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TMI Blog2019 (6) TMI 1620X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 31 August 2016 passed by the Deputy Commissioner of Income Tax (International Taxation), 2(2)(1), Mumbai CAO') under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 ('the Act') on the following grounds: 1. The learned AO erred in holding that an amount of Rs. 13,09,24,870 received by the appellant is chargeable to tax in India. 2. Subscription amounts considered as fees for technical services The learned AO erred in holding the subscription amounts of Rs. 13,09,24,870 received by the appellant are in the nature of "fees for technical services" ('FTS') as defined under section 9(l)(vii) of the Act and also under Article 12 of the India-Germany Tax Treaty. 3. Subscription amounts considered as Royalty The learned AO erred in holding the subscription amounts of Rs. 13,09,24,870 received by the appellant are in the nature of "Royalty" as defined under section 9(l)(vi) of the Act and also under Article 12 of the India-Germany Tax Treaty. 4. Interest under section 234B of the Act The learned AO erred in levying interest of Rs. 51,22,366 under section 234B of the Act. 5. Interest under section 234C of the Act The lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent Indian chemical and pharmaceutical companies. He further observed that database includes general science books, magazines, as well as specific research-based report, formula for complex reaction and its result, etc. Once the user enters into the database, the execution tools after interaction of general database converts it into a structured and quality controlled specific database analogous to a general physical library. Thus, he observed that the database is akin to a very wellequipped library of relevant information along with knowledgeable, therefore, he came to the conclusion that service rendered by the assessee to its subscribers is in the nature of fees for technical services as defined u/s.9(1)(vii) of the Act. He further observed that certain copyrighted products of the assessee like cross fire were loaned to the customers in India and were sold. Referring to section 9(1)(vi) of the Act and the provisions of The Indian Copyright Act, 1957 as well as various judicial precedents, he came to the conclusion that subscription received by the assessee for providing access service to the online database to the subscribers is in the nature of literary work, hence, has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. DR on the other hand, fairly accepted that the issue involved in the present appeals is covered by the decision of ITAT for earlier years, where under identical set of facts, the Tribunal held that subscription fees received by the assessee in India is neither in the nature of fees for technical services nor royalty, as defined under section 9(1)(vi) and 9(1)(vii) of the Act and also under India Germany Tax Treaty. However, he strongly supported the order of the AO as well as the Ld. DRP. 8. We have heard both parties, perused the material available on record and gone through orders of the authorities below. We have also carefully considered the decision of the Co-ordinate Bench of ITAT, Mumbai 'I' Bench in assessee's own case for AY 2011-12. We find that the Co-ordinate Bench has discussed the issue threadbare in the light of facts brought out by the assessee and provision of section 9(1)(vi) and 9(1)(vii) and also Article 5 and 12(3) of the Indo Germany Tax Treaty and held that subscription fees received by the assessee from its customers in India is neither in the nature of fees for technical services nor royalty as defined under section 9(1)(vi) and 9(1)(vii) of the Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -I, the product to be accessed by the subscriber is reaxys.com. Further, schedule-I of the subscription agreement provides that upon termination of the subscription agreement, the subscriber shall delete all stored copies of items from reaxys and document the same to assessee's reasonable satisfaction. By agreeing to such subscription, the authorised user/customer may access search and browse and view the subscribe product. Further, the customer or user can print, make electronic copies of and store for its exclusive use individual items from the subscribed products. Further, it can incorporate links to the subscribed products to the subscriber's intranet and internet websites provided the appearance of such link and / or statements accompanying such links shall be changed as per the request of the assessee. Clause 1.4 of the subscription agreement enlists the following restrictions on use of subscribed products. "1.4 Restrictions on Use of Subscribed Products. Except as may be expressly permitted in this Agreement, the Subscriber and its Authorised User may not; 1.4.1 abridge, modify translate or create any derivative work based on the Subscribed Products without the prior w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that while allowing access to use its online database i.e., reaxys.com the assessee has transferred the right to use the copyright which is in the nature of a literary work, hence, to be treated as royalty. No doubt, the assessee being a tax resident of Germany is governed by India-Germany DTAA. Therefore, it is necessary to examine whether the subscription fee received by the assessee fits into the definition of royalty as provided under Artricle-12 of the India-Germany Tax Treaty. Article-12.1 of the Tax Treaty provides that royalty and fees for technical services arising in a contracting state and paid to a resident of the other contracting state may be taxed in the other state. As per the plain meaning of the aforesaid provision, the subscription fee paid to the assessee is ordinarily taxable in Germany. However, Article-12.2 also provides for taxation of royalty and fees for technical services in India subject to condition that the tax leviable shall not exceed 10% of the gross amount of royalty or fees for technical services. Article-12.3 of the Tax Treaty defines royalty in the following manner. "The term "royalties" as used in this Article means payments of any kind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich we may refer to is the decision of Authority for Advance Ruling in Dun & Brad Street Espana, S.A., (272 ITR 99), wherein the assessee concerned is maintaining a database of Business Information Reports (BIRs). BIR is a standardized product of Dun & Brad Street Espana, S.A., providing the following information in respect of a company:- Factual information on the existence, operations, financial condition, management experience, line of business, facilities and locations of prospect; Special Events as well as any suits, leans, judgments or previous data being bankrupts; Banking relationship and accounts; Parent company affiliated concern, subsidiaries branches and divisions, referred with name and D&B D-U-N-S number; and A rating which would help to predict which prospect will pay slowly or not at all. 15. A customer/subscriber can access the data stored in the database by paying subscription. The Department held the subscription paid to Dun & Brad Street Espana, S.A., for accessing the data to be in the nature of royalty. The Authority for Advance Ruling after dealing with the issue ultimately concluded that the subscription received by Dun & Brad Street Espana, S.A., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in DCIT v/s Welspun Corporation Ltd., [2017] 77 taxmann.com 165. If we examine the facts of the present appeal in juxtaposition to the facts of the decisions referred to herein before, it can be seen that the facts are almost identical and akin. In the referred cases the assessees were also maintaining databases of information collated from various journals and articles and allowed access to the users to use such material as required by them. Keeping in view the ratio laid down in the decisions (supra), the payment received by the assessee has to be held to have been received for use of copyrighted article rather than for use of or right to use of copyright. 17. Having held so, the next issue which arises for consideration is, whether the subscription fee can be treated as fees for technical services. As discussed earlier, it is evident that the assessee has collated data from various journals and articles and put them in a structured manner in the database to make it more user friendly and beneficial to the users/customers who want to access the database. The assessee has neither employed any technical/skilled person to provide any managerial or technical service nor there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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