Article 12 of India-US DTAA , Article 13 of India UK DTAA – Payment for fixed period, nonexclusive licence to use a dataset consisting of scientific as well as technical information, permitting its use only as a licensee, and not involving transfer of technical knowledge or experience or making available of technology, does not amount to royalty under the DTAA .
Facts
Taxpayer an Indian company was engaged in the business of Oil and Gas exploration. Taxpayer made certain payments to a USA and UK Company (FCo) towards a non-exclusive licence and right to use a dataset for an agreed licence fee.
The Taxpayer contended that the dataset was nothing but a compilation of data and licence was only for the use of data and not for providing any experience, knowledge or skill to the Taxpayer. Taxpayer also contended that
Use of the dataset is not a transfer of the copyright but it is a copyrighted article.
It was contended that the dataset was not customized according to the requirements of the Taxpayer nor was it for the exclusive use of the Taxpayer.
In absence of provision of knowhow, such licence fee does not qualify as royalty.
Against that AO observed that
NR agreed to grant non-exclusive license/right to use certain data and derivatives in consideration for an agreed license fee.
Such information/knowledge is not available in the public domain and available to the taxpayer only on securing a valid license.
Such payment amounts to consideration for information concerning industrial, commercial or scientific experience.
(a) In any case, the Taxpayer had ordered the dataset which was customised for the taxpayer. Accordingly, when such customised data is made available upon request of taxpayer, it becomes know-how as it cannot be used by any other party.
(b) Thus the licence fee amounts to royalty both under the Act as well as the DTAA and held the Taxpayer as an ‘assessee-in-default’ or failure to withhold taxes u/s. 195.
Held
The Taxpayer obtained a fixed period licence to use a dataset which is highly technical and complicated can be accessed only on the grant of a license by the owner.
On the expiry of licence, taxpayer is required to return the product or destroy the data accessed by him during the license period. However, taxpayer is not required to destroy the product produced by him by use of such data. This indicates that the data was made available to the taxpayer to enable it to process and use it for furtherance of its objects.
The definition of ‘Royalty’ under the Act is more exhaustive as compared to the definition under the India-USA and India-UK DTAA . Under the Act, consideration for granting of a license for the use of the property is also treated as royalty whereas, there is no such provision under the DTAA .
Reference was made to principle laid down in various judgments1 wherein it has been held that unless and until the license is given to use the copyrighted property itself, the consideration paid cannot be treated as ‘Royalty’.
In the facts of the case, license is granted to use information contained in the database. Further, the licenses are non-exclusive licenses and therefore, information/ data is not customized to meet the taxpayer’s requirements exclusively.
Though the information in the database is scientific as well as technical, taxpayer is permitted to use the information only as a licensee. It does not involve transfer of technical knowledge or experience. Therefore there is no use of copyright. Thus, under the DTAA unless the license is given to use the copyright itself, the consideration paid cannot be treated as royalty.
It is clear that FCo has only made available the data available with them but are not making available any technology available for use of such data by the taxpayer. Thus, such payments are not in the nature of ‘royalty’ as per the India-USA and India-UK DTAA and hence the provisions of S. 195 are not applicable.
PS: Royalty implications under the Act were not analysed as the royalty definition under the DTAA was considered to be narrower than royalty definition under the Act.
