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TMI Blog2022 (10) TMI 78X X X X Extracts X X X X X X X X Extracts X X X X ..... ndis to the appeal for the assessment year 2019-20 as well, except with variance in figures. ITA no.1521/Mum./2022 Assessment Year : 2018-19 3. In its appeal, the assessee has raised following grounds: "Appeal under section 253(1)(d) of the Income-tax Act, 1961 (hereinafter referred to as the "Act"), against the order dated 20 April 2022 (received on 21 April 2022), passed by the Deputy Commissioner of Income Tax, International Taxation Circle 1(1)(1), Mumbai (L. AO") under section 143(3) read with section 144C(13) of the Act. 1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in assessing the total income of the Appellant under section 143(3) read with section 144C(13) of the Act at INR 73,00,83,910 as against Nil returned income. 2. That on the facts and circumstances of the case and in law, the Ld. AO/ Dispute Resolution Panel ("DRP") have erred in holding that the receipts from Indian customers amounting to INR 73,00,83,910 are chargeable to tax as royalty in terms of Article 12(3) of India-US Double Tax Avoidance Agreement ("DTAA") and under section 9(1)(vi) of the Act. 2.1 That on the facts and in the circumstances of the case and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing interest of INR 5,36,61,125 under section 234B of the Act." 4. Ground no.1, raised in assessee's appeal being general in nature, hence, no separate adjudication is required. 5. The issue arising in ground no.2, raised in assessee's appeal, is with regard to taxability of subscription charges received by the assessee as "Royalty" under the provisions of Article-12(3) of India-USA Double Taxation Avoidance Agreement ("DTAA') and under section 9(1)(vi) of the Act. 6. The brief facts of the case pertaining to the issue, as emanating from the record, are: The assessee is a Corporation based in USA, established to promote and support development of knowledge in the field of chemistry and is organised into various divisions including Chemical Abstracts Service and Publications division. For the year under consideration, the assessee filed its return of income on 14/09/2018, declaring total income of Rs.Nil. During the year, the assessee claimed that the aforesaid two divisions are engaged in the following activities. "Re: CAS CAS collects and organizes publicly disclosed chemistry and related scientific information in databases and offers its customers online access to such dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d objections before the Dispute Resolution Panel ("DRP'), Vide Directions dated 09/03/2022, issued under section 144C(5) of the Act, the DRP, following its observations rendered in assessee's own case for the assessment years 2014-15 to 2016-17, rejected the objections filed by the assessee. In conformity, the Assessing Officer passed impugned final assessment order dated 20/04/2022. Being aggrieved, the assessee is in appeal before us. 10. During the course of hearing, the learned Authorised Representative ("learned A.R.") submitted that this issue has been decided in favour of the assessee by the decision of the Co-ordinate Bench of the Tribunal in assessee's own case for preceding assessment years. The learned A.R. further submitted that even lower authorities have accepted that facts for the year under consideration are similar to the facts of the preceding assessment years, wherein this issue has been decided in favour of the assessee. 11. On the other hand, the learned Departmental Representative ("learned D.R.") vehemently relied upon the order of the authorities below. 12. We have considered the rival submissions and perused the material available on record. We find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g or exploiting the same in any manner; and its use for purposes other than personal use is strictly prohibited. Further, in para 7.12 of the assessment order, the Assessing Officer has stated that the assessee has a wealth of industrial, commercial and scientific experience collected, developed and systemized over a period of time. Further, in para 7.13 of the assessment order, the Assessing Officer has also referred to paragraph 11 of OECD commentary on Article 12 to hold that the payment in question is to be understood as 'royalty. As per the Assessing Officer, the technical, commercial or scientific information provided by the assessee to the Indian customers through SciFinder arises from its previous experience which gives economic benefit to the customers. The Assessing Officer also points out that ACS Network and SciFinder serve as a platform as well as a tool/gateway for access to such information. All these have been referred by the Assessing Officer to arrive at an inference that the CAS fee is in the nature of 'royalty'; and, for that purpose, the Assessing Officer has referred to para 11 of the OECD commentary on Article 12. In fact, the OECD commentary whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the users, nor imparts any information relating to them. 9. In this context, the learned Counsel pointed out that similar situation has been considered by the AAR ruling in the case of Dun and Bradstreet Espana S.A.(supra), which has been upheld by the Hon'ble Bombay High Court in the case of DIT vs. Dun and Bradstreet information Services Indio (P) Ltd. (supra). In this case, the applicant, a non-resident company of Spain was engaged in the business of compilation and selling Business Information Reports (BIR) in their local markets and to other associate companies worldwide. On the issue of whether the payment made for the purchase of BIRS would be in the nature of Royalty, the AAR opined that the applicant has rightly equated the transaction of sale of Business Information Reports in electronic form to a sale of book, which does not involve any transfer of intellectual property and held that the payment to non-resident company for downloading BIRS is not in the nature of Royalty or fee for technical services. The AAR held that the purchase of standardized reports publicly available on the internet upon payment of subscription charges is akin to payment for a copyrighted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts under royalty/fees for technical service for the reason that the BIRS are copyright protected and end-users are required to use for their own purpose and the analysis of raw data provided in the BIRS would be similar to that of providing a technical or consultancy services. We have already mentioned above that a BIR is a standardized product of D&B, it provides factual information on the existence, operation, financial condition, management and experience line of business, facility and location of a company; it also provides special events like any suit, lien, judgment or previous or pending bankruptcy. Further, banking relationship and accountants, information like whether it is a patent company or authority concerned, has any branches etc. It also gives a rating of the company. The informations that are provided in a BIR are said to be publicly available; they are collected and complied by D&B associates. A BIR is accessible by any subscriber on payment of requisite price with regular internet access for which no particular software or hardware is required. The applicant states that access to data base of the applicant is available to public at large at a price as in case of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res commercial venture would be a royalty. That would tamount to state the low quite broadly That does not seem to be the purpose of the statute or that of the treaty." (Emphasis supplied) 11. With respect to the subscription fee for the CAS division being considered as Royalty for "use" of or "right to use" of a copyright, a reference to Copyright Act, 1957 is also relevant. A person can be said to have acquired a copyright or the right to use the copyright in a computer software or database (as described by the Assessing Officer), where he is authorized to do all or any of the acts as per the definition of the term "copyright" under Section 14 of the Copyright Act, 1957. However, mere access to that work or permission to use the work cannot imply that the payer is paying for use or right to use the copyright. In other words, when no copyright is acquired by the payer, question of using it or getting a right to use it does not arise. 12. In the present context, we may also examine the issue from another angle as follows. The transfer of a copyrighted right means that the recipient has a right to commercially exploit the database/software, eg. reproduce, duplicate or sub-licen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of such research journals. The assessee grants online/ web based access to e-journals, e-books, chapters, articles, proceedings, etc., stored on the server, in consideration for an annual fee /subscription charges. Such e-journals/ e-books can be searched by a subscriber by using relevant keywords on PUBS website after logging in by using their log-in credentials. Customers are merely granted access to search and view the e journals and obtain standardized reports/research articles available therein with no right to use the copyright in the e-journals/ articles. The agreements (as filed in the Paper book at page 43 to 71) entered by the assessee with the customers provide that copyright in the e-books, e-journals etc., remain with the assessee and the customers do not have any right of ownership on the same. The access to e-journals etc. is given only for limited users and the same is restricted to specified authorized sites /users per customer through the IP address of customers. The web access journals can only be accessed by the customers/authorized users through a secure network as prescribed in the agreements. 16. On the other hand, the Ld. Departmental Representative for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make derivative works. In short, the purchaser has not acquired the copyright of the article or of the database. What the buyer gets is a copyrighted product, and accordingly the consideration paid is not royalty, but for purchase of a product. In the instant case too, what is acquired by the customer is a copyrighted article, copyrights of which continue to lie with assessee for all purposes. It is a well settled law that copyrighted article is different from a copyright, and that consideration for the former, i.e. a copyrighted article does not qualify as royalties. 19. Thus, the principles noted by us in the earlier part of this order in the context of the income earned by way of CAS fee are squarely applicable to the subscription revenue received from customers of PUBS division for sale of journal also, and accordingly PUBS fee also does not qualify as 'Royalty' in terms of section 9(1)(vi) of the Act as well as Article 12(3) of the India-USA DTAA." 13. We further find that the Co-ordinate Bench of the Tribunal in assessee's own case in American Chemical Society v/s DCIT, ITA no.5928/Mum./2018, for the assessment year 2015-16, vide order dated 21/08/2019, rendered si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income Tax, International Taxation Circle 1(1)(1), Mumbai CLd. AO") under section 143(3) read with section 144C(13) of the Act. 1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in assessing the total income of the Appellant under section 143(3) read with section 144C(13) of the Act at INR 2,72,29,58,740 as against Nil returned income. 2. That on the facts and circumstances of the case and in law, the Ld. AO / Dispute Resolution Panel ("DRP") have erred in holding that the receipts from Indian customers amounting to INR 2,72,29,58,740 are chargeable to tax as royalty in terms of Article 12(3) of India-US Double Tax Avoidance Agreement ("DTAA") and under section 9(1)(vi) of the Act. 2.1 That on the facts and in the circumstances of the case and in law, the Ld. AO/ DRP have erred in holding that the subscription charges received under Chemical Abstract Service (CAS) division and Publications (PUBS) division would be chargeable to tax in India under India-US DTAA being received for use or right to use of copyright in artistic, literary or scientific work and / or for use of information concerning industrial, commercial or scientific experience a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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