2023 (5) TMI 1037 - AT - Income Tax

Income deemed to accrue or arise in India - Amount received by the assessee from Indian customers towards subscription fee - nature of royalty or Fee for Technical Services (FTS) - HELD THAT - Undisputedly, the assessee collects material/information in the field of cessation, technology, medical information and product and services and credited a database material. Assessee s products include printing of books and journals and line database solution, the disputed revenue was earned by the assessee towards subscription fee for Indian subscribers for providing excess to its science database, various information relating to the subject, have been collated and stirred. As per the assessee, the subscription fee received is in the nature of business income and in absence of a PE in India is not taxable in terms of India-UK DTAA. The aforesaid submission of the assessee has not found favour with the departmental authorities. From the material placed before us, it is observed, while deciding identical issue in case of assessee s sister concern, CIT vs. Infosys Technology Ltd 2011 (10) TMI 370 - KARNATAKA HIGH COURT the coordinate Bench has held that the subscription fee received by the assessee is not in the nature of royalty or FTS. DR has brought to our notice two decisions of CIT vs. Wipro Ltd 2011 (10) TMI 473 - KARNATAKA HIGH COURT and CIT vs. Infosys Technology 2011 (10) TMI 370 - KARNATAKA HIGH COURT wherein contrary view has been expressed by the Hon'ble High Court but as observed, while deciding the Special Leave Petition filed by the concerned assessees, the Hon'ble Supreme Court has set aside the respective judgments of the Hon'ble Karnataka High Court and restored the matters back for fresh adjudication keeping in view the decision of the Hon'ble Supreme Court in case of Engineering Analgsis Centre of Excellence 2021 (3) TMI 138 - SUPREME COURT This is so because while deciding the matters relating to Wipro Ltd. and in Infosys Technology Ltd.,it followed its own decisions in case of CIT vs. Samsung Electronics Co. Ltd. 2011 (10) TMI 195 - KARNATAKA HIGH COURT which stood reversed by the Hon'ble Supreme Court in case of Engineering Analysis Centre to Excellence Pvt. Ltd. (supra). We hold, the subscription fee received by the assessee from Indian customers is not in the nature of royalty/ FTS/FIS under the provisions of India-UK DTAA. Thus, the receipts being in the nature of business profit, in absence of a PE in India, they are not taxable. Appeal of assessee allowed.

Issues Involved:
1. Whether the subscription fee received by the assessee from Indian customers is in the nature of royalty or Fee for Technical Services (FTS).

Summary:

Issue 1: Nature of Subscription Fee (Royalty or FTS)

Core Issue: The core issue arising in the appeal is whether the amount received by the assessee from Indian customers towards subscription fee is either in the nature of royalty or Fee for Technical Services (FTS).

Facts: The assessee is a non-resident corporate entity incorporated in the United Kingdom (UK) and a tax resident of the UK. The assessee maintains a database of books, journals, and material in various scientific fields and provides access to such a database on a subscription basis. For the assessment year 2018-19, the assessee received a subscription fee of Rs. 14,53,954 from Indian subscribers.

Assessee's Argument: The assessee claimed that the subscription fee is not in the nature of royalty/FTS under the domestic law or the India-UK Double Taxation Avoidance Agreement (DTAA) and hence, is not taxable in India.

Assessing Officer's Decision: The Assessing Officer treated the amount towards the subscription fee as royalty/FTS both under the provisions of the Act and the India-UK DTAA and brought it to tax. The learned Dispute Resolution Panel (DRP) upheld the Assessing Officer's decision.

Assessee's Reliance on Precedents: The assessee relied on decisions of the Authority for Advance Ruling and ITAT in the case of sister concerns, specifically:

i) Elsevier BV. In re: [2021] 432 ITR 251 (AAR-Mum);

ii) Elsevier Information System GmbH vs. DCIT (2019) 106 Taxmann.com 401 (Mum);

iii) RELX Inc. Vs. CIT - ITA No.1876 & 1877/Del/2022 dated 05.04.2023.

Department's Counter: The Departmental Representative agreed that the decisions cited by the assessee cover the issue but argued that these decisions did not consider other decisions of the Hon'ble Karnataka High Court, which held similar receipts as royalty/FTS. He relied on:

i) CIT vs. Wipro Ltd. (2011) - 16 Taxmann.com 275 (Kar.);

ii) CIT vs. Infosys Technology Ltd. (2012) 17 Taxmann.com 115 (Kar,).

Assessee's Rejoinder: The assessee submitted that the decisions cited by the Departmental Representative have been set aside by the Hon'ble Supreme Court and matters have been restored back to the Hon'ble High Court for fresh adjudication.

Tribunal's Analysis: The Tribunal noted that the subscription fee received by the assessee is not in the nature of royalty or FTS. The Tribunal observed that the assessee has created a database accessible to users through regular web browsers without any specific software or hardware. The subscription agreement grants non-exclusive and non-transferable rights to access the database, and the assessee retains its exclusive rights and ownership over the intellectual property. The Tribunal found that the subscription fee is for access to copyrighted material, not for the use of copyright itself, and hence cannot be treated as royalty under the India-UK DTAA.

Precedents Considered: The Tribunal referred to various decisions, including those of the Authority for Advance Ruling and ITAT, which held similar subscriptions as not being royalty/FTS. The Tribunal also noted that the decisions of the Hon'ble Karnataka High Court cited by the Departmental Representative were set aside by the Hon'ble Supreme Court.

Conclusion: The Tribunal held that the subscription fee received by the assessee from Indian customers is not in the nature of royalty/FTS/FIS under the provisions of the India-UK DTAA. The receipts being in the nature of business profit, in the absence of a Permanent Establishment (PE) in India, are not taxable.

Result: The appeal is allowed.

Order pronounced in the open court on 27th April, 2023.

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