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TMI Blog2024 (1) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 of the India-USA DTAA read with the provisions of the Act. Accordingly, the impugned addition made by the AO in this regard, as upheld by the CIT(A) is hereby deleted. Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly, the assessee furnished information and the AO noted that as per letter dated 12/01/2022, the assessee had preferred an application before the Authority for Advance Ruling for ruling on the taxability of the receipts by the assessee company from the Indian clients. The assessee submitted the details on 12/01/2022, 30/08/2022, 16/09/2022 and 21/09/2022 has filed details as called for and the assessee also filed detailed submissions on the taxability of receipts by the assessee company from the Indian clients. The AO issued show cause notice on 17/09/2022 proposed to treat the consideration receipts amounting to Rs. 40,00,72,256/- received from various customers from India as royalty under the Income-tax Act as well as India-USA DTAA. Accordingly, the assessee filed submission and after considering the submission a draft order u/s 144(1) of the Income-tax Act was passed on 30/09/2022. 5. The assessee field appeal before the DRP against the draft assessment order passed. The ld.DRP further considered the entire submissions and they upheld that the amount received from the Indian entities shall be treated as a royalty within the meaning of sec. 9(1)(vi) of the Act and rejected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... website or mobile application. The assessee sells subscription plans to customers in India and prices are agreed between the assessee and the customers. In this regard, sample Master Subscription Agreement ('MSA') which the assessee enters with subscribers/customers is enclosed at pages 97-108 of the Paper Book. Subsequent to entering into agreements and payment of subscription amount, the customers are provided with login information (login ID and password). After the customers log in on the website, the customers/subscribers can view all or any of the 5000+ online videos/courses stored in the content library for the duration of the subscription period, based on their choice and interest at subscription charges (currently Rs. 1,499 per month for standard plan - providing access to 2500+ courses and Rs. 2,299 per month for premium plan - providing access to 7,000+ courses) Along with the same, there are certain ancillary add-on features, such as short quizzes, exercises, discussion board etc. Prima facie, the online video content is very generic and routine in nature. The customers/subscribers can only view the videos and are not allowed to download, store, transmit or edit such v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he term 'copyright'. The term 'copyright' is not defined under the provisions of the Act. Therefore, the provisions of the Copyright Act, 1957 ('Copyright Act') has to be examined. As per section 14 of the Copyright Act, 'copyright' means the exclusive right to do any of the acts specified therein, viz., to reproduce the work, to issue copies of the work to public, to make any translation or adaptation of the work, etc. Unless any of the exclusive rights or a combination thereof as stated under section 14 of the Copyright Act are transferred by the copyright holder, it cannot be said that the use or right to use the copyright has been granted. Thus, payment made for acquiring the right to use any copyrighted product, wherein the payer does not get any of the 'exclusive right' as stated in section 14 of the Copyright Act, does not amount to payment made for the use or right to use the 'copyright' in the product and therefore, shall not be covered within the scope of 'royalty'. The aforesaid principles have been upheld by the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT (supra). The Hon'ble Supreme Court has held that the amount paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sson A.B. (supra), Nokia Networks OY (supra), Infrasoft Ltd. (supra), ZTE Corporation (supra), state the law correctly and have our express approval. We may add that the view expressed in the aforesaid judgments and determinations also accords with the OECD Commentary on which most of India's DTAAs are based." (emphasis supplied) 12. The assessee in the instant case also does not transfer any copyright or the right to use any copyright of any nature to any of the subscribers. The relevant clauses of the sample MSA which the assessee enters with the subscribers read as under: MASTER SUBSCRIPTION AGREEMENT …….. Pluralsight provides an online technology learning platform on its websites http://www.pluralsight.com and any applicable sub domains thereof, and through any applications, functionalities, content, materials, Interactive Features (as defined below), or other online services provided by Pluralsight (collectively, the "site"). Customer desires to acquire business subscriptions for a number of its employees or its Affiliates' employees (collectively, the "Business Users") to access the Site, and Pluralsight agreed to grant such subscriptions subject to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reation of derivative works, or exploitation in any manner. Customer shall not, directly or indirectly: (a) sublicense , resell, rent, lease, distribute or otherwise transfer rights or usage in the Proprietary Material ; (b) provide the Proprietary Material on a timesharing, service bureau, service provider or other similar basis ; or (c) remove or alter any copyright, trademark or proprietary notice in the Proprietary Material. b. Reservation of Rights. Pluralsight reserves all intellectual property rights to the Proprietary Materials, other than as specifically granted under the License contained in this Agreement. No posting, copying, transmission, retransmission, distribution, redistribution, publication, republication, or otherwise reproducing , storing transmitting, modifying or commercially exploiting any Proprietary Materials in any form or by any means , for any purpose, is permitted without the express written permission of Pluralsight. Customer and Subscribers may not decompile, disassemble , or reverse engineer any software comprised in the Proprietary Material except to the limited extent as it permitted by law notwithstanding contractual prohibition. 3. PROHIBITED C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the subscribers. The assessee reserves all intellectual property rights in its Proprietary Material, which includes the source code, videos, text, software, intellectual property of the assessee etc. The subscribers are not even allowed to download, store, transmit or edit such videos. Further, while the subscribers are allowed to download certain ancillary course material (Authorized Downloadable Materials) such as exercise files, course slides etc., are subject to all the restrictions mentioned in the agreement and even such material cannot be shared, transferred, sold or exploited in any manner. In essence, in view of the restrictions imposed under the MSA, the subscribers are not allowed: * to download or reproduce the Proprietary Material in any form including the storing of it in any medium by electronic means; * to further distribute, sell, sub-license, rent, lease or issue copies of the Proprietary Material; * to create any derivative work or exploit the Proprietary Material in any manner; * to remove or alter any copyright, trademark or proprietary notice in the Proprietary Material; * to decompile, disassemble, or reverse engineer the Proprietary Material/d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he copyright. Similar is the case with the assessee. Therefore, in the facts of the present case, the subscription fee received by the assessee cannot be treated as royalty under Artile-12(3) of India-Germany Tax Treaty." (emphasis supplied) 15. Similar view has been taken in the following cases: a) Elsevier BV, In re: (2021) 123 taxmann.com 143 (AAR) b) Dow Jones & Company Inc. vs. ACIT: (2022) 135 taxmann.com 270 (Del ITAT) c) DIT(IT) vs. Dun & Bradstreet Information Services India (P.) Ltd.: (2011) 338 ITR 95 (Bom HC) d) Dun & Bradstreet Espana S.A., In re : (2005) 272 ITR 99 (AAR) e) Mc Kinsey Knowledge Centre India Pvt Ltd v. ITO: ITA No. 407/Del/2013 (Del ITAT) f) DCIT (IT) vs. Welspun Corporation Ltd.: (2017) 183 TTJ 697 (Ahd ITAT) g) ITO (IT) vs. Cadila Healthcare Ltd.: (2017) 184 TTJ 178 (Ahd ITAT) h) Iqvia AG v. DCIT: ITA No. 1203/Mum. /2021 (Mumbai ITAT) 16. In view of the above, we hold that the subscription fees received by the assessee does not amount to 'royalty' for use of or right to use of any 'copyright'. ii) The subscription revenue received by the assessee whether it is for any information concerning industrial, commercial or scientific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipts in question. In fact, it is nobody's plea that such experience is shared by the assessee with the Indian customers. The Indian customers do not make payments for availing the knowledge of assessee's experience of creating/maintaining database; what they pay for is access to information that such database encompasses. By granting access to the information forming part of the database, the assessee neither shares its own experience, technique or methodology employed in evolving databases with the users, nor imparts any information relating to them." (emphasis supplied) 18. On similar facts as that of the assessee, the Hon'ble AAR in the case of Factset Research Systems Inc., reported in 317 ITR 169 (AAR) had held as under in Para 11 of the ruling: "11. The learned Departmental Representative then invoked clause (iv) of Explanation 2 which speaks of "imparting any information concerning technical, industrial, commercial or scientific knowledge, experience or skill". The DTAA (Article 12.3) uses slightly different language. It speaks of payment received for "information concerning industrial, commercial or scientific experience". We do not th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he server on which the assessee maintains the database. Therefore, the subscription fee received by the assessee cannot, in any manner, be termed as consideration for use or right to use any industrial, commercial or scientific equipment. In the case of Factset Research Systems Inc. (supra), the Revenue raised an identical contention that the server is used by the customers as 'a point of interface'. However, the said contention of Revenue was rejected by the Hon'ble AAR. The finding of the Hon'ble AAR in this regard is as under: "11.5 The learned DR faintly suggested that it can also be brought within the purview of equipment royalty i.e., "use" or "right to use" any industrial, commercial or scientific equipment. It is submitted that the server which maintains database is being used by customers as a point of inter-face. We do not think that the consideration is paid by the licensee for the use of equipment. The consideration is for availing of the facility of accessing the data/information collected and collated by the applicant." (emphasis supplied) 21. Similarly, in the case of American Chemical Society vs. DCIT(IT) (supra), the Hon'ble Mumbai Bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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