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TMI Blog2021 (5) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... For the Respondent : Shri Vijay Kumar Subramaniyam ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the assessment order dated 24/09/2019 passed under section 143(3) r.w.s. 144C (13) of the Income Tax Act, 1961 (herein after referred to as the Act ) for the assessment year 2016-17. 2. The assessee has assailed the Assessment Order on following grounds: The appellant company objects to the order dated 24 September 2019 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 ₹ 14,86,39,250 received by the appellant is chargeable to tax in India. 2. Subscription fees considered as fees for technical services The learned AO erred in holding that the subscription fees of ₹ 14,86,39,250 received by the appellant are in the nature of fees for technical services CRTS') as defined under section 9(l)(vii) of the Act and also under Article 12 of the India-Germany Tax Treaty. 3. Subscription ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as concealed the particulars of his income and also erred in initiating penalty proceedings under section 271(l)(c) of the Act. 10. General 10.1 Each one of the above grounds of appeal is without prejudice to one another, 10.2 The appellant craves leave to add to, alter or withdraw all or any of the grounds of appeal. 3. The brief facts of the case as emanating from records are: The assessee /appellant filed its return of income for the impugned Assessment Year declaring NIL income. The appellant is a tax resident of Germany and a 100% subsidiary of Reed Elsevier Deutschland GmbH. The assessee is engaged in providing access to proprietary data bases namely - REAXYS EMBASE to its client in India pursuant to subscription agreement. Both the data base are scientific data base rendering unique search and research. The assessee has earned subscription fee of ₹ 14,86,39,251/- for providing access to the database to Indian clients during the period relevant to assessment year under appeal. The contention of the assessee is that since the assessee is not having any Permanent Establishment (PE) in India, the receipts from subscription are not taxable in India as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he findings of Assessing Officer in 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. We find that this issue is perennial. In assessment year 2011-12 similar addition was made by the Assessing Officer by treating subscription fee as Royalty/FTS. After being unsuccessful before the DRP, the assessee carried the issue in appeal before the Tribunal in ITA No.1683/Mum/2015 (supra). The Co-ordinate Bench after examining the facts of the case threadbare held as under:- 10. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. Before we proceed to decide the nature of subscription fee earned by the assessee from Indian entities, whether fees for technical services/royalty or business profit, it is necessary to understand the activities carried on by the assessee for generating such income. Undisputedly, the assessee has created an online database named reaxys.com pertaining to chemical information which the users having interest in chemistry topic, substance data and preparation and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 written permission of Elsevier, except to the extent necessary to make them perceptible on a computer screen to Authorised Users; 1.4.2 remove, obscure or modify in any way any copyright notices, other notices or disclaimers as they appear in the Subscribed Products; or 1.4.3 Substantially or systematically reproduce, retain or redistribute the Subscribed Products. Authorised Users who are independent contractions may use the Subscribed Products only for the purposes of the contracted work for the Subscriber. 11. Clause 1.5 of the agreement makes it clear that all right, title and interest in the subscribed products remain with the assessee and any unauthorized re distribution of the subscribed products which may harm the assessee and its supplier is prohibited. Clause 2.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see 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 received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting any patent, trade mark, cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. 13. As per the aforesaid definition of royalty in the tax treaty, any amount received for use of or right to use of any copyright or literary, artistic or scientific work, etc., can be treated as royalty. In the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Supreme Court in CIT v/s Bharati Cellular Ltd., [2010] 193 taxman 97 (SC) and DIT v/s A.P. Moller Maersk A.S., [2017] 392 ITR 186 (SC), for providing technical / managerial service human intervention is a sin qua non. Further, Article 12(4) of India Germany Tax Treaty provides that payment for the service of managerial, technical or consultancy nature including the provisions of services by technical or other personnel can be termed as fees for technical services. None of the features of fees for technical services as provided under Article 12(4) of the India Germany Tax Treaty can be found in the subscription fee received by the assessee. Further, the Department has not brought any material on record to demonstrate that the assessee has employed any skilled personnel having knowledge of chemical industry either to assist in collating articles from journals / magazines which are publicly available or through them the assessee provides instructions to subscribers for accessing the online database. The assessee even does not alter or modify in any manner the articles collated and stored in the database. In the aforesaid view of the matter, the subscription fee received cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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