Consideration given for accessing Database of the Assessee cannot be treated as Royalty: ITAT [Read Order]

The Income Tax Appellate Tribunal, New Delhi has held that the transaction under consideration is for provision of accessing database of the assesse, hence the same cannot be considered as ‘Royalty’ under Article 12 of the India-US DTAA.

The appellant,M/s Dow Jones & Company Inc. C/o M/s Prince waterhouse Coopers Pvt. Ltd,is a business corporation incorporated in USA and engaged in the business of providing information products and services containing global business and financial news to organizations worldwide. It offers information via

newspapers, newswires, websites, applications, newsletters, magazines, proprietary databases, conferences and radio.The appellant company appointed Dow Jones Consulting India Pvt. Ltd [DJCIPL] on a principal to principal basis for distributing its products in the Indian market. Accordingly, the appellant company receives purchase price from DJCIPL at an arm’s length price.

During the course of scrutiny assessment proceedings, the Assessing Officer (AO) was of the firm belief that the receipts from DJCIPL should be taxed in India as ‘Royalty Income” under the provisions of the Act as well as India-USA DTAA. The AO and the Dispute Resolution Panel (DRP) erred in holding the sum of INR

1,31,02,703 as ‘Royalty’ under Section 9(i)(vi) of the Income-tax Act, 1961 (‘the Act’) and Article 12 of the Double Taxation Avoidance Agreement (DTAA) entered into between India and USA.The assesse vehemently stated that it has received consideration for providing use of database by which it has allowed DJCIPL to used its copy right and has not given any copy of right, therefore, the impugned receipts cannot be taxed as ‘Royalty’ in the hands of the assesse.

The AO proposing to initiate penalty proceedings under section 27i(i)(c) of the Act without appreciating that none of the provisions of section 27i(i)(c) of the Act gets attracted in the facts of the Appellant’s case and not considering that the sum of INR 1,31,02,703 is in the nature of “Business Profits” under Article 7 of the DTAA, not taxable in India as the Appellant did not have a Permanent Establishment in India under Article 5 of the DTAA.

To include the payment received the ambit of the definition of ‘Royalty’ as per Article 12 of the Tax Treaty, the payment made for use of, or the right to use any copyright of a literary, artistic, or scientific work. In our understanding of the Article, only those payments that allow a payer to use/acquire a right to use copyright in literary, artistic or scientific work are covered within the definition of ‘Royalty’. The payments made for acquiring right to use product itself, without allowing any right to use the copy right in the product are not covered with the scope of ‘Royalty’ which may get covered under the term under Royalty as per the Act.

While allowing the appeal the coram of Shri N.K. Billaiya, Accountant Member, and Shri Challa Nagendra Prasad, Judicial Member held that “there is no transfer of legal title in the copyrighted article as the same rests with the assesse. All rights, title and interest in the licensed software which is being claimed to be copyrighted article are the exclusive property of the assesse. DJCIPL has no authority to reproduce the date in any material form to make any translation in the date or to make adaptation in the data.It is important to distinguish between ‘a payment for right to use the copy right in a program’ and ‘right to use the program itself”.

Further held by the ITAT that “the payments received cannot be said to be ‘Royalty’ in nature. The transaction under consideration is for provision of accessing database of the assesse. Hence the same cannot be considered as ‘Royalty’ under Article 12 of the India-US DTAA”.The findings of the AO was directed to be set aside and delete the impugned addition.

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