ELSEVIER INFORMATION SYSTEMS GMBH,MUMBAI vs. DCIT (IT)- 2(2)(1), MUMBAI

आदेश/ ORDER

PER VIKAS AWASTHY, JM:

“The appellant company objects to the order dated 24 September 2019 passed by the Deputy Commissioner of Income Tax (International Taxation), 2(2)(1), Mumbai CAO') under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (‘the Act') on the following grounds: 1. The learned AO erred in holding that an amount of Rs. 14,86,39,250 received by the appellant is chargeable to tax in India.

2. Subscription fees considered as fees for technical services The learned AO erred in holding that the subscription fees of Rs. 14,86,39,250 received by the appellant are in the nature of "fees for technical services" CRTS') as defined under section 9(l)(vii) of the Act and also under Article 12 of the India-Germany Tax Treaty.

3. Subscription fees considered as Royalty The learned AO erred in holding that the subscription fees of Rs. 14,86,39,250 received by the appellant are also in the nature of "Royalty" as defined under section 9(l)(vi) of the Act and also under Article 12 of the India-Germany Tax Treaty.

8. Interest under section 234B of the Act The learned AO erred in levying interest under section 234B of the Act at Rs. 67,51,626.

9. Penalty proceedings under section 271(l)(c) of the Act The learned AO erred in holding that the appellant has concealed the particulars of his income and also erred in initiating penalty proceedings under section 271(l)(c) of the Act.

10. General 10.1 Each one of the above grounds of appeal

is without prejudice to one another, 10.2 The appellant craves leave to add to, alter or withdraw all or any of the grounds of appeal.”

3. The brief facts of the case as emanating from records are: The assessee /appellant filed its return of income for the impugned Assessment Year declaring NIL income. The appellant is a tax resident of Germany and a 100% subsidiary of Reed Elsevier Deutschland GmbH. The assessee is engaged in providing access to proprietary data bases namely - REAXYS & EMBASE to its client in India pursuant to subscription agreement. Both the data base are scientific data base rendering unique search and research. The assessee has earned subscription fee of Rs.14,86,39,251/- for providing access to the database to Indian clients during the period relevant to assessment year under appeal. The contention of the assessee is that since the assessee is not having any Permanent Establishment (PE) in India, the receipts from subscription are not taxable in India as per Article -12 of India Germany DTAA. The Assessing Officer while passing the draft assessment order held that the subscription fee receipts are in the nature of Royalty/Fee for Technical Services (FTS) and hence, taxable in India under section 9 of the Act read with Article 12 of India-Germany DTAA. Consequently, the Assessing Officer made addition of the aforesaid amount as Royalty/FTS. Against the draft assessment order dated 08/12/2018, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP rejected the objections of the assessee in toto. The assessing Officer passed the impugned assessment order in line with the directions of DRP making addition of Rs.14,86,39,251/- on account of Royalty/FTS taxable in India.

4. Shri Ketan Ved appearing on behalf of the assessee submitted that in the immediately preceding assessment years i.e. assessment year 2013-14 to 2015-16 similar addition was made by the Assessing Officer in respect of subscription fee treating it as royalty/FTS. The assessee carried the issue in appeal before the Tribunal in ITA No.7267/Mum/2017, and ITA No.7098/Mum/2018 for the respective assessment years. The Tribunal after examining the facts and nature of transactions decided the appeals by common order dated 28/06/2019 holding ‘subscription fee’ can neither be considered as Royalty/FTS within the meaning of section 9(1)(vi)/(vii) of the Act nor under India-Germany DTAA. The ld. Authorized Representative further pointed that the issue was first decided in favour of assessee by the Tribunal in appeal by the assessee for AY 2011-12 in ITA No.1683/Mum/2015 decided on 15/4/2019. In later assessment years the Tribunal followed the order passed in AY2011-12. The ld. Authorised Representative for the assessee submitted that the issue in present appeal by the assessee is squarely covered by the decision of the Tribunal in assessee’s own case.

12. Thus, on reading of the aforesaid important terms of the agreement it is very much clear that the assessee has created a database wherein the data relating to Chemistry are collated from various journals and articles and are stored in a structured and user friendly manner which is accessible to customers/users on subscription basis without conferring any exclusive or transferrable right on the customer/user. Further, the assessee retains its exclusive right and ownership over the intellectual property relating to the product and the users subscribers are specifically debarred from using the data in any manner other than for their own exclusive purpose. Keeping in view the aforesaid factual position, we need to examine whether the subscription fee received by the assessee from the customers in India for allowing access to the online database is transfer of right to use the copyright, hence, can be treated as royalty under the India–Germany Tax Treaty. The departmental authorities have held that while allowing access to use its online database i.e., reaxys.com the assessee has transferred the right to use the copyright which is in the nature of a literary work, hence, to be treated as royalty. No doubt, the assessee being a tax resident of Germany is governed by India–Germany DTAA. Therefore, it is necessary to examine whether the subscription fee received by the assessee fits into the definition of royalty as provided under Artricle–12 of the India–Germany Tax Treaty. Article–12.1 of the Tax Treaty provides that royalty and fees for technical services arising in a contracting state and paid to a resident of the other contracting state may be taxed in the other state. As per the plain meaning of the aforesaid provision, the subscription fee paid to the assessee is ordinarily taxable in Germany. However, Article–12.2 also provides for taxation of royalty and fees for technical services in India subject to condition that the tax leviable shall not exceed 10% of the gross amount of royalty or fees for technical services. Article–12.3 of the Tax Treaty defines royalty in the following manner. “The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting any patent, trade mark, cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.”

internet connection. There is no material on record to demonstrate that while providing access to the database there is any human intervention. As held by the Hon'ble Supreme Court in CIT v/s Bharati Cellular Ltd., [2010] 193 taxman 97 (SC) and DIT v/s A.P. Moller Maersk A.S., [2017] 392 ITR 186 (SC), for providing technical / managerial service human intervention is a sin qua non. Further, Article–12(4) of India–Germany Tax Treaty provides that payment for the service of managerial, technical or consultancy nature including the provisions of services by technical or other personnel can be termed as fees for technical services. None of the features of fees for technical services as provided under Article 12(4) of the India– Germany Tax Treaty can be found in the subscription fee received by the assessee. Further, the Department has not brought any material on record to demonstrate that the assessee has employed any skilled personnel having knowledge of chemical industry either to assist in collating articles from journals / magazines which are publicly available or through them the assessee provides instructions to subscribers for accessing the online database. The assessee even does not alter or modify in any manner the articles collated and stored in the database. In the aforesaid view of the matter, the subscription fee received cannot be considered as a fee for technical services as well. By way of illustration we may further observe, online databases are provided by Taxman, CTR online, etc. which are accessible on subscription not only to professionals but also any person who may be having interest in the subject of law. When a subscriber accesses the online database maintained by Taxman/CTR online etc. he only gets access to a copyrighted article or judgment and not the copyright. Similar is the case with the assessee. Therefore, in the facts of the present case, the subscription fee received by the assessee cannot be treated as royalty under Artile–12(3) of India–Germany Tax Treaty.” [Emphasised by us] Thus, the Co-ordinate Bench in an unambiguous manner has held that the assessee has not transferred any of its right to use copyright of any literary, artistic or scientific work to the subscribers nor any technical services have been provided by the assessee to its subscribers, therefore, subscription fee received for providing access to database by the assessee to its subscribers neither falls within the ambit of Royalty or Fee for Technical Services.

11. Ground No.1 & 10 of the appeal are general in nature, hence, requires no adjudication.

Order pronounced in the open court on Monday the 3rd day of May, 2021.