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Article 12 of India-Ireland Double Taxation Avoidance Agreement (DT AA) –Payment for E-learning products providing access to E-learning platform and the educational content embedded in the form of computer software is royalty under India-Ireland DT AA
Facts
Taxpayer, a Company resident of Ireland, was engaged in providing on-demand e-learning content, online information resources, online courses, flexible learning technologies and performance support solutions (E-Learning products).
The Taxpayer had entered into a reseller agreement with an Indian Company (I Co) for the sale of E-learning products in India. I Co purchased E-learning products on principal-to-principal basis and sold the product to end users/customers in India in its own name. It also entered into license agreement with end users.
As per the license agreement, end-users were granted non-exclusive, non-transferable license to access E-learning products which enabled the users to access the E-learning platform and the educational content embedded therein.
Taxpayer contended that the payment received by it from ICo was for a copyrighted article and not for the copyright and therefore, it was not royalty under the DTAA . Tax Authority contended that consideration for license to use confidential information embedded in licensed software amounts to royalty under India-Ireland DTAA .
Held
E-learning products of Taxpayer consists of two components. First is the course content and second is the software through which course content is delivered to end-customer who gains access to specially designed software for understanding the content. Such especially designed software was not available in public domain but was licensed to I Co who in turn sub-licensed to endcustomers. Merely because the license had been granted on non-transferable and non-exclusive basis, it did not take away the software out of the definition of copyright. Further, the present case was not similar to an e-library or on-line banking facility provided by a bank.
To constitute ‘royalty’ under DTAA , it is not necessary to transfer any exclusive right. What is necessary is that the consideration should be for the use of or right to use any copyright. Reliance in this regard was placed on Karnataka High Court (HC) decision in the case of Synopsis International Old Ltd (212 Taxman 454).
Reliance was placed on AAR decision in the case of Citrix Systems Asia Pacific (343 ITR 1) to conclude that distinction between copyright vs. copyrighted article is illusory as copyrighted article is nothing but an article which incorporates the copyright of the owner/licensee and the permission for using such an article is also for the copyright embedded therein. Software and computer databases would qualify as “literary work” under the definition of royalty provided under the DTAA.
Thus the right to use confidential information embedded in the form of computer software programme would constitute royalty under the DTAA .
