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2021 (5) TMI 633 - AT - Income TaxIncome accrued in India -Treating subscription fee received from the clients in India as Royalty/FTS within the meaning of section 9(1)(vi) and 9(1)(vii) r.w. Article -12 of India Germany Tax Treaty - HELD THAT - The Tribunal following its own order in 2019 (5) TMI 405 - ITAT MUMBAI held that the subscription fee is neither Royalty nor FTS, hence, the provisions of section 9(1)(vi) or 9(1)(vii) are not attracted. The transaction is not even covered by Article- 12 of India Germany DTAA. The facts and nature of transactions in impugned assessment year are pari materia, hence, respectfully following the decision of Coordinate Bench, we allow ground of the appeal for parity of reasons. Taxability in India - Subscription fee received by the assessee is not in the nature of Royalty/FTS, the same is not taxable in India
Issues Involved:
1. Taxability of Subscription Fees as Fees for Technical Services (FTS) and/or Royalty. 2. Consideration of Previous Tribunal Decisions. 3. Levy of Surcharge and Education Cess. 4. Levy of Interest under Section 234B. 5. Initiation of Penalty Proceedings under Section 271(1)(c). Detailed Analysis: 1. Taxability of Subscription Fees as Fees for Technical Services (FTS) and/or Royalty: The primary issue in this case is whether the subscription fees received by the appellant, a tax resident of Germany, for providing access to proprietary databases (REAXYS & EMBASE) to clients in India, are chargeable to tax in India as "fees for technical services" (FTS) or "royalty" under Section 9 of the Income Tax Act, 1961 and Article 12 of the India-Germany Tax Treaty. The Assessing Officer (AO) and the Dispute Resolution Panel (DRP) held that the subscription fees are in the nature of Royalty/FTS and hence taxable in India. The Tribunal, however, referred to its previous decisions in the appellant's own case for earlier assessment years (2011-12 to 2015-16), where it was held that the subscription fees do not qualify as Royalty or FTS. The Tribunal reiterated that the appellant has not transferred any right to use the copyright of any literary, artistic, or scientific work to the subscribers, nor has it provided any technical services. Therefore, the subscription fees cannot be taxed as Royalty or FTS under the Act or the India-Germany Tax Treaty. 2. Consideration of Previous Tribunal Decisions: The appellant argued that similar additions made by the AO in previous assessment years were decided in its favor by the Tribunal. The Tribunal acknowledged that the issue is perennial and referred to its detailed analysis in ITA No.1683/Mum/2015, where it was concluded that the subscription fees are neither Royalty nor FTS. The Tribunal emphasized that the factual position and nature of transactions in the impugned assessment year are identical to those in the earlier years. Thus, it followed its own precedent and allowed the appellant's grounds of appeal related to the taxability of subscription fees. 3. Levy of Surcharge and Education Cess: The appellant contended that the treaty rate of 10% as per Article 12 of the India-Germany Tax Treaty is inclusive of surcharge and education cess. Since the Tribunal held that the subscription fees are not taxable in India, this ground became infructuous and was dismissed. 4. Levy of Interest under Section 234B: The appellant challenged the levy of interest under Section 234B of the Act. The Tribunal noted that the levy of interest is consequential to the primary issue of taxability. Given that the subscription fees were held not taxable, the ground related to interest did not require specific adjudication. 5. Initiation of Penalty Proceedings under Section 271(1)(c): The appellant also challenged the initiation of penalty proceedings under Section 271(1)(c) of the Act. The Tribunal considered this challenge premature at this stage and dismissed the ground. Conclusion: The Tribunal allowed the appeal partly in favor of the appellant, holding that the subscription fees received are not taxable in India as Royalty or FTS. Consequently, the grounds related to surcharge, education cess, and interest became infructuous. The challenge to the initiation of penalty proceedings was dismissed as premature. The decision was pronounced in the open court on May 3, 2021.
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