2017 (5) TMI 1520 - AT - Income Tax

Payments made accessing its database and downloading readily available information - whether is in the nature of Royalty under section 9(l)(vi)? - entitled to benefits under India Singapore DTAA - distinction between copyright and copyright article - Held that - We agree with the agreement advanced by Ld. Counsel that in order to qualify payment made to Thomson as royalty payment it is necessary to establish that there is a transfer of all or any rights in respect of copyright of literary work. It is observed that assessee is not allowed to exploit the database commercially under the agreement. Treaty provisions between India and Singapore unambiguously require the use of copyright to be taxed in the source country. In the present case, the payment has been made by assessee for use of copyrighted material rather than for the use of copyright. The distinction between copyright and copyright article has been well dealt in the case of DIT vs. Infrasoft (2013 (11) TMI 1382 - DELHI HIGH COURT ), wherein it has been held that in a case where assessee gets right to access copyrighted material , there is no dispute regarding the same to fall out of definition of term Royalty , under India Singapore DTAA. In this case, as assessee has only received access of copyrighted material, there is no dispute about payment falling out of definition of royalty. During course of hearing before us Ld. DR could not demonstrate as to how there was use of copyright and therefore, attempt to bring payments made under explanation 2 clause (iv) to section 9 (1) (vi) of the Act cannot be accepted. - Decided in favour of assessee.

Issues Involved:
1. Whether payments made by the appellant to Thomson Asia Pte Limited for accessing its database and downloading readily available information constitute "Royalty" under section 9(1)(vi) of the Income Tax Act and Article 12(3) of the India-Singapore Double Taxation Avoidance Agreement (DTAA).
2. Whether the payment made by the appellant is in the nature of royalty under Clauses (i), (ii), and (iii) of Explanation 2 of section 9(1)(vi) of the Act.
3. Whether the payment made by the appellant is covered under Clause (iv) of Explanation 2 to section 9(1)(vi) of the Act.
4. Whether the benefit of exclusionary clause under section 9(1)(vi)(b) of the Act is applicable, thereby excluding the royalty from the ambit of taxation in India.

Issue-wise Detailed Analysis:

Issue 1: Nature of Payments as Royalty
The primary issue revolves around whether the payments made by the appellant to Thomson Asia Pte Limited for accessing its database are considered "Royalty" under section 9(1)(vi) of the Income Tax Act and Article 12(3) of the India-Singapore DTAA. The appellant argued that the payments were for accessing a publicly available database and did not involve any transfer of rights in respect of copyright. The Tribunal noted that the database provided general information on share prices, market trends, and commodity prices, which is publicly available and not exclusive to Thomson. The Tribunal concluded that the payments were for accessing "copyrighted material" rather than for the use of copyright itself, thus falling outside the definition of "Royalty" under the DTAA.

Issue 2: Royalty under Clauses (i), (ii), and (iii) of Explanation 2 of Section 9(1)(vi)
The appellant contended that the payments did not qualify as royalty under Clauses (i), (ii), and (iii) of Explanation 2 of section 9(1)(vi) of the Act. These clauses pertain to payments for the transfer of all or any rights in respect of a patent, invention, model, design, secret formula or process, trademark, or similar property. The Tribunal observed that the appellant did not receive any rights to exploit the database commercially and only had limited rights to use the information for internal purposes. Thus, the payments did not constitute royalty under these clauses.

Issue 3: Royalty under Clause (iv) of Explanation 2 of Section 9(1)(vi)
The appellant argued that the payment was not covered under Clause (iv) of Explanation 2 to section 9(1)(vi) of the Act, which pertains to payments for the use of any industrial, commercial, or scientific equipment. The Tribunal noted that the appellant did not acquire any equipment or rights to use any equipment from Thomson. The payments were solely for accessing the database, which did not involve the use of any equipment. Therefore, the payments did not fall under Clause (iv).

Issue 4: Benefit of Exclusionary Clause under Section 9(1)(vi)(b)
The appellant claimed the benefit of the exclusionary clause under section 9(1)(vi)(b) of the Act, arguing that the source of income for which the payment was made was not in India. The Tribunal noted that the appellant's business operations required access to various databases, including Thomson's, to provide back-office support services. The Tribunal concluded that the payments were for accessing information that was publicly available and did not constitute royalty. Therefore, the exclusionary clause under section 9(1)(vi)(b) was applicable, and the payments were not taxable in India.

Conclusion:
The Tribunal concluded that the payments made by the appellant to Thomson Asia Pte Limited for accessing its database did not constitute "Royalty" under section 9(1)(vi) of the Income Tax Act and Article 12(3) of the India-Singapore DTAA. The payments were for accessing "copyrighted material" rather than for the use of copyright itself. The Tribunal allowed the appeal filed by the appellant and held that the payments were not taxable in India. The order was pronounced in the open court on 11th May 2017.

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