2022 (6) TMI 342 - AT - Income Tax

Income accrued in India - Royalty' u/s 9(1)(vi) read with Article 13 of DTAA entered into between India and UK - Agency PE of the Appellant - HELD THAT - Article 13 of India-UK DTAA defined royalty only when a payment is made for the use or the right to use a copy right of literary, artistic or scientific work. So the only those payments which allow payers to use/acquire a right to use a copy right in literary, artistic or scientific work are commissioned under the definition of royalty . In the instant case the assessee used to collect the information available in the public domains viz. newspaper and news wires from all over the world including global business and trade publications, targeted industry and regional publications, key websites and business blogs, market data and company professionals by collaborating with the news publishers and other sources and collates such relevant publically available news/information, then create a systematic database of news, article/information with advanced search capabilities and then subscriber of Factiva product gets access to the database, business puts a query in the search box, various news articles and other information in relation to search term, as actual public appears on the screen. Payment received by the assessee is not for any information qua industrial scientific or commercial experience rather it is only for preparing a database on the basis of information already available in the public domain in the form of news, articles etc. Moreover, payment received by the assessee is merely for the use of database and not for the use or right to use any equipment as the subscriber and DJCIPL have no access, right or control of any manner whatsoever offer the data storage devises or the server maintained by the assessee to update its database. In these circumstances, copy right in the news article/blog never belongs to the assessee but always belongs to the publisher or author. So the database prepared by the assessee does not have any copy right or intellectual copy right with the assessee and the customer only gets the right to search, view and display information. So in these circumstances findings returned by the Ld. DRP that Factiva product (access to database) is in the nature of royalty under Article 13 of India-UK DTAA was sector specific specialized knowledge portal as the assessee has a dedicated team of 100 specialists to collate and update the data on daily basis and as such fall within the ambit of use of copy right as well as information concerning industrial scientific or commercial experience is not sustainable in the eyes of law. This issue is covered in favour of the assessee in its group company case M/s. Dow Jones and Company India Pvt. Ltd. 2021 (12) TMI 647 - ITAT DELHI . So the question framed is answered in the negative and as such the payment received by the assessee is not a royalty under Article 13 of India-UK DTAA. So we hereby set aside the addition made by the AO under section 9(1)(vi) of the Act read with Article 13(3) of India-UK DTAA and as such ordered to be deleted the same. Agency PE - Since assessee has vehemently opposed the observation made by the AO that DJCIPL is an agency PE of the assessee. Moreover there is not an iota of material on record to prove this fact. So the payment received by the assessee is not taxable in India as the Revenue has failed to prove that the assessee has a PE in India in terms of Article 5 of India-UK DTAA. - Decided in favour of assessee.

Issues Involved:
1. Classification of the sum of INR 2,82,15,036 as 'Royalty' under Section 9(1)(vi) of the Income-tax Act, 1961, and Article 13 of the India-UK DTAA.
2. Allegation that Dow Jones Consulting India Private Limited (DJCIPL) could constitute an Agency PE of the Appellant.
3. Consideration of the sum of INR 2,82,15,036 as "Business Profits" under Article 7 of the DTAA and non-taxability in India due to the absence of a Permanent Establishment.
4. Proposal to initiate penalty proceedings under section 271(1)(c) of the Income-tax Act.

Detailed Analysis:

Issue 1: Classification of the sum as 'Royalty'
The primary contention was whether the amount of INR 2,82,15,036 received by the assessee from DJCIPL constituted 'royalty' under Section 9(1)(vi) of the Income-tax Act and Article 13 of the India-UK DTAA. The assessee argued that the amount was business income, not taxable in India due to the absence of a Permanent Establishment (PE). The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that the payment was for the use of copyright and thus taxable as royalty. However, the Tribunal, referencing similar cases such as Dow Jones & Company Inc. vs. ACIT and Dun and Bradstreet Espana S.A., determined that the payment was for access to a database and not for the use of copyright. Therefore, it did not qualify as 'royalty' under Article 13 of the DTAA.

Issue 2: Allegation of DJCIPL as an Agency PE
The AO suggested that DJCIPL could be considered an Agency PE of the assessee, implying that the income should be taxable in India. The Tribunal found no substantial evidence to support this claim. The AO’s remarks were deemed stray and unsubstantiated. Consequently, it was concluded that DJCIPL did not constitute an Agency PE of the assessee.

Issue 3: Consideration of the sum as "Business Profits"
The assessee claimed that the amount should be considered business profits under Article 7 of the DTAA and not taxable in India due to the absence of a PE. The Tribunal agreed, noting that the revenue authorities failed to prove the existence of a PE in India. The income was thus not taxable in India as business profits under Article 7 of the DTAA.

Issue 4: Proposal to initiate penalty proceedings
The AO proposed to initiate penalty proceedings under section 271(1)(c) of the Act. Given the Tribunal's findings that the income was not taxable as royalty and the absence of a PE, the basis for penalty proceedings was undermined. The Tribunal implicitly directed that penalty proceedings should be abated.

Conclusion:
The Tribunal ruled in favor of the assessee, setting aside the AO's addition of INR 2,82,15,036 as royalty and confirming that the amount was not taxable in India. The Tribunal also dismissed the notion of DJCIPL being an Agency PE and implicitly directed the cessation of penalty proceedings under section 271(1)(c). The appeal filed by the assessee was allowed in its entirety.

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