2024 (12) TMI 110 - AT - Income Tax

Taxability of income in India - subscription fees received by the appellant/assessee - receipts in absence of any PE in India - whether receipts fall in the purview of section 9(1)(vii) of the Act and also under the Article 13 of the India-UK DTAA? - HELD THAT - We are of the considered view that this case is squarely covered by the decision of RELX INC. 2024 (3) TMI 105 - DELHI HIGH COURT thus hold that the subscription fees received by the appellant/assessee is in the nature of business profit/income, which cannot be charged to tax in India in absence of the PE. Accordingly, we delete the addition.

Issues Involved:

1. Assumption of jurisdiction under Section 148 of the Income Tax Act.
2. Classification of subscription fees as Fees for Technical Services (FTS) or royalty under the Income Tax Act and the India-UK DTAA.
3. Taxability of subscription income at the rate of 40% plus surcharge and cess.
4. Initiation of penalty proceedings under Section 271(1)(C) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Assumption of Jurisdiction under Section 148:

The appellant challenged the jurisdiction assumed by the Assessing Officer (AO) under Section 148 of the Income Tax Act, arguing that the assessment was based on conjectures and surmises. The Tribunal noted that the appellant, a tax resident of the UK, did not have a Permanent Establishment (PE) in India, and thus, its income was not taxable in India under the Act. The Tribunal found that the reopening of the case was unwarranted as the appellant's receipts were not liable to tax in India due to the absence of a PE.

2. Classification of Subscription Fees as FTS or Royalty:

The core issue was whether the subscription fees received by the appellant for providing access to its database constituted Fees for Technical Services (FTS) or royalty. The appellant argued that the income was business income, not taxable in India due to the absence of a PE. The Tribunal relied on the Delhi High Court's decision in the case of RELX INC, which held that mere access to a database does not constitute FTS or royalty. The Tribunal observed that the subscription did not involve a transfer of copyright or technical services, and thus, could not be classified as FTS or royalty under the Income Tax Act or the India-UK DTAA.

3. Taxability of Subscription Income at 40% Rate:

The appellant contested the application of a 40% tax rate plus surcharge and cess on the subscription income. The Tribunal, following the precedent set by the Delhi High Court in RELX INC, concluded that the subscription fees were business income and not taxable in India due to the lack of a PE. Consequently, the application of the 40% tax rate was deemed incorrect.

4. Initiation of Penalty Proceedings:

The appellant challenged the initiation of penalty proceedings under Section 271(1)(C) of the Income Tax Act. The Tribunal dismissed this ground as premature, noting that penalty proceedings were not yet finalized and could not be adjudicated at this stage.

Conclusion:

The Tribunal allowed the appeals for both assessment years, holding that the subscription fees were business income not taxable in India due to the absence of a PE. The addition of INR 248,077,042 was deleted, and the initiation of penalty proceedings was dismissed as premature. The Tribunal's decision was heavily influenced by the Delhi High Court's ruling in the case of RELX INC, which provided a clear precedent for the classification of subscription fees.

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