2024 (3) TMI 1258 - AT - Income Tax

Accrual of income in India - Addition on account of royalty - receipt from Indian customer for subscription to database, sale of e-journals and membership fees - India-US tax treaty - HELD THAT - During the course of appellate proceedings before us the ld. Counsel has referred various decision of the ITAT on the similar issue and identical fact for earlier years in the case of the assessee itself wherein held that subscription received from customer in India in respect of subscription to database and subscription to journals was not taxable as royalty. With the assistance of ld. representative we have perused the decision of ITAT in the case of the assessee itself for assessment year 2016-17 which was further followed in the other assessment year wherein the ITAT in 2019 (4) TMI 1818 - ITAT MUMBAI held that subscription fees received by the assessee from its customers for providing access to database and journals were not royalty as customers did not acquire copyright, therefore, such fees were not liable to be taxed in India. Thus following the decision of the ITAT we direct the AO to delete the addition made on account of royalty. Accordingly, ground no. 1 2 are allowed.

Summary

Issues Involved:
1. Assessment of total income u/s 143(3) read with section 144C(13).
2. Taxability of receipts from Indian customers as royalty under India-US DTAA and section 9(1)(vi) of the Act.
3. Incorrect computation of demand for the assessment year.
4. Levy of interest u/s 234A.
5. Levy of interest u/s 234B.

Summary:

Issue 1: Assessment of Total Income

The assessee challenged the assessment of total income at INR 1,37,25,62,534 against the returned income of Nil. The Tribunal noted that the AO had included various receipts from Indian customers and treated them as royalty taxable at 15% under the DTAA with the USA.

Issue 2: Taxability of Receipts as Royalty

The Tribunal examined whether the receipts from subscription charges under the CAS and PUBS divisions were chargeable to tax as royalty under Article 12(3) of the India-US DTAA and section 9(1)(vi) of the Act. The assessee argued that the receipts did not constitute royalties but were business profits not taxable in India due to the absence of a permanent establishment (PE). The Tribunal referred to its own previous decisions in the assessee's favor for AYs 2014-15 to 2020-21, where it was held that such receipts were not taxable as royalty. The Tribunal reiterated that the customers did not acquire any copyright or right to use the copyright and merely had access to view the database. Thus, the receipts were not liable to be taxed as royalty.

Issue 3: Incorrect Computation of Demand

The assessee contended that the AO incorrectly computed the demand by considering receipts at INR 2,71,61,78,122 instead of the actual receipt amount of INR 1,37,25,62,534. The Tribunal restored this issue to the file of the AO for verification and correct computation.

Issue 4: Levy of Interest u/s 234A

The Tribunal noted the assessee's claim that the return of income was furnished within the due date prescribed u/s 139(1). The issue was restored to the AO for verification of the relevant material.

Issue 5: Levy of Interest u/s 234B

Similarly, the issue of interest levied u/s 234B was restored to the AO for fresh consideration after verification of the relevant material.

Conclusion:

The appeal filed by the assessee was allowed, and the issues regarding incorrect computation of demand and levy of interest were restored to the AO for verification. The Tribunal directed the AO to delete the addition made on account of royalty, following its earlier decisions.