2023 (10) TMI 765 - AT - Income Tax

Income taxable in India - royalty receipts - Distribution of Financial Products - amount received towards distribution of its products in India - Addition u/s 9(1)(vi) r.w. Article 13 of DTAA entered into between India and UK - assessee company is incorporated in UK engaged in providing global news and business information services with content delivery tools and services through a suite of products and services under the name of Factiva . To distribute these financial products in the territory of India, the assessee has entered into agreement with Dow Jones Consulting India Pvt. Ltd. (DJCIPL) while distribution agreement dated 07/08/2014, wherein assessee had granted rights to distribute its various financial and related products in the Indian market to DJCIPL on a principal to principal basis and at arm s length price. HELD THAT - This Tribunal in A.Y.2015-16 2022 (6) TMI 342 - ITAT MUMBAI held that the purchase price received by the assessee from the distributor in India for granting access to its database does not amount to Royalty under the India-UK DTAA. Tribunal had referred and relied upon the decision in the group company of Dow Jones Consulting India Pvt. Ltd. 2021 (12) TMI 647 - ITAT DELHI wherein it has been held that the purchase price received by the assessee from the distributor in India for granting access to its database does not amount to 'royalty under the India-USA DTAA. In the said case, the distributor in India was the same as that of the assessee (i.e., DJCIPL) and the terms of the distribution agreement between Dow Jones Company Inc. and DJCIPL were also similar in essence to the Factiva Distribution Agreement between the assessee and DJCIPL. Thus following the earlier year precedence, we hold that purchase price of Factiva products distributed by DJCIPL is not taxable as royalty under India UK DTAA in the hands of the assessee. Whether DJCIPL constituted agency PE? - AO has not made any addition in respect of PE as alleged by him and has restricted the addition by characterizing the receipts as royalty only. Therefore, we are not going into this issue, because, if ld. AO is alleging PE, then ld. AO should have brought on record as to how DJCIPL is an agency PE of the assessee. Such casual and passing remark cannot lead to conclusion that assessee had agency PE in India. Therefore, this issue is purely academic.

Summary

Issues Involved:
1. Taxability of amount received as 'royalty' under Section 9(1)(vi) of the Income Tax Act and Article 13 of India-UK DTAA.
2. Existence of Permanent Establishment (PE) in India under Article 5 of India-UK DTAA.

Summary:

1. Taxability of Amount Received as 'Royalty':
The assessee challenged the taxability of amounts received from Dow Jones Consulting India Pvt. Ltd. (DJCIPL) as 'royalty' under Section 9(1)(vi) of the Income Tax Act and Article 13 of India-UK DTAA. The amounts in question were Rs. 3,22,32,290/- for A.Y. 2016-17 and Rs. 6,42,86,188/- for A.Y. 2017-18. The assessee argued that these amounts were not taxable in India as they did not constitute 'royalty' under the DTAA and that the assessee did not have a PE in India.

The Tribunal referred to its earlier decision for A.Y. 2015-16, where it was held that the purchase price received by the assessee from the distributor in India for granting access to its database does not amount to 'royalty' under the India-UK DTAA. The Tribunal reiterated that the payment received by the assessee was for the use of a database and not for the use or right to use any equipment or copyright. Therefore, the amounts received were not taxable as 'royalty.'

2. Existence of Permanent Establishment (PE) in India:
The assessee contended that it did not have a PE in India under Article 5 of the India-UK DTAA. The Assessing Officer (AO) made a passing remark that DJCIPL could constitute an agency PE of the assessee, but no addition was made on this ground. The Tribunal noted that there was no material on record to prove that DJCIPL was an agency PE of the assessee. The Tribunal held that such casual and passing remarks could not lead to the conclusion that the assessee had an agency PE in India. Therefore, this issue was treated as academic and the grounds raised by the assessee were allowed.

Conclusion:
The Tribunal allowed both appeals of the assessee, holding that the amounts received from DJCIPL were not taxable as 'royalty' under the India-UK DTAA and that the assessee did not have a PE in India. The issue regarding the grant of credit for TDS was dismissed as infructuous.