2019 (6) TMI 1620 - AT - Income Tax

Income accrued in India - subscription fees received by the assessee in India is neither in the nature of fees for technical services nor royalty as defined under section 9(1)(vi) and 9(1)(vii) of the Act and also under India Germany - HELD THAT - In this view of the matter and consistent with view taken by the Co-ordinate Bench 2019 (5) TMI 405 - ITAT MUMBAI we are of the considered view that subscription fees received by the assessee from customers in India for allowing them to access online database created by the assessee in the name of Reaxys and EMBASE cannot be considered as fees for technical services or royalty within the meaning of section 9(1)(vi) and 9(1)(vii) of the Act nor under India Germany Tax Treaty. Therefore by respectfully following the decision of the co-ordinate bench of the Tribunal in assessee s own case we direct the AO to delete the additions made towards income computed @10% of total subscription fees as per India Germany Tax Treaty. - Decided in favour of assessee.

Summary

Issues Involved:

1. Taxability of subscription fees received by the assessee in India.
2. Classification of subscription fees as "fees for technical services" (FTS).
3. Classification of subscription fees as "royalty".
4. Levy of interest under section 234B of the Act.
5. Levy of interest under section 234C of the Act.
6. Initiation of penalty proceedings under section 271(1)(c) of the Act.

Issue-wise Detailed Analysis:

1. Taxability of Subscription Fees Received by the Assessee in India:
The primary issue was whether the subscription fees received by the assessee, a resident of Germany, from Indian customers for accessing an online database, were taxable in India. The assessee argued that the fees were neither in the nature of fees for technical services (FTS) nor royalty under sections 9(1)(vi) and 9(1)(vii) of the Income Tax Act, 1961, or under the India-Germany Tax Treaty. The Tribunal found that the subscription fees were not taxable in India as they did not constitute FTS or royalty and were only business profits, which could not be taxed in India in the absence of a permanent establishment (PE).

2. Classification of Subscription Fees as Fees for Technical Services (FTS):
The Assessing Officer (AO) considered the subscription fees as FTS, arguing that the assessee provided a specific database facility to Indian chemical and pharmaceutical companies. However, the Tribunal noted that the assessee merely allowed access to a structured and user-friendly database without any human intervention or provision of managerial, technical, or consultancy services. Therefore, the subscription fees did not qualify as FTS under section 9(1)(vii) of the Act or Article 12(4) of the India-Germany Tax Treaty.

3. Classification of Subscription Fees as Royalty:
The AO also classified the subscription fees as royalty, asserting that the database access provided by the assessee was akin to a literary work. The Tribunal disagreed, stating that the assessee did not transfer any copyright or right to use the copyright to the subscribers. The subscribers only accessed the copyrighted material for their use, which did not amount to royalty under section 9(1)(vi) of the Act or Article 12(3) of the India-Germany Tax Treaty. The Tribunal referenced various judicial precedents to support this view, including the decision in the assessee’s own case for AY 2011-12.

4. Levy of Interest under Section 234B of the Act:
The AO levied interest under section 234B of the Act, which the assessee contested. Since the Tribunal held that the subscription fees were not taxable in India, the interest levied under section 234B was also deemed inappropriate.

5. Levy of Interest under Section 234C of the Act:
Similarly, the AO levied interest under section 234C of the Act. Given the Tribunal's decision that the subscription fees were not taxable, the interest under section 234C was also not applicable.

6. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act:
The AO initiated penalty proceedings under section 271(1)(c) for concealing income or furnishing inaccurate particulars. However, since the Tribunal concluded that the subscription fees were not taxable, the basis for penalty proceedings was nullified.

Conclusion:
The Tribunal directed the AO to delete the additions made towards income computed at 10% of the total subscription fees as per the India-Germany Tax Treaty. The appeals filed by the assessee for all assessment years were allowed, and the order was pronounced in the open Court on 28/06/2019.