By GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants
10
TS-215-ITAT-2019(Mum)
Elsevier Information Systems GmbH vs.
DCIT
ITA No.1683/Mum/2015
A.Y.: 2011-12
Dated: 15th April, 2019
Sections 9(1)(vi), 9(1)(vii)
and Article 12 of the India-Germany DTAA – subscription fees received for
access to online database does not qualify as FTS or royalty
FACTS
The
assessee is a tax resident of Germany and is engaged in the business of
providing access to online database pertaining to chemical information
consisting of articles on the subject of chemistry, substance data and inputs
on preparation and reaction methods as experimentally validated. The assessee
earned subscription fees by providing access to the online database from
customers worldwide, including India.
The
assessee, contended that subscription fee received from the customers is not in
the nature of royalty or fee for technical services (FTS). Further, in the
absence of a PE in India, such income is not taxable in India.
But the AO
noted that the database was akin to a well-equipped library which provided
users with the desired result without much effort. Further, the AO concluded
that the data was in relation to a technical subject collated from various
researchers and journals involving technical expertise, which would not have
been possible without technical expertise and human element. Hence, he treated
the subscription fees as FTS under the Act as well as the DTAA. Further, the AO
also held that the online database was in the nature of a literary work which
amounts to right to use copyright and hence it qualifies as royalty under
section 9(1)(vi) of the Act as well as the DTAA.
HELD
- The database
maintained by the assessee consisted of chemical information which the users
could access for their own benefit. The data contained in the online database
was collated by the assessee from articles printed in various journals on
similar topics which were otherwise available to the public on subscription
basis. The collated data was stored on the online database in a structured and
user-friendly manner and was made accessible through regular web browsers,
without any use of a designated software or hardware.
- Examination
of the subscription agreement between the assessee and the customer revealed
the following aspects:
(a) The assessee granted non-exclusive and
non-transferrable right to the subscriber to access, search the browser and
view the search results and print or make copies of such information for its
exclusive use.
(b) Upon termination of the subscription
agreement, the subscriber was required to delete all such stored data.
(c) All rights and interests in the subscribed
products and data remained with the assessee and the users were prohibited from
making any unauthorised use of such data.
- Thus, the
assessee merely provided access to the database without conferring any
exclusive or transferrable right to the users. The intellectual property in the
data / product remained with the assessee. There is no material on record to
show that the assessee had transferred its right to use the copyright of any
literary, artistic or scientific work to the subscribers while providing them
with access to the database.
- Hence, the subscription fee does not qualify as
royalty. Reliance in this regard was placed on the AAR ruling in the case of Dun
& Bradstreet Espana SA (272 ITR 99), the Ahmedabad Tribunal ruling
in the case of ITO vs. Cedilla Healthcare Ltd. (77 Taxmann.com 309)
and DCIT vs. Welspun Corporation Ltd. (77 Taxmann.com 165).
- The assessee
had neither employed any technical / skilled person to provide any managerial
or technical service, nor was there any direct interaction between the
subscriber of the database and the employees of the assessee. Further, there
was no material on record to show that there was human intervention in
providing access to the database. Thus, in the absence of human intervention,
the subscription fee did not qualify as FTS under the Act as well as the DTAA.
Reliance in this regard was placed on SC decisions in the cases of CIT
vs. Bharati Cellular Ltd. (193 Taxman 97) and DIT vs. A.P. Moller
Maersk A.S. (392 ITR 186).
