2003 (5) TMI 45 - HC - Income Tax

Whether the Tribunal is justified in not accepting the claim of the Revenue that there should have been deduction of tax at source under section 195 of the Income-tax Act 1961 in regard to the remittance of 25, 000 US to PCI Kingwood USA treating the said amount as royalty? - Solely because an entry is of the commercial nature would not make it a royalty. - 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 be tantamount to stating the law quite broadly. That does not seem to be the purpose of the statute or that of the treaty.

Issues Involved:
1. Determination of whether the payment of US $25,000 to PCI Kingwood, USA, constitutes "royalty" under section 9(1)(vi) of the Income-tax Act, 1961, and article 12(3) of the Avoidance of Double Taxation Treaty with the United States of America.
2. Applicability of tax deduction at source under section 195 of the Income-tax Act, 1961, on the remittance.
3. Interpretation of the terms "information" and "royalty" within the context of the Income-tax Act and the treaty.

Detailed Analysis:

1. Determination of "Royalty":
The primary issue revolves around whether the payment made by the assessee to PCI Kingwood, USA, for data in the form of a monthly compilation called "executive overview" constitutes "royalty." The Assessing Officer initially deemed the payment as royalty under clause (iv) of Explanation 2 to section 9(1)(vi) of the Income-tax Act and article 12(3) of the Avoidance of Double Taxation Treaty. The Commissioner of Income-tax (Appeals) upheld this view, stating that the payment was for technical information and thus liable for tax deduction at source.

However, the Tribunal overturned these findings, asserting that the data provided was not confidential or technical but rather general information available in the market. The Tribunal concluded that the payment did not meet the definition of "royalty" as per Explanation 2(iv) to section 9(1)(vi) of the Act.

2. Applicability of Tax Deduction at Source:
The court examined whether the Tribunal was justified in rejecting the Revenue's claim for tax deduction at source under section 195 of the Income-tax Act. The Revenue argued that the continuous nature of the service and the bulk of information provided indicated that it was confidential and technical, thus qualifying as royalty. The assessee contended that the information was general and publicly available, not meeting the criteria for royalty under either the Act or the treaty.

3. Interpretation of "Information" and "Royalty":
The court delved into the interpretation of "information" and "royalty" under the Income-tax Act and the treaty. The Revenue's counsel argued that the information provided was technical and confidential, fitting the definition of royalty. The assessee's counsel countered that the information was general market data, not technical or confidential, and thus not royalty.

The court referred to sections 5(2) and 90(2) of the Income-tax Act and the relevant treaty provisions. It emphasized that for information to be considered royalty, it must have special features such as technical, industrial, or scientific knowledge, experience, or skill. The court noted that every piece of information cannot be classified as royalty; it must possess some expertise or skill.

The court also examined the Tribunal's findings, which were based on the correspondence between the parties. The Tribunal had concluded that the information was general market data, not confidential or technical. However, the court found that the Tribunal had not reviewed the actual data provided, which was crucial for determining its nature.

Conclusion:
The court set aside the Tribunal's order and remitted the matter back to the Tribunal for a fresh examination. The assessee was directed to produce the entire records related to the data received, and the Tribunal was instructed to consider the law and the court's observations while deciding the matter. The appeal was allowed to the extent indicated, without any order as to costs.

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