FACTIVA LTD. C/O. PRICE WATERHOUSE & CO. LLTP,MUMBAI vs. DY.COMM OF INCOME TAX (INTERNATIONAL TAXATION)-2(3)(1), MUMBAI

3. On the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in not considering that the sum of INR 6,08 88.436 is in the nature of "Business Profits" under Article 7 of the DTAA, not taxable in India as the Appellant did not have a Permanent Establishment in India under Article 5 of the DTAA.

The fact in brief is that assessee furnished return of income for the year under consideration on 30.11.2018 declaring total income of Rs.nil. The case was subject to scrutiny assessment and notice u/s 143(2) of the Act was issued on 22.09.2019. The assesse company Factiva Ltd. is a business corporation incorporated in London, UK, it engaged in providing information products and services, containing global business and financial news to organisations worldwide. It provides news and business information services with content delivery tools and services and distributes various financial and related products in Indian Market through its group company Dow Jones Consulting India Private Limited (DJCIPL). During the year under consideration the assessee had granted the rights to distribute its various financial and related products in the Indian Market to DJCIPL on a principal to principal basis and at an arm’s length price. The assesse Factiva Ltd. received fees of Rs.6,06,31,835/- against these P a g e | 3 & 1505/Mum/2022 Factiva limited Vs. DCIT (IT)-2(3)(1) distribution rights from DJCIPL and also made direct sales of similar products to KPMG amounting Indian Rs.2,56,601/-. Therefore, during the year the assessee has shown total receipt of Rs.6,08,88,436/- and claimed it has not taxable in India.

The assessee claimed that the aforesaid consideration received was in the nature of business income and since it did not have any permanent establishment in India, therefore, its income was not taxable in India under the Double Taxation Avoidance Agreement (DTAA) between India & U.K. The said receipts were subjected to TDS u/s 195 of the Act and the deductor had withheld a sum of Rs. 63,69,981/- and Rs.26,430/- respectively as TDS u/s 195 of the Act. The assessse also stated that though its receipts were not taxable in India, however, DJCIPL and KPMG have deducted tax at source of Indian Rs.63,96,411/- while making payment to the assessee. It was also contended that under the agreement, DJCIPL did not acquire any right in relation to the product and the payment received by the assesse cannot be treated as consideration for the transfer of any copyright.

In the draft assessment order the AO after detailed analysis held that the payment made by the DJCIPL and KPMG to the assssee was in the nature of royalty and therefore liable to be taxed in India. The AO stated that in the case of the assessee same issue has been dealt sine last four years. The AO observed that the DJCIPL was wholly owned indirect subsidiary of the assesse company. The AO was of the view that DJCIPL was the exclusive distributor of the product of the assessee. The AO also noted that assessee and the distributor were part of the same News Corporation Group of Mr. Rupert Murdoch. The AO also observed that in respect of its product the assesse holds the bundle of intellectual property rights contained in the product including trade secrets, patents, trademark, know how as well as moral rights and similar rights of any type under the law of any government authorities, domestic or P a g e | 4 & 1505/Mum/2022 Factiva limited Vs. DCIT (IT)-2(3)(1) foreign relating to or arising out of Factiva Products. The AO further stated that the receipt of the assessee was in consideration of the use on or right to use the said IPRs and hence it constitute Royalty under the DTAA as well as section 9(1)(vii) of the Act.

The AO also disagreed with the submission of the assesse that sale had nothing to do with the IPR. The AO was of the view that the assesse company provides Factiva Products and services to DJCIPL who in turn distributes to the customers. The right to distribute products and services vests with the assesse as an owner who in turn has given permission to DJCIPL to use its copyright by a distribution agreement. The AO also stated that since the Factiva Product which were supplied under trade mark were used by DJCIPL and the customers during the existence of agreemtn such payments will be of use of trade mark. The AO further stated that in the case of the assesse on the same facts draft orders were passed in A.Y. 2015-16, 2016-17 and A.Y. 2017- 18 wherein the receipt of the assessee had been treated as Royalty in nature, the DRP-1 Mumbai had confirmed the findings of the AO in the all the aforesaid assessment years. Therefore, in the draft assessment order the AO has considered the payment from DJCIPL (Rs.6,06,31,835/-) and Rs.25,660/- from KPMG totalling to Rs.608,88,436/ as royalty income and taxable u/s 9(1)(vi) of the Act r.w. Article 13(3)(a) of the Tax Treaty between India and UK. The draft assessment order was passed by the assessing officer on 28.06.2021.

During the course of appellate proceedings before us at the outset the ld. Counsel submitted that similar issue on identical fact has been P a g e | 5 & 1505/Mum/2022 Factiva limited Vs. DCIT (IT)-2(3)(1) adjudicated in favour of the assesse by the ITAT benches, Mumbai for assessment years 2015-16 to 2017-18 and AY. 2020-21 as under: “1. Factiva Limited Vs. DCIT vide ITA No. 6455/Mum/2018 for AY. 2015-16 2. Factiva Limited Vs. DCIT vide ITA No.5489/Mum/2019 & ITA No.1247/Mum/2021 for AYs. 2016-17 & 2017-18 3. Factiva Limited Vs. DCIT vide ITA No. 758/Mum/2023 for AY. 2020-21”

With the assistance of ld. Representative we have perused the decision of ITAT benches on the similar issue and identical facts as referred above. The relevant operating part of the decision of ITAT in the case of M/s Factiva Ltd. Vs. DCIT (IT)-2(3)(1) vide ITA No.6455/Mum/2018 for A.Y. 2015-16 dated 31.05.2022 which is reproduced as under: “12. Identical question has been decided by the co-ordinate Bench of the Tribunal in one of the assessee’s group company Dow Jones & Company Inc. vs. ACIT (supra) by returning following findings: “4. Briefly stated, the facts of the case are that the appellant company is a business corporation incorporated in USA and engaged in the business of providing information products and services containing global business and financial news to organizations worldwide. It offers information via newspapers, newswires, websites, applications, newsletters, magazines, proprietary databases, conferences and radio.

Before us, the ld. counsel for the assessee vehemently stated that the assessee has received consideration for providing use of database by which it has allowed DJCIPL to used its copy right and has not given any coy of right, therefore, the impugned receipts cannot be taxed as ‘Royalty’ in the hands of the assessee.

We have given thoughtful consideration to the orders of the authorities below. At the very outset, we have to state that basis the provisions of section 92 of the Act, the assessee is entitled to invoke the provisions of India –USA DTAA to the extent it is more beneficial. Our view is fortified by the decision of the Hon'ble Supreme Court in the case of Union of India Vs. Azadi Bachao Andalon 263 ITR 706. Accordingly, we will consider the beneficial provisions of the tax treaty to see whether the contention of the assessee that the alleged payment from DJCIPL is not royalty income.

As per Article 12 of the Tax Treaty, ‘Royalty” is defined as under: “10.1.4.1 (a) “payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income, derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 10.1.5 Thus, Article 12 of the Tax Treaty brings within the ambit of the definition of royalty, a payment made for the use of or the right to use a copyright of a literary, artistic or scientific work. Thus, only those payments that allow a payer to use / acquire a right to use a copyright in a literary, artistic or scientific work arc covered within the definition of royalty. Payments made for acquiring the right in use the product it sell, without allowing any right to use the copyright in the product, are not covered within the scope of royally winch may gel covered under the term 'Royalty' as per the Act. Further, unless the payments are made towards acquiring the right to use a copyright in a literary, artistic, or scientific work, definition of Royalty would not get attracted. 10.1.6 In the current case, there is no transfer of legal title in the copyrighted article as the same rests with the Applicant. All rights, title and interest in the licensed software, which is being claimed to be copyrighted article, are the exclusive property of the Applicant. DJCIPL has no authority to reproduce the data in any material form, to make any translation in the data or to make any adaptation in the data. Further, the end user cannot be said to have acquired a copyright or right to use the copyright in the data and accordingly, the payments made by DJCIPL for accessing the database would not qualify as payments for the use of copyright. 10.1.7 The Applicant submits that the payments made by DJCIPL is not for the transfer of all or any rights in respect of the database Under the agreement, DJCIPL does not acquire any right in relation to the. products.

A perusal of the above Article shows that it brings within the ambit of the definition of ‘Royalty’ the payment made for use of, or the right to use any copyright of a literary, artistic, or scientific work. In our understanding of the Article, only those payments that allow a payer to use/acquire a right to use copyright in literary, artistic or scientific work are covered within the definition of ‘Royalty’. In our considered view, the payments made for acquiring right to use product itself, without allowing any right to use the copy right in the product are not covered with the scope of ‘Royalty’ which may get covered under the term under Royalty as per the Act.

The facts of the case in hand show that there is no transfer of legal title in the copyrighted article as the same rests with the assessee. All rights, title and interest in the licensed software which is being claimed to be copyrighted article are the exclusive property of the assessee. DJCIPL has no authority to reproduce the date in any material form to make any translation in the date or to make adaptation in the data.

Co-ordinate Bench of the Tribunal in case of American Chemical Society vs. DCIT (supra) also decided the identical issue arisen under section 9(1)(vi) of the Act read with Article 12(3) of India-UK DTAA that:- “As to whether the income earned by the assessee from Indian customer for granting online/web based access to its database and general Indian customer in consideration of subscription fees is a ‘royalty’ to be taxed in India.”

This question has been decided by the co-ordinate Bench of the Tribunal in favour of the assessee by returning following findings: “It is evident that the assessee merely accumulates and organizes information already available in public domain/publicly disclosed information, and organizes the same at one place, thereby creating a database which is accessed by its customers against payment of subscription fee termed as CAS fee. Thus, prima facie. there is no copyright or intellectual property lying with the assessee itself in relation to such information or the contents of the database. Thus, there cannot be a case that the assessee-company has transacted in the copyrights or intellectual property rights of the contents of the database of information which is merely collated and collected by it. It is abundantly clear from a perusal of some of the sample agreements with customers that what the customers get is only the right to search, view and display information (whether online or by taking a print) and reproducing or exploiting the same in any manner; and its use for purposes other than personal use is strictly prohibited. The OECD commentary referred in the assessment order brings out that the payments which are to be understood as 'royalty' in the context of information concerning industrial, commercial or scientific experience ought to be in relation to information which is undivulged and/or arises from previous experience. In other words, in order to be understood as 'royalty', the payment must be for information which is exclusively possessed or secret under the ownership of the grantor of such information. It is to be considered that the fact-situation in the instant case does not comply with the aforesaid requirement so as to be treated as a payment for 'royalty', [Para 7] P a g e | 9 & 1505/Mum/2022 Factiva limited Vs. DCIT (IT)-2(3)(1) In the instant case, the assessee merely identifies, aggregates, and organizes publicly disclosed chemistry related scientific information or publishes research work submitted by scientists worldwide. Thus, this information is clearly not undivulged; rather, it is an information which is available in the public domain. Further, chemistry and related scientific information accumulated by the assessee in the form of a database is the experience of various scientists, researchers and various other persons and not that of the assessee. Thus. What the assessee collates is experience of others and provides access thereto. The database does not provide any information arising from assessee's own previous experience or knowledge of the subject. The assessee's experience lies in the creation and maintaining the database, which cannot be labelled as industrial or commercial or scientific in anyway in the context of the receipts in question. The Indian customers do not make payments for availing the knowledge of assessee's experience of creating/maintaining database; what they pay for is access to information that such database encompasses. By granting access to the information forming part of the database, the assessee neither shares its own experience, technique or methodology employed in evolving databases with the users, nor imparts any information relating to them.[Para 8] In this context the Madhya Pradesh High Court in the case of ClT v. HEG Ltd. [2003] 130 Taxman 72/263 1TR 230 held that purchase of any and every type of commercial information cannot earn the status of royalty. To have the status of royalty, the infonnation transacted should have some special features, which is hitherto not available in public domain. [Para 10] With respect to the subscription fee for the CAS division being considered as royalty for 'use' of or 'right to use1 of a copyright, a reference to the Copyright Act, 1957 is also relevant. A person can be said to have acquired a copyright or the right to use the copyright in a computer software or database (as described by the Assessing Officer), where he is authorized to do all or any of the acts as per the definition of the term 'copyright' under section 14 of the Copyright Act, 1957. However, mere access to that work or permission to use the work cannot imply that the payer is paying for use or right to use the copyright. In other words, when no copyright is acquired by the payer, question of using it or getting a right to use it does not arise. [Para 11 ] The transfer of a copyrighted right means that the recipient has a right to commercially exploit the database/software, e.g. reproduce, duplicate or sub-license the same; such payments may be classified as royalty, but factually speaking in the present no such rights in database or search tools (SciFinder or STN) are acquired by the customers, as is evident from the terms of the sample agreement of CAS customers. It is to be considered that the transfer of any right in a copyrighted article is analogous to the rights acquired by the purchaser of a book. In the instant case, customers of the assessee only enjoy the benefits of using SciFinder and STN and do not acquire the right to exploit any copyright in these software. The difference between a copyright and a copyrighted article in context of software has been brought out very clearly by the Supreme Court of India in the case of Tata Consultancy Services v. State of Andhra Pradesh [2004] 141 Taxmann 132/271 ITR401. [Para 12] P a g e | 10 & 1505/Mum/2022 Factiva limited Vs. DCIT (IT)-2(3)(1)

From the discussion made in the preceding paras and following the decision rendered by the co-ordinate Bench of the Tribunal and Hon’ble High Court of Bombay, we are of the considered view that Article 13 of India-UK DTAA defined ‘royalty’ only when a payment is made for the use or the right to use a copy right of literary, artistic or scientific work. So the only those payments which allow payers to use/acquire a right to use a copy right in literary, artistic or scientific work are commissioned under the definition of ‘royalty’. In the instant case the assessee used to collect the information available in the public domains viz. newspaper and news wires from all over the world including global business and trade publications, targeted industry and regional publications, key websites and business blogs, market data and company professionals by collaborating with the news publishers and other sources and collates such P a g e | 11 & 1505/Mum/2022 Factiva limited Vs. DCIT (IT)-2(3)(1) relevant publically available news/information, then create a systematic database of news, article/information with advanced search capabilities and then subscriber of Factiva product gets access to the database, business puts a query in the search box, various news articles and other information in relation to search term, as actual public appears on the screen.

Moreover, payment received by the assessee is not for any information qua industrial scientific or commercial experience rather it is only for preparing a database on the basis of information already available in the public domain in the form of news, articles etc. Moreover, payment received by the assessee is merely for the use of database and not for the use or right to use any equipment as the subscriber and DJCIPL have no access, right or control of any manner whatsoever offer the data storage devises or the server maintained by the assessee to update its database.

In these circumstances, copy right in the news article/blog never belongs to the assessee but always belongs to the publisher or author. So the database prepared by the assessee does not have any copy right or intellectual copy right with the assessee and the customer only gets the right to search, view and display information. So in these circumstances findings returned by the Ld. DRP that Factiva product (access to database) is in the nature of ‘royalty’ under Article 13 of India-UK DTAA was sector specific specialized knowledge portal as the assessee has a dedicated team of 100 specialists to collate and update the data on daily basis and as such fall within the ambit of use of copy right as well as information concerning industrial scientific or commercial experience is not sustainable in the eyes of law.

Even otherwise this issue is covered in favour of the assessee in its group company case M/s. Dow Jones and Company India Pvt. Ltd. (supra). So the question framed is answered in the negative and as such the payment received by the assessee is not a ‘royalty’ under Article 13 of India-UK DTAA. So we hereby set aside the addition made by the AO under section 9(1)(vi) of the Act read with Article 13(3) of India-UK DTAA and as such ordered to be deleted the same.

Assessee company has also raised ground No.2 & 3 challenging the findings returned by the AO/ Ld. DRP that DJCIPL could constitute an agency PE of the assessee and as such amount of Rs.2,82,15,036/- is in the nature of “business profits” under Article 7 of India-UK DTAA.

We have perused the findings returned by the AO as well as Ld. DRP. AO in para 8.6 of its order has given a stray remarks that DJCIPL could constitute an agency PE of the assessee by returning following findings: “8.6 Alternatively, without prejudice to the above, the assessee's argument that the assessee is having business income but the same is not taxable, since the assessee is not having permanent establishment in India, is also not acceptable, in view of the facts and circumstances of the case. The assessee has granted rights for distribution of its product in the specified territory only to the Distributor. All the rights, titles and interest in the products are vested with the assessee company and not parted with. The assessee has insulated the Distributor from the loss with dynamic pricing structure of cost plus mark up of 5%. The Distributor i.e. M/s. Dow Jones Consulting India Private Limited is wholly owned indirect subsidiary of the assessee company. Considering these facts of P a g e | 12 & 1505/Mum/2022 Factiva limited Vs. DCIT (IT)-2(3)(1) the case, it is evident that the Distributor is falls within the concept of agency PE and therefore it is incorrect to say that the assessee does not have any permanent establishment in India.”

Since assessee has vehemently opposed the observation made by the AO that DJCIPL is an agency PE of the assessee. Moreover, there is not an iota of material on record to prove this fact. So the payment received by the assessee is not taxable in India as the Revenue has failed to prove that the assessee has a PE in India in terms of Article 5 of India-UK DTAA.”

The issue in this ground of appeal