2012 (12) TMI 419 - AT - Income Tax

TDS u/s 195 - DTAA of India and U.K - Subscription fees - The payment in question has been made by the assessee towards the subscription for access to the website of WGSN thereby having access to the information available at the said website. The Assessing Officer held that the assessee is permitted to keep the design, trade mark and not permissible to redistribute any of the contents accessible at the website; therefore, the assessee has no other right except the right to use the information from the website. Accordingly, the Assessing Officer has held that amount payable to foreign company is nothing but for use of information concerning industrial, commercial experience falls within the definition term royalty as defined in Article 13(3) of the DTAA. Held that - There is no dispute that the information available on the website of the WGSN is not a database available in public domain but access to the information is restricted only to the subscribers. - the assessee has contended that the payment was made for subscription for a journal or a magazine of a foreign publisher which is similar to the facts of the case in hand where the assessee has also claimed that the payment is towards subscription to online fashion magazine. Since no specific finding has been given by CIT (A) on the point of transfer of right to use the copyright and the decision relied upon by the Commissioner of Income Tax(Appeals) has been reversed by the Hon ble High Court; therefore, the impugned order of the Commissioner of Income Tax(Appeals) is not sustainable as the very basis of the same has been reversed. Accordingly, we remit the issue to the record of the Commissioner of Income Tax(Appeals) to decide the same afresh in the light of the decision of the Hon ble Karnataka High Court in the case of Commissioner of Income-tax, (International Taxation) Versus Wipro Ltd. 2011 (10) TMI 473 - KARNATAKA HIGH COURT as well as the other decisions/rulings available on the point - appeal filed by revenue is allowed for statistical purpose.

Summary

Issues Involved:
1. Nature of subscription fees: royalty or business income.
2. Applicability of Double Taxation Avoidance Agreement (DTAA).
3. Requirement of Permanent Establishment (PE) for taxability.
4. Obligation to deduct tax at source under Section 195 of the Income Tax Act.

Detailed Analysis:

1. Nature of Subscription Fees: Royalty or Business Income:
The primary issue was whether the subscription fees paid by the assessee to Worth Global Style Network Ltd (WGSN) for accessing their website constituted royalty or business income. The Assessing Officer (ADIT) held that the payment was for the use of information concerning industrial, commercial experience, and thus fell within the definition of 'royalties' as per Article 13(3) of the Indo-UK DTAA and Section 9(1)(vi) of the Income Tax Act. The Commissioner of Income Tax (Appeals) disagreed, concluding that the payment was business income and not royalty, referencing the Tribunal's decision in the Wipro Ltd. case.

2. Applicability of Double Taxation Avoidance Agreement (DTAA):
The assessee argued that under Section 90(2) of the Income Tax Act, the provisions of the DTAA between India and the UK, which were more beneficial to the assessee, should apply. According to Article 7 of the DTAA, the business income of a non-resident is not taxable in India unless there is a PE in India. The Commissioner of Income Tax (Appeals) supported this view, stating that the payment was business income and not subject to tax in the absence of a PE in India.

3. Requirement of Permanent Establishment (PE) for Taxability:
The assessee contended that since WGSN did not have a PE in India, the subscription fees could not be taxed as business income under Article 7 of the DTAA. This argument was accepted by the Commissioner of Income Tax (Appeals), who ruled that without a PE, the business income from the subscription fees was not taxable in India.

4. Obligation to Deduct Tax at Source under Section 195:
The ADIT directed the assessee to deduct tax at source on the subscription fees, treating it as royalty. The Commissioner of Income Tax (Appeals) reversed this decision, holding that the payment was business income and not subject to tax deduction at source under Section 195. The revenue appealed this decision, arguing that the subscription fees constituted royalty and referenced the Karnataka High Court's reversal of the Tribunal's decision in the Wipro Ltd. case, which had similar facts.

Conclusion:
The Tribunal considered the arguments and relevant material, noting the similarities between this case and the Wipro Ltd. case. The Tribunal acknowledged that the Karnataka High Court had reversed the Tribunal's decision in Wipro Ltd., ruling that payments for accessing a database amounted to royalty. Consequently, the Tribunal found the Commissioner of Income Tax (Appeals)'s reliance on the Wipro Ltd. Tribunal decision unsustainable and remitted the issue back to the Commissioner of Income Tax (Appeals) for fresh consideration in light of the Karnataka High Court's ruling and other relevant decisions. The appeal by the revenue was allowed for statistical purposes.