Subscription fees for database access which contains repository of information otherwise available in public domain is not royalty within the means of S. 9(1)(vi) or Article 12 of India-USA DTAA.

Authority for Advance Ruling

Before Justice P. V. Reddi (Chairman),

Mr. A. Sinha (Member) and

Mr. Rao Ranvijay Singh (Member)

A.A.R. No. 787 of 2008, Dated : 30-6-2009

S. 9(1)(vi) of the Income-tax Act and Article 12 of
India-USA DTAA

Counsel for assessee/revenue : A. V. Sonde/

Sanjeev Sharma

Facts of the case :

• FactSet
  Research System Inc, (herein applicant) is a company incorporated in the
  USA. It maintains databases outside India, which contains the financial and
  economic information (like shareholding by global holders of global
  equities, takeover defence strategies adopted by various US public
  companies, etc.) of a large number of companies worldwide.

  
  




• The
  information contained in the database is available in the public domain.
  However, the applicant collates, stores and displays this information in an
  organised manner which enables the customers to retrieve the required
  information within a short span of time in a focussed manner. The customers
  are required to download client interface software (similar to an internet
  browser) to access and view the database. The customers of the applicant are
  mostly financial intermediaries and investment banks. The databases,
  software and tools are hosted on the applicant’s main frames/data libraries
  maintained at its data centres in the US.

  
  




• The
  applicant enters into a Master Client Licence Agreement (MCLA), with its
  customers, which inter alia provides that :

  
  

• The
  applicant grants limited, non-exclusive, non-transferable rights to use
  its database, software tools, etc. and receive subscription fees from its
  customers.

  
  




• All
  proprietary rights including intellectual property rights in the software,
  databases and related documentations remain the property of the applicant.

  
  




• The
  customer agrees that it will not copy, transfer, distribute, reproduce,
  etc. any works from or make any part of the data available to others.

  
  




• The
  customer will cease to use all licensed material and software and destroy
  all documentation except such copies as are required to be maintained by
  law.

  
  

• The
  applicant does not carry out any business operations in India and there is
  no agent in India acting on behalf of the applicant with the authority to
  conclude contracts.

  
  




• In the
  above background, the applicant raised following issues before AAR :

  
  

• Whether
  the subscription fees received from customers in India shall be taxable in
  India under the domestic law and under the treaty ?

  
  




• If the
  applicant is not liable to be taxed in India, whether its subscribers will
  be required to withhold taxes u/s.195 of the Act ?

  
  




• Assuming the applicant has no other taxable income in India, whether the
  applicant will be absolved from filing a tax return in India u/s.139 ?

  
  

Ruling of AAR :

• Based on
  features of the Licence Agreement noted by AAR, it was held that the
  subscription fess received by the applicant do not amount to ‘royalty’ in
  terms of S. 9(1)(vi) of the Act and Article 12 of the treaty. AAR held :

  
  

• The
  subscription fees are paid by customers for facilitating the customer’s
  access to the database and not for any rights in the copyright of the
  database. No proprietary right or exclusive rights possessed by the
  applicant in the database are transferred to the customers. The customers
  merely get a right to view and use the data for internal business purpose.

  
  




• The
  subscription fee is not fees for use of “information concerning
  industrial, commercial or scientific knowledge, experience or skill” as
  the information which the subscriber gets through the database is already
  available in public domain and it does not relate to the underlying
  experience or skills. The applicant does not share its experiences,
  techniques or methodology employed in evolving the database with the
  subscribers. The OECD Commentary and Commentary by Prof. Klaus Vogel was referred to conclude that royalty taxation covers transfer of know-how which may cover unprotected, non-secret knowledge derived from experience.

  The subscription fee cannot be considered as payment towards the use of ‘scientific equipment’ as the fees paid are for availing of the facility of accessing the data/information collected and collated by the applicant in the database.

  There is no use of or right to use any copy-right of a literary or scientific work involved in the event of subscriber getting access to the database for his own internal purpose. It is like offering a facility of viewing and taking copies of books for its own use without conferring any other rights available to a copyright holder.