or concerned with applied and industrial sciences: an important technical achievement. 3. resulting from mechanical failure: a technical fault. 4. according to a strict application or interpretation of the law or the rules: the arrest was a technical violation of the treaty. 9. Having regard to the fact that the term is required to be understood in the context in which it is used, "fee for technical services" could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with "technical" is "involving or concerning applied and industrial science". 10. In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific inven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as "technical service" for the purpose of section 194J of the Act. 15. The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial, technical or consultancy services". The word "technical" is preceded by the word "managerial" and succeeded by the word "consultancy". Since the expression "technical services" is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. The said rule is explained in Maxwell on the Interpretation of Statutes (Twelfth Edition) in the following words (page 289) : "Where two or more words which are susceptible of analogous meaning are coupled together, noscuntur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general." 15. This would mean that the word "technical" would take colour from the words "managerial" and "consultancy", between which it is sandwiched. The word "managerial" has been defined in the Shorter Oxford English Dictionary, Fifth Edition as : "of pertaining to, or characteristic of a manager, esp. a professional manager of or within an organization, business, establishment, etc." 16. The word "manager" has been defined, inter alia, as : "a person whose office it is to manage an or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services" which necessarily involve a human element or, what is now a days fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as "technical services" as contemplated under section 194J of the said Act. *** *** *** 26. Before concluding we would also like to point out that the interconnect/ port access facility is only a facility to use the gateway and the network of MTNL/other companies. MTNL or other companies do not provide any assistance or aid or help to the respondents/assessees in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/other companies is "technical" in the sense that it involves sophisticated technology. The facility may even be construed as a "service" in the broader sense such as a "communication service". But, when we are required to interpret the expression "technical service", the individual meaning of the words "technical" and "service" have to be shed. And, only the meaning of the whole expression "technical se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preme Court in Commissioner of Income-Tax v. Bharti Cellular Ltd.: (2011) 330 ITR 239 and held as under: "6. What meaning should be ascribed to the word "technical services" appearing in Explanation 2 to clause (vii) to Section 9 (1) of the Act is the moot question. In Commissioner of Income-Tax Vs. Bharti Cellular Ltd. this Court has observed as follows: "Right from 1979, various judgments of the High Courts and Tribunals have taken the view that the words "technical services" have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words "technical services" in section 9 (1) (vii) read with Explanation 2 comes in between the words "managerial and consultancy services". 7. "Managerial and consultancy services" and, therefore, necessarily "technical services", would obviously involve services rendered by human efforts. This has been the consistent view taken by the courts including this Court in Bharti Cellular Ltd. (supra). However, it cannot be lost sight of that modern day scientific and technological developments may tend to blur the specific human element in an otherwise fully automated process by which such services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4] 160 taxmann.com 109 (Delhi), this court considered an appeal from a decision of the learned ITAT whereby the Revenue's contention that fees received for accessing online database pertaining to legal and law related information was not chargeable to tax as FTS. In that case, the assessee was a tax resident of United States of America and was engaged in the business of maintaining online database of information relating to law including judgments, articles, information relating to patent applications before the Patent Registry and legal authorities (Lexis Nexis). The assessee had earned income in the nature of subscription fees from subscribers in India for providing access to the database (Lexis Nexis). Additionally, the persons interested in purchasing digital versions of books, journals and articles could purchase the same on payment of a price for the said books, journals and articles. 23. In this context, the Coordinate Bench of this court observed as under: "10. It must at the outset be noted that Section 9 (1) (vii) of the Act could have been resorted to, provided it were found to be more beneficial to the assessee when compared to the provisions of the DTAA. However, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered to be in the nature of any consultative/professional services rendered by Bloomberg to the respondents. In any view of the matter, the findings reached by both authorities cannot be said to be perverse or arbitrary. It is a possible view and consequently Question (B) as proposed does not give rise to any substantial question of law. Accordingly, not entertained." 25. We also consider it relevant to refer to Paragraph 3 of Article 12A of the United Nations Model Double Taxation Convention - 2021 [UNMDTC-2021] which defines the terms "fees for technical services". The same is set out below: "3. The term "fees for technical services" as used in this Article means any payment in consideration for any service of a managerial, technical or consultancy nature, unless the payment is made: (a) to an employee of the person making the payment; (b) for teaching in an educational institution or for teaching by an educational institution; or (c) by an individual for services for the personal use of an individual." 26. The opening sentence of Paragraph 3 of the UNMDTC-2021 bears similarity to the definition of the expression 'FTS' within the meaning of Explanation 2 to Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment or fixed base in that State, the payments would be subject to tax by that State in accordance with paragraph 2 irrespective of the fact that the services are not per-formed in that State through a fixed base in that State. 65. Technical services are not limited to the professional services referred to in paragraph 2 of Article 14. Services performed by other professionals, such as pharmacists, and other occupations, such as scientists, academics, etc., may also constitute technical services if those services involve the provision of specialized knowledge skill and expertise. *** *** *** 86 The following examples illustrate the application of the definition of "fees for technical services" in paragraph 3. *** *** *** 90. Example 3: R Company is a resident of State R. R Company's business is the collection, organization and maintenance of various databases. R Company sells access to these databases to its clients. One of R Company's clients is Company S, a resident of State S. State R and State S have entered into a tax treaty that contains a provision identical to Article 12A of the United Nations Model Tax Convention. The payments that R Company rece ..... X X X X Extracts X X X X X X X X Extracts X X X X
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