Article 12 of the India-USA DTAA – Consideration received for grant of access to database (without right of reproduction or adaptation of data) is not in nature of royalty under Article 12 of the India-USA DTAA

FACTS
The assessee was a tax resident of the USA engaged in the business of providing information products and services comprising global business and financial news to organisations worldwide. It had appointed ‘D’, an Indian company, for distributing its products in India. During the relevant A.Y., the assessee had received subscription fee from ‘D’ for granting access of database to customers of ‘D’ in India. The A.O. taxed the receipt as royalty under the Act as also the India-USA DTAA. This addition was confirmed by the DRP.

Being aggrieved, the assessee appealed before ITAT.

HELD
Payments that allow a payer to use / acquire a right to use a copyright in a literary, artistic or scientific work are covered within the definition of royalty.Payments made for acquiring the right to use the product itself, without allowing any right to use the copyright in the product, are not covered within the scope of royalty.In this case, all rights, title and interest in licensed software continued to remain the exclusive property of the assessee. ‘D’ had no authority to reproduce the data in any material form, or to make any translation of data, or to make any adaptation of the data.

Further, even the end-user could not be said to have acquired any copyright or right to use the copyright in the data. Accordingly, payments made by ‘D’ for merely accessing the database were not in the nature of payments for use of copyright as contemplated in Article 12 of the India-USA DTAA.