2023 (9) TMI 252 - AT - Income Tax

Income taxable in India - taxability of foreign income in India - receipts from the Indian customers as subscription revenue - Royalty u/s 9(1)(vi) of IT Act and also u/A 12(3) of the tax treaty between India and USA (India US DTAA) - Assessee is a foreign company incorporated in USA - bringing to tax subscription revenue as royalty - Whether the subscription revenue is towards use of, or right to use any copyright? - HELD THAT - As by subscribing to the assessee s database, the subscribers merely get access to the database to view the videos - which are akin to copyrighted articles . The subscribers do not receive any right to use the copyright in the videos/database at any point in time. Thus, in view of the principle laid down by the Hon ble Supreme Court in the case of Engineering Analysis ( 2021 (3) TMI 138 - SUPREME COURT ) the subscription fees received by the assessee does not amount to payment for the use of or right to use copyright but rather payments for access to copyrighted products, i.e., the videos on the assessee s database. In view of the above, we hold that the subscription fees received by the assessee does not amount to royalty for use of or right to use of any copyright . The subscription revenue received by the assessee whether it is for any information concerning industrial, commercial or scientific experience - Since the assessee receives subscription fees merely to grant access to the database of videos and not for imparting any information concerning the assessee s own knowledge or experience of creating/maintaining the database, the said subscription fees cannot be said to be for imparting of any information concerning industrial, commercial or scientific experience of the Appellant . The subscription revenue received by the assessee whether it is for granting any right to use of equipment - The consideration received by the assessee is merely for granting access to the database of videos and not for the use or right to use any equipment whatsoever. The subscribers have no access, right or control of any manner whatsoever over the server on which the assessee maintains the database. Therefore, the subscription fee received by the assessee cannot, in any manner, be termed as consideration for use or right to use any industrial, commercial or scientific equipment. In the case of Factset Research Systems Inc. 2009 (6) TMI 28 - AUTHORITY FOR ADVANCE RULINGS Revenue raised an identical contention that the server is used by the customers as a point of interface . However, the said contention of Revenue was rejected by the Hon ble AAR - we hold that the payment made for viewing the videos on the database cannot be termed as consideration for use or right to use any industrial, commercial or scientific equipment. We hold that the subscription revenue received by the assessee is not taxable as Royalty in the hands of the assessee under Article 12 of the India-USA DTAA read with the provisions of the Act. Accordingly, the impugned addition made by the AO in this regard, as upheld by the CIT(A) is hereby deleted. Appeal of assessee allowed.

Summary

Issues Involved:
1. Whether the subscription revenue received by the assessee from Indian customers constitutes "royalty" under section 9(1)(vi) of the Income Tax Act, 1961 and Article 12(3) of the India-US DTAA.

Summary:

Issue 1: Whether the subscription revenue is towards use of, or right to use any copyright:
The Tribunal examined the definition of "royalty" under Article 12(3) of the India-US DTAA and the meaning of "copyright" under the Copyright Act, 1957. It was concluded that the subscription fees received by the assessee do not amount to payment for the "use of or right to use copyright." The assessee provides a non-exclusive, non-transferable license to view videos on its website, and subscribers do not receive any right to use the copyright in the videos or database. The Tribunal relied on the Supreme Court's decision in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT and other judicial pronouncements to support this conclusion.

Issue 2: Whether the subscription revenue is for information concerning industrial, commercial, or scientific experience:
The Tribunal found that the subscription fees are not for imparting any information concerning the assessee's own knowledge or experience of creating/maintaining the database. The subscribers pay merely for viewing the videos on the website. The Tribunal relied on the Mumbai Bench's decision in American Chemical Society vs. DCIT(IT) and the AAR ruling in Factset Research Systems Inc. to support this conclusion.

Issue 3: Whether the subscription revenue is for granting any right to use of equipment:
The Tribunal held that the subscription fees are not for the use or right to use any industrial, commercial, or scientific equipment. The subscribers have no access, right, or control over the server on which the assessee maintains the database. The Tribunal relied on the AAR ruling in Factset Research Systems Inc. and the Mumbai Bench's decision in American Chemical Society vs. DCIT(IT) to support this conclusion.

Conclusion:
The Tribunal concluded that the subscription revenue received by the assessee is not taxable as "royalty" under Article 12 of the India-US DTAA and the provisions of the Income Tax Act. The appeal filed by the assessee was allowed, and the addition made by the AO was deleted.