Article 12 of India-Singapore DTAA , Article 13 of India-UK DTAA – payment made to nonresidents for limited, restricted and one time use of photograph, not being for “use of copyright”, was not royalty in terms of DTAA .

The Taxpayer, an Indian company, was engaged in the business of publishing magazines. During the relevant year, the Taxpayer had made payments to non-residents (one located in Singapore and another located in UK) for procuring images and figures for publication in its magazines. The Taxpayer was downloading the images from the websites of the two non-residents and was required to make payment for each of such downloads. The Taxpayer had the right of one time use of the image in its own magazines. Since the Taxpayer did not withhold tax from the payments, the AO invoked the provisions of section 40(a)(i) of the Act and disallowed the payment. In appeal, CIT(A) upheld the order of the AO.

Held

• In terms of Article 12 of India-Singapore DTAA and Article 13 of India-UK DTAA, only payments made for use of copyright can be characterised as royalty. Further, the copyright should be only of any of the items mentioned therein. ? E ven if it is presumed that a photograph falls in one or more of the items mentioned, the tax authority is required to establish that the payment was for use of ‘copyright’ and not for ‘copyrighted article’. ? I n several judgments, it has been held that ‘copyright’ and ‘copyrighted article’ are two different things. ? T he Taxpayer was permitted only one time use of the photograph in the magazine but not permitted to edit the photograph, make copies for sale or to permit someone else to use the photograph. Thus, the Taxpayer was permitted to use the ‘Article’ and not the ‘copyright’. In absence of “use of copyright”, the payment cannot be regarded as royalty so as to trigger obligation to deduct tax at source.