Section 9(1)(vi) of the Act – Payment for access to database containing publicly available information without any right to commercially exploit the information does not qualify as royalty.

1.      
TS-288-ITAT-2017(Del)

McKinsey Knowledge Centre India P. Ltd. vs. ITO

A.Y: 2008-09, Date of Order: 11^th May, 2017

Section 9(1)(vi) of the Act – Payment for access to database
containing publicly available information without any right to commercially
exploit the information does not qualify as royalty.

Facts

Taxpayer, an Indian company, was engaged in the business of
rendering customised back-office operations and acting as a support center. For
the purpose of its business, Taxpayer was required to access the database owned
and maintained by FCo. The database contained general information on share
price, market commodity, currency exchange rates etc.

Taxpayer filed an application u/s. 195(2) of the Act for
obtaining a nil withholding certificate on amount payable to a Singapore Co
(FCo) for access to the database.

AO held that the transaction was in the nature of royalty and
thus, subject to withholding at the rate of 10% under India-Singapore DTAA.
Aggrieved by the order of AO, Taxpayer appealed before CIT(A).

Taxpayer contended that the payment was made only for access
of the database which contained publicly available information. Taxpayer did
not obtain any license for use of the copyright in the literary work or to
commercially exploit the information and hence payment did not qualify as
royalty.

However, CIT(A) held that
access to database provided a right to the Taxpayer to use information relating
to technical, industrial and commercial knowledge, experience and skill and
hence qualified as royalty under the Act.

Aggrieved, Taxpayer appealed before the Tribunal.

Held

–   FCo provided Taxpayer a right to access a
database which consisted of general data relating to equity, share price,
market, exchange rates and commodity prices, which are available otherwise in
the public domain. The information was neither secret nor undivulged nor did it
pertain to FCo’s own experience.

–   Though the information was the copyright of
FCo, Taxpayer had a limited right to access the database for its own use in
accordance with the agreement and not for the purpose of commercial
exploitation. Taxpayer obtained a non-exclusive, non-transferable right to use
the information.

–   The transaction does not involve transfer of
all or any rights in respect of copyright in the literary work. Payment made by
the Taxpayer is for the use of “copyrighted material” and not for the “use
of the copyright”. Thus, the amount payable by ICo does not qualify as royalty
under the Act.