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TMI Blog2025 (5) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... on the facts and in the circumstances of the case and in law, the proceedings Initiated by the AO under section 147/148 of the Act for the subject assessment year without issuing the mandatory notice under section 143(2) of the Act are bad in law, without jurisdiction and thus, liable to be quashed. 3. That on the facts and in the circumstances of the case and in law, the proceedings initiated under sections 147/148 of the Act are bad in law, beyond jurisdiction and void ab initio, inter alia, for the reasons that (a) the proceedings were initiated by an officer not having jurisdiction over the Appellant, and (b) basis the Invalid initiation, a valid jurisdiction could not have been conferred on the Officers at Mumbai. 4. That on the facts and in the circumstances of the case and in law, the Ld. AO/Dispute Resolution Panel ("DRP") have grossly erred in not appreciating the facts of the case and holding that an order under section 148A(d) of the Act was validly passed for the subject assessment year, not appreciating that no such order was ever passed or required to be passed. 5. That on the facts and circumstances of the case and in law, the Ld. AO/ DRP have erred in holding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeliant has not filed accurate particulars of its income. 12. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271F of the Act for non-filing of Return of Income ("ROI"), not appreciating that the Appellant was not required to file ROI, in absence of any taxable income in India." 3. Briefly the facts of the case are that the assessee company had not originally filed its return of income, thereafter, the matter was reopened u/s. 148 of the Act and notice u/s. 148 was issued on 31.03.2021 by DCIT(IT)- 2(1), Bangalore which was duly served on the assessee. As per the reasons so recorded before issuance of notice u/s. 148, the AO has stated that during the course of 201 proceedings in the case of M/s. Syngene International Limited, it has been found that the said company has paid an amount of Rs. 75,85,600/- to the assessee company towards subscription toward online scientific journals which is taxable under the provisions of the Act as well as double taxation avoidance agreement between India and USA and the same has escaped assessment due to omission/failure on the part of the assessee company to fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is in the nature of royalty as per the provisions of 9(1)(vi) r/w Article 12(3) of DTAA. It was further stated by the AO that for the A.Y. 2014-15 to A.Y. 2020-21, the order passed by the AO were disputed by the assessee before the DRP and by separate orders, the DRP held that the amount received by the assessee towards the subscription fee for CASS and PUBS division is in the nature of royalty as per Article 12 of India-US DTAA as it falls under the ambit of use of copyrights of artistic, literally or scientific work as well as within the ambit of payment for information concerning industrial commercial or scientific experience. It has further been stated by the AO that the assessee has further challenged the matter before the Tribunal for all these years and which have been decided in favour of the assessee. However, the Revenue has filed further appeal before the Hon'ble Bombay High Court against the orders of the Tribunal and the same are pending necessary adjudication before the Hon'ble Bombay High Court. In view of the aforesaid, the AO passed the draft assessment order wherein amount of Rs. 46,14,79,249/- was brought to tax as royalty income in the hands of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y adjudication before the Hon'ble Bombay High Court and therefore, the AO as well as DRP has followed the order for the earlier years. He accordingly relied on the orders of the lower authorities. 9. We have heard the rival contentions and the material available on record. We find that the Coordinate bench of the Tribunal in assessee's own case for A.Y. 2014-15 has first decided the matter and vide its order dated 26.10.2011 has held the subscription revenue received by the assessee for providing access to online chemistry databases (CAS division) and from sale of online journals (PUBS division) doesn't qualify as royalty in terms of section 9(1)(vi) of the Act as well as the Article 12(3) of the India-US DTAA and the relevant findings of the Coordinate Bench read as under: "7. We have carefully considered the rival submissions, perused the relevant material, including the orders of the lower authorities as well as the case laws referred at the time of hearing. Notably, the controversy before us primarily revolves around the characterization of the income earned by the assessee from the Indian subscribers The income-tax authorities have invoked section 9(1)(vi) of the Act and/or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... access to such information. All these have been referred by the Assessing Officer to arrive at an inference that the CAS fee is in the nature of 'royalty'; and, for that purpose, the Assessing Officer has referred to para 11 of the OECD commentary on Article 12. In fact, the OECD commentary which has been referred to by the Assessing Officer itself provides an answer and belies the stand taken by the Assessing Officer. The OECD commentary referred in para 7.13 of the assessment order brings out that the payments which are to be understood as 'royalty in the context of information concerning industrial, commercial or scientific experience ought to be in relation to information which is undivulged and/or arises from previous experience. In other words, in order to be understood as 'royalty, the payment must be for information which is exclusively possessed or secret under the ownership of the grantor of such information. In our considered opinion, the fact-situation in the instant case does not 'royalty 8. As discussed earlier, in the instant case, the assessee merely identifies, aggregates, and organizes publicly disclosed chemistry related scientific informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommercially exploit the database/software, e.g reproduce, duplicate or sub-license the same; such payments may be classified as royalty, but factually speaking in the present no such rights in database or search tools (SciFinder or STN) are acquired by the customers, as is evident from the terms of the sample agreement of CAS customers. In our considered view, transfer of any right in a copyrighted article is analogous to the rights acquired by the purchaser of a book. In the case of a book, the publisher of the book grants the purchaser certain rights with respect to the use of the content of the book, which is copyrighted, but the purchaser of the book does not acquire the right to exploit the underlying copyright. When the purchaser reads the book, he only enjoys its contents. Similarly, the user of the copyrighted software does not receive the right to exploit the copyright in the software, he only enjoys the product/benefits of the product in the 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 betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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, Le, 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. It is a well settled law that copyrighted article is different from a copyright, and that consideration for the former, ie, 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 customers of PUBS division for sale of journal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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