Loading judgment…
Facts
The assessee, Gartner Ireland Ltd., is engaged in the business of selling online subscription-based research products. The Assessing Officer treated the income from these sales as 'royalty' income, taxable in India, while the assessee claimed it as business income not taxable in India due to the absence of a Permanent Establishment (PE). The assessee argued that the transactions were pure sales to its subsidiary, Gartner India, which then resold the products or used them for internal purposes.
Held
The Tribunal noted that for the first component of income (resale by Gartner India), the assessee changed its business model by engaging Gartner India as an intermediary. The Tribunal found that the assessee failed to substantiate the quantity of products sold to Gartner India matching those resold, suggesting the transaction might be in the nature of 'sale of copyright'. For the second component (internal use by Gartner India), the Tribunal felt that insufficient information was provided to determine if copyright was exploited. Consequently, both issues were restored to the Assessing Officer for fresh verification.
Key Issues
The primary issue was whether the income from the sale of online subscription-based products to Gartner India constituted 'royalty' income or 'business income' taxable in India. A secondary issue pertained to the levy of interest and initiation of penalty proceedings.
Sections Cited
Section 9(1)(vi), Section 234D, Section 270A, Section 271BA, Article 12 of India-Ireland DTAA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “I” MUMBAI
Before: SHRI OM PRAKASH KANT & MS. KAVITHA RAJAGOPAL
This appeal by the assessee is directed against final assessment order dated 27.07.2022 , which has been passed by the Ld. Assistant Commissioner of Income-tax-International Taxation Circle 2(3)(2), Mumbai (in short ‘the Assessing Officer’) pursuant to the direction of the Ld. Dispute Resolution Panel (DRP) dated 15.06.2022 for assessment year 2019-2020.
The grounds raised by the assessee in its appeal are reproduced as under:
Ground No. 1: Ground No. 1: - Erroneous treatment of Business Income as "Royalty" Erroneous treatment of Business Income as "Royalty" Income 1.1 On the facts and circumstances of the case and in law, the Learned 1.1 On the facts and circumstances of the case and in law, the Learned 1.1 On the facts and circumstances of the case and in law, the Learned Deputy Commissioner of Income Deputy Commissioner of Income-tax - 2(3)(2) (Ld. AO) and further the DRP and further the DRP-1, Mumbai (hereinafter referred to as the DRP') have erred in confirming that Mumbai (hereinafter referred to as the DRP') have erred in confirming that Mumbai (hereinafter referred to as the DRP') have erred in confirming that the entire income earned by way of sale of online subscription income earned by way of sale of online subscription income earned by way of sale of online subscription-based products amounting to Rs. 86,52,72,951 by the Appellant during the products amounting to Rs. 86,52,72,951 by the Appellant during the products amounting to Rs. 86,52,72,951 by the Appellant during the captioned year are tax captioned year are taxable as Royalty under Section 9(1)(vi) of the Income able as Royalty under Section 9(1)(vi) of the Income- tax Act, 1961 and under Article 12 of India tax Act, 1961 and under Article 12 of India - Ireland Double Taxation Ireland Double Taxation Avoidance Agreement. Avoidance Agreement. 1.2 On the facts and circumstances of the case and in law, the Ld. AO and 1.2 On the facts and circumstances of the case and in law, the Ld. AO and 1.2 On the facts and circumstances of the case and in law, the Ld. AO and DRP have failed to appreciate that the DRP have failed to appreciate that the consideration received by the consideration received by the Appellant is for non Appellant is for non-exclusive / non-transferable copyrighted article i.e., transferable copyrighted article i.e., online subscription online subscription-based products and is neither towards any use of based products and is neither towards any use of copyright nor transfer of rights to use the copyright and accordingly, erred in copyright nor transfer of rights to use the copyright and accordingly, erred in copyright nor transfer of rights to use the copyright and accordingly, erred in considering the income earned by Appellant as Royalty. considering the income earned by Appellant as Royalty. 1.3 The Appellant does not have any Permanent establishment (PE") in India 1.3 The Appellant does not have any Permanent establishment (PE") in India 1.3 The Appellant does not have any Permanent establishment (PE") in India in accordance with Article 7 read with Article 5 of the DTAA between India in accordance with Article 7 read with Article 5 of the DTAA between India in accordance with Article 7 read with Article 5 of the DTAA between India and Ireland. Hence, the consideration received by A and Ireland. Hence, the consideration received by Appellant by way of ppellant by way of subscription / access fees for the sale of online subscription subscription / access fees for the sale of online subscription subscription / access fees for the sale of online subscription-based products is in the nature of business income not taxable in absence of PE in India. is in the nature of business income not taxable in absence of PE in India. is in the nature of business income not taxable in absence of PE in India. Ground No. 2: Ground No. 2:- Erroneous levy of interest of Rs. 22,71,888 under Erroneous levy of interest of Rs. 22,71,888 under Section 234D of th Section 234D of the Act 2.1 On the facts and circumstances of the case and in law, the levy of 2.1 On the facts and circumstances of the case and in law, the levy of 2.1 On the facts and circumstances of the case and in law, the levy of interest under Section interest under Section 234D of the Act is consequential in nature and should 234D of the Act is consequential in nature and should be deleted once the relief as sought under be deleted once the relief as sought under Ground No. 1 is allowed to the Ground No. 1 is allowed to the Appellant. Ground No. 3: Ground No. 3: - Initiation of penalty proceedings under section 270A Initiation of penalty proceedings under section 270A of the Act 3.1 On the facts and circumstances of the case and in law, the Ld. AO has 3.1 On the facts and circumstances of the case and in law, the Ld. AO has 3.1 On the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 270A of the Act. erred in initiating penalty proceedings under section 270A of the Act. erred in initiating penalty proceedings under section 270A of the Act. Ground No. 4: Ground No. 4: - Initiation of penalty proceedings under section ngs under section 271BA of the Act 271BA of the Act 4.1 On the facts and circumstances of the case and in law, the Ld. AO has 4.1 On the facts and circumstances of the case and in law, the Ld. AO has 4.1 On the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271BA of the Act. erred in initiating penalty proceedings under section 271BA of the Act. erred in initiating penalty proceedings under section 271BA of the Act.
Briefly stated, facts of the case are that the Briefly stated, facts of the case are that the assessee, assessee, Gartner Ireland ltd (GIL), is a company incorporated in the republic of is a company incorporated in the republic of is a company incorporated in the republic of Ireland and is a resident of Ireland for tax purpose in terms of Ireland and is a resident of Ireland for tax purpose in terms of Ireland and is a resident of Ireland for tax purpose in terms of Article 4 of Double Taxation Avoidance Agreement (DTAA) entered Article 4 of Double Taxation Avoidance Agreement (DTAA) entered Article 4 of Double Taxation Avoidance Agreement (DTAA) entered into between India and Ireland. The GIL into between India and Ireland. The GIL as stated as stated is, inter-alia, engaged in the business of sale of subscription based products and ged in the business of sale of subscription based products and ged in the business of sale of subscription based products and related services i.e. periodicals, reports and publications that related services i.e. periodicals, reports and publications that related services i.e. periodicals, reports and publications that highlight industry developments , review new products and highlight industry developments , review new products and highlight industry developments , review new products and technologies that provide independent research and insight on all technologies that provide independent research and insight on all technologies that provide independent research and insight on all aspect of a company’s business ( IT, Finance, HR, Marketing, Sales , ct of a company’s business ( IT, Finance, HR, Marketing, Sales , ct of a company’s business ( IT, Finance, HR, Marketing, Sales , Logistics etc). The Assessing Officer has produce The Assessing Officer has produce The Assessing Officer has produced a note of business activity of the assessee business activity of the assessee, which is extracted as under: which is extracted as under:
“Business activity: “Business activity: 2. Gartner Ireland Limited (hereinafter 2. Gartner Ireland Limited (hereinafter referred to as "GIL") is a Company referred to as "GIL") is a Company incorporated in the Republic of Ireland (Ireland) and is a resident of Ireland incorporated in the Republic of Ireland (Ireland) and is a resident of Ireland incorporated in the Republic of Ireland (Ireland) and is a resident of Ireland for tax purposes in terms of Article 4 of the Double Taxation Avoidance for tax purposes in terms of Article 4 of the Double Taxation Avoidance for tax purposes in terms of Article 4 of the Double Taxation Avoidance Agreement (DAA') entered into between India and Ireland. Agreement (DAA') entered into between India and Ireland. GIL is engage GIL is engaged in the business of distributing Gartner Group's Research Products in the form the business of distributing Gartner Group's Research Products in the form the business of distributing Gartner Group's Research Products in the form of subscriptions, both in Ireland and through its distributors, in those of subscriptions, both in Ireland and through its distributors, in those of subscriptions, both in Ireland and through its distributors, in those territories where the Gartner Group does not have a Tocat presence. The territories where the Gartner Group does not have a Tocat presence. The territories where the Gartner Group does not have a Tocat presence. The aforesaid subscription research aforesaid subscription research products stated to consist of qualitative products stated to consist of qualitative research and analysis that clarifies decision research and analysis that clarifies decision-making for Information making for Information Technology buyers, users and vendors, and helps clients stay ahead of IT Technology buyers, users and vendors, and helps clients stay ahead of IT Technology buyers, users and vendors, and helps clients stay ahead of IT trends. Industry areas covered in such subscriptions include technology trends. Industry areas covered in such subscriptions include technology trends. Industry areas covered in such subscriptions include technology and telecommunications including hardware, software and systems, services, IT telecommunications including hardware, software and systems, services, IT telecommunications including hardware, software and systems, services, IT management, market data and forecasts and vertical industry issues. management, market data and forecasts and vertical industry issues. management, market data and forecasts and vertical industry issues. Forms of research offered include statistical analysis, growth projections Forms of research offered include statistical analysis, growth projections Forms of research offered include statistical analysis, growth projections and market share rankings of suppl and market share rankings of suppliers and vendors of IT manufacturers iers and vendors of IT manufacturers and the financial community. GIL sells subscriptions to its Indian customers and the financial community. GIL sells subscriptions to its Indian customers and the financial community. GIL sells subscriptions to its Indian customers / subscribers to access Gartner's research products over the internet from / subscribers to access Gartner's research products over the internet from / subscribers to access Gartner's research products over the internet from its data server which is located outside India. its data server which is located outside India. Research subscripti Research subscriptions were originally delivered through originally delivered through print media and other physical means of print media and other physical means of delivery; however; most clients now access research products over the delivery; however; most clients now access research products over the delivery; however; most clients now access research products over the Internet at www.gartner.com. GIL enters into a Services Agreement Internet at www.gartner.com. GIL enters into a Services Agreement Internet at www.gartner.com. GIL enters into a Services Agreement (hereinafter referred to as 'SA') with its (hereinafter referred to as 'SA') with its India customers/ subscription for India customers/ subscription for each Gartner service purchased, setting out the details of the services to be each Gartner service purchased, setting out the details of the services to be each Gartner service purchased, setting out the details of the services to be provided and the subscription fee applicable. The Indian subscribers pay the provided and the subscription fee applicable. The Indian subscribers pay the provided and the subscription fee applicable. The Indian subscribers pay the subscription/access fees to GIL in accordance with the SA. During subscription/access fees to GIL in accordance with the SA. During subscription/access fees to GIL in accordance with the SA. During the year the assessee has received a gross subscription fee of Rs 86,52,72,951/ the assessee has received a gross subscription fee of Rs 86,52,72,951/ the assessee has received a gross subscription fee of Rs 86,52,72,951/- from a number of Indian clients. from a number of Indian clients.”
3.1 During the year under consideration, there is a slight change uring the year under consideration, there is a slight change uring the year under consideration, there is a slight change in the process of access of subscription products access of subscription products by by the customers as compared to earlier years ed to earlier years; otherwise there is no change in ; otherwise there is no change in product category. From this year, t From this year, the assessee has introduced its he assessee has introduced its subsidiary i.e. Gartner India Research and Advisory Services Pvt. Gartner India Research and Advisory Services Pvt. Gartner India Research and Advisory Services Pvt. Ltd. (for short ‘Gartner India’) Ltd. (for short ‘Gartner India’) as an intermediary an intermediary for subscribing the ‘GIL’ product and now the Indian customers are required to buy product and now the Indian customers are required to buy product and now the Indian customers are required to buy the research product the research product from the ‘Gartner India’ rather than rather than ‘GIL’ directly. The assessee has entered into directly. The assessee has entered into a ‘reseller agreement agreement’ with Gartner India w.e.f. the year under consideration. Gartner India w.e.f. the year under consideration.
3.2 For the year under consideration, the assessee filed return of For the year under consideration, the assessee filed return of For the year under consideration, the assessee filed return of income electronically on 29.11.2019 declaring total income of income electronically on 29.11.2019 declaring total income of income electronically on 29.11.2019 declaring total income of Rs.13,660/- along along with with claim claim for refund refund amounting to Rs.8,65,27,290/-. The return of income filed by the assessee was . The return of income filed by the assessee was . The return of income filed by the assessee was selected for scrutiny and statutory notices under the scrutiny and statutory notices under the Income-tax scrutiny and statutory notices under the Act, 1961 (in short the ‘Act’) were , 1961 (in short the ‘Act’) were issued and complied with. The issued and complied with. The Assessing Officer issued a draft assessment order dated 25.09.2021 Assessing Officer issued a draft assessment order dated 25.09.2021 Assessing Officer issued a draft assessment order dated 25.09.2021 wherein he proposed that the revenue generated from sale of online wherein he proposed that the revenue generated from wherein he proposed that the revenue generated from subscription was in the nature of scription was in the nature of ‘royalty’ income in the hands of income in the hands of the assessee as against claim of the assessee that same was in the assessee as against claim of the assessee that same was in the assessee as against claim of the assessee that same was in the nature of business income and not taxable in India, in absence of nature of business income and not taxable in India nature of business income and not taxable in India any permanent establishment (PE) establishment (PE).
The assessee filed ob The assessee filed objections against draft order before against draft order before the Ld. DRP, but the assessee could not succeed and the Ld. DRP following the assessee could not succeed and the Ld. DRP following the assessee could not succeed and the Ld. DRP following their predecessor in assessment year 2012 their predecessor in assessment year 2012-13 and order of the 13 and order of the Tribunal in the case of the assessee for assessment year 2013-14 Tribunal in the case of the assessee for assessment year 2013 Tribunal in the case of the assessee for assessment year 2013 and 2014-15 [, wher where the Tribunal has followed the decision of e the Tribunal has followed the decision of Hon’ble Karnataka High Court in the case of CIT v. Wipro Ltd. Hon’ble Karnataka High Court in the case of CIT v. Wipro Ltd. Hon’ble Karnataka High Court in the case of CIT v. Wipro Ltd. (2011) 203 Taxman 621 (Karnataka) (2011) 203 Taxman 621 (Karnataka) ] confirmed the addition of Rs.86,52,72,951/- proposed by the Assessing Officer proposed by the Assessing Officer proposed by the Assessing Officer. Pursuant to the directions of the L of the Ld. DRP, the Assessing Officer has passed the Assessing Officer has passed impugned final assessment order on 27.07.2022 making the impugned final assessment order on 27.07.2022 making the impugned final assessment order on 27.07.2022 making the addition of subscription fees as royalty income which was subjected addition of subscription fees as royalty income which was addition of subscription fees as royalty income which was to tax @ 10% on the gross basis as per Article 12 of the India 10% on the gross basis as per Article 12 of the India 10% on the gross basis as per Article 12 of the India- Ireland DTAA.
Aggrieved, the assessee is in appeal before the Tribunal by way the assessee is in appeal before the Tribunal by way the assessee is in appeal before the Tribunal by way of raising grounds as reproduced above. of raising grounds as reproduced above.
6. Before us, the Ld. Counsel Before us, the Ld. Counsel for the assessee filed a Paper Book the assessee filed a Paper Book containing pages 1 to 157 and also filed containing pages 1 to 157 and also filed additional Paper Book additional Paper Book containing pages 1 to 84. 1 to 84.
The sole ground of the appeal sole ground of the appeal of the assessee of the assessee is in relation to income from sale of online subscription based product , which has income from sale of online subscription based product income from sale of online subscription based product been held by the lower authorities as held by the lower authorities as ‘royalty’ as against claim of as against claim of the assessee of the same as the assessee of the same as ‘business income’, not taxable in India in absence of any permanent establishment (PE) in India. The brief in absence of any permanent establishment (PE) in India. The brief in absence of any permanent establishment (PE) in India. The brief facts qua the issue in dispute are that during the year under facts qua the issue in dispute are that during the year under facts qua the issue in dispute are that during the year under consideration, the assessee has shown income from sale of consideration, the assessee has shown income from sale of consideration, the assessee has shown income from sale of subscription based subscription based research products/report for (i for (i) resale by ‘Gartner India’ to its its customers in India on a ‘principal to principal’ on a ‘principal to principal’ basis and (ii) for sale and (ii) for sale to ‘Gartner India’ for its internal use for its internal use . The assessee is eligible to claim the tax treaty assessee is eligible to claim the tax treaty benefits which have benefits which have not been disputed either by the Asses been disputed either by the Assessing Officer or by the Ld. DRP sing Officer or by the Ld. DRP. During the year under consideration the assessee has sold During the year under consideration the assessee has sold During the year under consideration the assessee has sold subscription based product to Gartner India: subscription based product to Gartner India:
(i) of Rs. 79,90,95,490 Rs. 79,90,95,490/- for resale by Gartner India pursuant to Reseller for resale by Gartner India pursuant to Reseller agreement: for Gartner India's sole internal use of Rs. 6,61,77,461 . 6,61,77,461/- in accordance (ii) for Gartner India's sole with Research access with Research access agreement. Regarding the first component of income from sale of component of income from sale of 7.1 Regarding the subscription based product for resale by the Gartner product for resale by the Gartner India to its product for resale by the Gartner Indian customers, the Ld. Counsel for the assessee su he Ld. Counsel for the assessee su he Ld. Counsel for the assessee submitted that assessee has entered into assessee has entered into a reseller agreement with with Gartner India w.e.f. 01.04.2014, under which, the under which, the ‘Gartner India Gartner India’ purchases subscription based product for resale subscription based product for resale to its clients in India. The its clients in India. The relevant clauses of reseller agreement which reseller agreement which is available in available in Paper Book pages 47-59 of the 59 of the Paper Book consisting of 157 pages of 157 pages, are extracted as under:
"Title - Reseller Agreement" Reseller Agreement" This Reseller Agreement (the Agreement) is made as of April 1, 2014 (The This Reseller Agreement (the Agreement) is made as of April 1, 2014 (The This Reseller Agreement (the Agreement) is made as of April 1, 2014 (The Effective Date), berween Gartner Ireland Limited... Effective Date), berween Gartner Ireland Limited... "GIL)... and Gartner India "GIL)... and Gartner India Research & Advisory Services Pvt Ltd … Research & Advisory Services Pvt Ltd … Background ... B) GIL desire to appoint Gartner India, and Gartner India desires to act, as ) GIL desire to appoint Gartner India, and Gartner India desires to act, as ) GIL desire to appoint Gartner India, and Gartner India desires to act, as non-exclusive product reseller ... of GIL's products.... exclusive product reseller ... of GIL's products....
II) Appointment and Authority of Gartner Appointment and Authority of Gartner India GIL hereby appoints Gartner India as a non GIL hereby appoints Gartner India as a non-exclusive reseller of the exclusive reseller of the Products in the Territory only Products in the Territory only VI. Trademarks, Trade names and Copyrig demarks, Trade names and Copyrights 6.01 No rights to Use or otherwise exploit .... Gartner India shall not have a 6.01 No rights to Use or otherwise exploit .... Gartner India shall not have a 6.01 No rights to Use or otherwise exploit .... Gartner India shall not have a right to exploit the copyri right to exploit the copyrights embedded in the Products. 6.02 Claim on Trademarks, Tradenames and 6.02 Claim on Trademarks, Tradenames and Copyrights: ..Gartner India : ..Gartner India shall not have any right to reproduce right, modify or adapt the copyrighted shall not have any right to reproduce right, modify or adapt the copyrighted shall not have any right to reproduce right, modify or adapt the copyrighted Products prior to resale Products prior to resale 6.03 Ownership and Use of the Products: GIL retains th 6.03 Ownership and Use of the Products: GIL retains the rights to supply the e rights to supply the Products... Gartner India shall only supply the Products pursuant to this Gartner India shall only supply the Products pursuant to this Gartner India shall only supply the Products pursuant to this agreement... which provide that (i access to the Products will be restricted to agreement... which provide that (i access to the Products will be restricted to agreement... which provide that (i access to the Products will be restricted to the named individuals (each a "Named user")...; (fil) the user IDs and the named individuals (each a "Named user")...; (fil) the user IDs and the named individuals (each a "Named user")...; (fil) the user IDs and passwords will be issued by GIL at the request of Gartner India and sent s will be issued by GIL at the request of Gartner India and sent s will be issued by GIL at the request of Gartner India and sent directly to the Named users.... directly to the Named users....” 7.2 The Ld. Counsel The Ld. Counsel for the assessee referred to above clauses and referred to above clauses and submitted that the submitted that the ‘GIL’ sells products to ‘Gartner India Gartner India’ and ‘Gartner India’ merely merely resells such products in India and thus the products in India and thus the transaction was a pure sale pure sale/purchase of the products and in the of the products and in the nature of the business income nature of the business income, not taxable in absence of PE in India not taxable in absence of PE in India as per the beneficial provisions of the India as per the beneficial provisions of the India-Ireland Tax Treaty. Ireland Tax Treaty. Further, the Ld. Counsel Ld. Counsel referred to Paper Book pages 46 to 48 of referred to Paper Book pages 46 to 48 of the Paper Book consisting 84 pages and the Paper Book consisting 84 pages and submitted that Gartner mitted that Gartner India resold the products purchased the products purchased from ‘GIL’ and has made substantial profits substantial profits on the resale. Further, the Ld. Counsel the resale. Further, the Ld. Counsel submitted that Gartne submitted that Gartner India has paid GST @ 18% on sale of r India has paid GST @ 18% on sale of subscription based products purchased from subscription based products purchased from ‘GIL’ to its customers. to its customers. The Ld. Counsel referred to sample invoices raised by ‘Gartner The Ld. Counsel referred to sample invoices raised by The Ld. Counsel referred to sample invoices raised by India’ available on page 73 available on page 73-74 of the Paper Book consisting of 84 74 of the Paper Book consisting of 84 pages. The Ld. Counsel The Ld. Counsel further submitted that Gartner India has further submitted that Gartner India has also paid GST @ 18% under reverse charge also paid GST @ 18% under reverse charge mechanism mechanism on purchase of subscription based products from of subscription based products from ‘GIL’. The Ld. Counsel further . The Ld. Counsel further submitted that a transfer pricing scrutiny was made on Gartner submitted that a transfer pricing scrutiny was made on Gartner submitted that a transfer pricing scrutiny was made on Gartner India for AY 2020-21 21 wherein transactions between assessee and wherein transactions between assessee and ‘Gartner India’ were thoroughly scrutinized and the were thoroughly scrutinized and the were thoroughly scrutinized and the Ld. TPO was satisfied that transaction were at arm’s length and no adjustment satisfied that transaction were at arm’s length and no adjustment satisfied that transaction were at arm’s length and no adjustment was made.
On the other hand, the Ld. DR referred to the order of the On the other hand, the Ld. DR referred to the order of the On the other hand, the Ld. DR referred to the order of the lower authorities and submitted that in rities and submitted that in the case of Wipro Ltd. the case of Wipro Ltd. (supra), the Wipro Ltd. had (supra), the Wipro Ltd. had subscribed online research product of subscribed online research product of the assessee and payment made by the Wipro Lt the assessee and payment made by the Wipro Ltd. to the assessee d. to the assessee has been upheld by the Hon’ble Karnataka High Court ld by the Hon’ble Karnataka High Court as in the ld by the Hon’ble Karnataka High Court nature of the ‘royalty royalty’ income liable to be deduction of of tax at source. He submitted that the Assessing Officer has also held the income He submitted that the Assessing Officer has also held the income He submitted that the Assessing Officer has also held the income from subscription of digital product as royalty u/s 9(1)(vi) alongwith from subscription of digital product as royalty u/s 9(1)(vi) from subscription of digital product as royalty u/s 9(1)(vi) Explanation 2(v) of Act read with Copyri ation 2(v) of Act read with Copyright Act and also under the ct and also under the relevant articles of the DTAA. The Ld. DR submitted that as per the relevant articles of the DTAA. The Ld. DR submitted that as per the relevant articles of the DTAA. The Ld. DR submitted that as per the definition of the royalty under Article 12 of India definition of the royalty under Article 12 of India-Ireland Tax Treaty Ireland Tax Treaty ‘use’ or ‘right to use right to use’ of copyright underlying copyright of copyright underlying copyrighted digital products amounts products amounts to to royalty. Further r urther, the word ‘information’ concerning concerning industrial industrial, commercial commercial or or scientific scientific experience also covers the case of the assessee because in the case covers the case of the assessee because in the case covers the case of the assessee because in the case of the assessee information has been of the assessee information has been collected based on the past based on the past experience in the field of industri experience in the field of industrial commercial or al commercial or scientific field ,therefore, the case of the assessee squarely falls under the therefore, the case of the assessee squarely falls under the therefore, the case of the assessee squarely falls under the definition of the royalty. The Ld. DR referred to the finding of the definition of the royalty. The Ld. DR referred to the finding of the definition of the royalty. The Ld. DR referred to the finding of the DRP wherein the Ld DRP has followed decision of the Co-ordinate DRP wherein the Ld DRP has followed decision of the Co DRP wherein the Ld DRP has followed decision of the Co Bench in the case of the as Bench in the case of the assessee in for sessee in ITA No. 7101/Mum/2010 for assessment year 2007 assessment year 2007-08. The Ld. DR further referred to the 08. The Ld. DR further referred to the decision of Co-ordinate Bench in assessee’s own case for AYs 2003 ordinate Bench in assessee’s own case for AYs 2003 ordinate Bench in assessee’s own case for AYs 2003- 04, 2005-06, 2008-09, 2019 09, 2019-10, 2010-11, 2011-12 and 2012 12 and 2012-13 wherein the issue has been decided wherein the issue has been decided against the assessee. against the assessee. The Ld. DR also referred to the decision of the Tribunal in ITA No. DR also referred to the decision of the Tribunal in ITA No. DR also referred to the decision of the Tribunal in ITA No. 6950/Mum/2017 and ITA No. 167/Mum/2018 for assessment year 6950/Mum/2017 and ITA No. 167/Mum/2018 for assessment year 6950/Mum/2017 and ITA No. 167/Mum/2018 for assessment year 2013-14 and 2014-15 wherein the Tribunal following the decision of 15 wherein the Tribunal following the decision of 15 wherein the Tribunal following the decision of the Hon’ble Karnataka High Court in the the Hon’ble Karnataka High Court in the case of Wipro Ltd. (supra) case of Wipro Ltd. (supra) concluded that subscription fee paid by the Wipro Ltd. to Gartner concluded that subscription fee paid by the Wipro Ltd. to Gartner concluded that subscription fee paid by the Wipro Ltd. to Gartner Group for license to use Gartner Database was in the nature of the Group for license to use Gartner Database was in the nature of the Group for license to use Gartner Database was in the nature of the royalty both under the DTAA and domestic laws. royalty both under the DTAA and domestic laws. Accordingly, the Accordingly, the Ld. DR submitted that issue in Ld. DR submitted that issue in dispute being covered in favour of vered in favour of the Revenue, the grounds of appeal of the assessee need to be he grounds of appeal of the assessee need to be he grounds of appeal of the assessee need to be dismissed. Regarding the second component of income for sale of second component of income for sale of 8.1 Regarding the subscription based product to Gartner India under research subscription based product to Gartner India under research subscription based product to Gartner India under research excess agreement for internal u excess agreement for internal use by Gartner India se by Gartner India, the Ld. Counsel for the assessee referred to research Counsel for the assessee referred to research access agreement with ess agreement with Gartner India entered into entered into w.e.f. January 2011, under which the under which the ‘Gartner India’ purchases subscription based product from the purchases subscription based product from the purchases subscription based product from the assessee for its sole internal use and paid research excess fees. The assessee for its sole internal use and paid research excess fees. The assessee for its sole internal use and paid research excess fees. The relevant clauses of the research access agreement referred by the clauses of the research access agreement referred by the clauses of the research access agreement referred by the Ld. Counsel are reproduced as under: reproduced as under:
"Title - 'Research Access Agreement" 'Research Access Agreement" Background… C.... GIL desires to provide Gartn L desires to provide Gartner India access to published research er India access to published research products and related research resources belonging to GIL or its licensors so products and related research resources belonging to GIL or its licensors so products and related research resources belonging to GIL or its licensors so that such information may be used by Garter India in providing consulting that such information may be used by Garter India in providing consulting that such information may be used by Garter India in providing consulting services to its clients. services to its clients. III. Access and Payment for Access to Reso . Access and Payment for Access to Resources 3.01 Grant of Access.... GIL grants to Gartner India non Grant of Access.... GIL grants to Gartner India non-exclusive access to exclusive access to use the resources. resources. 3.05 Restrictions on Use: Gartner India shall not have the right to transfer, 3.05 Restrictions on Use: Gartner India shall not have the right to transfer, 3.05 Restrictions on Use: Gartner India shall not have the right to transfer, license, pledge or otherwise use the Resources in a manner other than as license, pledge or otherwise use the Resources in a manner other than as license, pledge or otherwise use the Resources in a manner other than as stated in this agreement... ted in this agreement... V. Confidentiality V. Confidentiality General: Gartner India shall hold in confidence any and all information that General: Gartner India shall hold in confidence any and all information that General: Gartner India shall hold in confidence any and all information that it receives from GIL or from any affiliate of GIL or that it develops it receives from GIL or from any affiliate of GIL or that it develops it receives from GIL or from any affiliate of GIL or that it develops ("information") and shall neither publish, disseminate nor disclo ("information") and shall neither publish, disseminate nor disclo ("information") and shall neither publish, disseminate nor disclose such Information to any third parties..." Information to any third parties..." 8.2 The Ld. Counsel The Ld. Counsel for assessee submitted that the subscription submitted that the subscription based products by assessee to based products by assessee to ‘Gartner India’ are copyright are copyrighted and their access was restricted restricted for internal use by ‘Gartner India Gartner India’ only consequently there is no copyright given to Gartner India thus the y there is no copyright given to Gartner India thus the y there is no copyright given to Gartner India thus the said transaction was was merely in the nature of sale of copyright merely in the nature of sale of copyrighted article. The Ld. Counsel further submitted that the issue pertaining rticle. The Ld. Counsel further submitted that the issue pertaining rticle. The Ld. Counsel further submitted that the issue pertaining to sale of copyrighted ed Article for sole internal use versus Article for sole internal use versus sale of copyright is now settled in view of the decision of the Hon’ble copyright is now settled in view of the decision of the Hon’ble copyright is now settled in view of the decision of the Hon’ble Supreme Court in the case of Supreme Court in the case of Engineering Analysis and Centre of Engineering Analysis and Centre of Excellence (2021) 125 taxmann.com 42 (SC) Excellence (2021) 125 taxmann.com 42 (SC) and decision of the and decision of the Hon’ble Bombay High Court in the case of Director of Income Director of Income-tax Hon’ble Bombay High Court in the case of v. Dun & Breadstreet Information Services Pvt. Ltd. [2012] 20 v. Dun & Breadstreet Information Services Pvt. Ltd. [2012] 20 v. Dun & Breadstreet Information Services Pvt. Ltd. [2012] 20 taxmann.com 695 (Bom.) taxmann.com 695 (Bom.).
8.3 With reference to the history of the case With reference to the history of the case, the Ld. Counsel the Ld. Counsel submitted that as far as sale of subscription based product to submitted that as far as sale of subscription based product to submitted that as far as sale of subscription based product to Gartner India for resale by Gartner India t Gartner India for resale by Gartner India to its customers in India is o its customers in India is concerned, the reseller reseller agreement has been entered into from agreement has been entered into from 01.04.2014 with ‘Gartner India Gartner India’ and therefore, the order of the and therefore, the order of the Tribunal in earlier years would not apply in view of the change in Tribunal in earlier years would not apply in view of the change in Tribunal in earlier years would not apply in view of the change in the business model based on which in the business model based on which income has been offered by the come has been offered by the assessee on sale of subscription based products to assessee on sale of subscription based products to ‘Garner India Garner India’ for resale. As far as the research resale. As far as the research access fee received from Gartner India ess fee received from Gartner India for sale of subscription based products to be used solely by the for sale of subscription based products to be used solely by the for sale of subscription based products to be used solely by the Gartner India under re Gartner India under research agreement effective from January search agreement effective from January 2011, the Ld. Counsel submitted that Hon’ble Karnataka High the Ld. Counsel submitted that Hon’ble Karnataka High the Ld. Counsel submitted that Hon’ble Karnataka High Court in the case of Wipro Ltd. (supra) followed its own ruling in the Court in the case of Wipro Ltd. (supra) followed its own ruling in the Court in the case of Wipro Ltd. (supra) followed its own ruling in the case of Samsung Electronics Co. Ltd. [2012] 345 ITR 494 (Kar.). Samsung Electronics Co. Ltd. [2012] 345 ITR 494 (Kar.). Samsung Electronics Co. Ltd. [2012] 345 ITR 494 (Kar.). The Ld. Counsel submi The Ld. Counsel submitted that the Hon’ble Supreme Court in the tted that the Hon’ble Supreme Court in the case of Engineering Analysis and Centre of Excellence (supra) has case of Engineering Analysis and Centre of Excellence (supra) has case of Engineering Analysis and Centre of Excellence (supra) has reversed the ruling of the Hon’ble Karnataka High Court in the case reversed the ruling of the Hon’ble Karnataka High Court in the case reversed the ruling of the Hon’ble Karnataka High Court in the case of Samsung Electronics Company Ltd. (supra) and therefore, the of Samsung Electronics Company Ltd. (supra) and therefore, the of Samsung Electronics Company Ltd. (supra) and therefore, the decision of the Hon’ble Karnataka High Court in the case of Wipro Hon’ble Karnataka High Court in the case of Wipro Hon’ble Karnataka High Court in the case of Wipro Ltd. (supra) no longer apply Ltd. (supra) no longer apply in the case of assessee.
8.4 In view of the above arguments, the Ld. Counsel In view of the above arguments, the Ld. Counsel In view of the above arguments, the Ld. Counsel for assessee submitted that income from sale of subscription based products to submitted that income from sale of subscription based pr submitted that income from sale of subscription based pr Gartner India (i) of Rs.79,90,95,490/ s.79,90,95,490/- for resale by Gartner India on for resale by Gartner India on principle to principle basis under the principle to principle basis under the reseller agreement and (ii) the agreement and (ii) the income from sale of subscription based products for sole internal income from sale of subscription based products for income from sale of subscription based products for use of Gartner India of Rs.6,61,77,461/ use of Gartner India of Rs.6,61,77,461/- under research access under research access agreement, are in the nature of business income are in the nature of business income and not royalty. and not royalty. Since the assessee did not have a PE in India ince the assessee did not have a PE in India, the said the said business income would not be taxable in India under the beneficial income would not be taxable in India under the beneficial income would not be taxable in India under the beneficial provisions of the Tax Treaty. provisions of the Tax Treaty.
8.5 Regarding the research access fee egarding the research access fee, the Ld. DR Ld. DR submitted that from the documents from the documents submitted, it could not be deciphered whether it could not be deciphered whether the ‘Gartner India’ has further resold or provided consultancy based has further resold or provided consultancy based has further resold or provided consultancy based on the products purchased from the assessee which will be in the on the products purchased from the assessee which will be in the on the products purchased from the assessee which will be in the nature of use of the copyright in the products of the assessee and nature of use of the copyright in the products of the assessee and nature of use of the copyright in the products of the assessee and therefore, matter may be restored back for detailed verification of therefore, matter may be restored back for detailed verification of therefore, matter may be restored back for detailed verification of the use of the product or use of the copyright in those products by e of the product or use of the copyright in those products by e of the product or use of the copyright in those products by Gartner India.
We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The issue in dispute and perused the relevant material on record. dispute and perused the relevant material on record. dispute before us is whether the income receive dispute before us is whether the income received by the assessee d by the assessee from Gartner India is assessable in the hands of the assessee as from Gartner India is assessable in the hands of the assessee as from Gartner India is assessable in the hands of the assessee as business income or Royalty. The term ‘Royalty’ has been defined business income or Royalty. The term ‘Royalty’ has been defined business income or Royalty. The term ‘Royalty’ has been defined under the DTAA as under: under the DTAA as under:
ARTICLE 12 : Royalties and fees for technical services -
1. 1. Royalties or fees for ARTICLE 12 : Royalties and fees for technical services 1. Royalties or fees for technical services arising in a Contracting State and paid to a resident of the chnical services arising in a Contracting State and paid to a resident of the chnical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.
2. However, such other Contracting State may be taxed in that other State.
2. However, such other Contracting State may be taxed in that other State.
2. However, such royalties or fees for technical services may also be taxed in the Contracting State royalties or fees for technical services may also be taxed in the Contracting State royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient , and according to the laws of that State, but if the recipient , and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so is the beneficial owner of the royalties or fees for technical services, the tax so is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees charged shall not exceed 10 per cent of the gross amount of the royalties or fees charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services.
3. (a) The term “royalties” as used in this Article means for technical services.
3. (a) 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 payments of any kind received as a consideration for the use of, or the right to 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 use, any copyright of literary, artistic or scientific work including cinematograph use, any copyright of literary, artistic or scientific work including cinematograph films or films or tapes for radio or television broadcasting, any patent, trade films or films or tapes for radio o r television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for the use of or the mark, design or model, plan, secret formula or process or for the use of or the mark, design or model, plan, secret formula or process or for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft, right to use industrial, commercial or scientific equipment, other than an aircraft, right to use industrial, commercial or scientific equipment, other than an aircraft, or for information concerning industrial, commercial or scientific experience; (b) or for information concerning industrial, comm ercial or scientific experience; (b) The term “fees for technical services” means payment of any kind in The term “fees for technical services” means payment of any kind in The term “fees for technical services” means payment of any kind in consideration for the rendering of any managerial, technical or consultancy consideration for the rendering of any managerial, technical or consultancy consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but services including the provision of services by technical or other personne services including the provision of services by technical or other personne does not include payments for services mentioned in Articles 14 and 15 of this does not include payments for services mentioned in Articles 14 and 15 of this does not include payments for services mentioned in Articles 14 and 15 of this Convention.
4. The provisions of paragraphs 1 and 2 shall not apply if the Convention.
4. The provisions of paragraphs 1 and 2 shall not apply if the Convention.
4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of beneficial owner of the royalties or fees for technical services, being a resident of beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which ing State, carries on business in the other Contracting State in which ing State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent the royalties or fees for technical services arise through a permanent the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent establishment situated therein, or performs in that other State independent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in personal services from a fixed base si tuated therein, and the right or property in respect of which the royalties or fees for technical services are paid is effectively respect of which the royalties or fees for technical services are paid is effectively respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case the connected with such permanent establishment or fixed base. In such case the connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.
5. Royalties provisions of Article 7 or Article 14, as the cas e may be, shall apply.
5. Royalties or fees for technical services shall be deemed to arise in a Contracting State or fees for technical services shall be deemed to arise in a Contracting State or fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a when the payer is that State itself, a political sub division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees resident of that State. Where, however, the person payi ng the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has for technical services, whether he is a resident of a Contracting State or not, has for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection in a Contracting State a permanent establishment or a fixed base in connection in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was with which the liability to pay the royalties or fees for technical with which the liability to pay the royalties or fees for technical incurred, and such royalties or fees for technical services are borne by such incurred, and such royalties or fees for technical services are borne by such incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical permanent establishment or fixed base, then such royalties or fees for technical permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent services shall be deemed to arise in the State in which the permanent services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.
6. Where, by reason of a special or fixed base is situated.
6. Where, by reason of a special or fixed base is situated.
Where, by reason of a special relationship between the payer and the beneficial owner or between both of relationship between the payer and the beneficial owner or between both of relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical them and some other person, the amount of the royalties or fees for technical them and some other person, the amount of the royalties or fees for technical services, having regard to the use, right or information for which they are paid, services, having regard to the use, right o r information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the exceeds the amount which would have been agreed upon by the payer and the exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article beneficial owner in the absence of such relationship, the provisions of this Article beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of shall apply only to the last e, the excess part of the payments shall remain taxable according to the laws of each Contracting the payments shall remain taxable according to the laws of each Contracting the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention. State, due regard being had to the other provisions of this Convention. State, due regard being had to the other provisions of this Convention.
9.1 The term ‘Royalty’ has been defined ‘Royalty’ has been defined in Act under in Act under Explanatin-2 below the section 9 2 below the section 9 as under:
Explanation 2. - For the purposes of this clause, "royalty" means consideration For the purposes of this clause, "royalty" means consideration For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which (including any lump sum consideration but excluding any consideration which (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") would be the income of the recipient chargeable under the head "Capital gains") would be the income of the recipient chargeable under the head "Capital gains") for-(i)the transfer of all or any rights (including the granting of a licence) in he transfer of all or any rights (including the granting of a licence) in he transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade respect of a patent, invention, model, design, secret formula or process or trade respect of a patent, invention, model, design, secret formula or process or trade mark or similar property;(ii)the imparting of any information concerning the mark or similar property; the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or working of, or the use of, a patent, invention, model, design, secret formula or process or trade-mark or similar property; mark or similar property;(iii)the use of any patent, invention, the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;(iv)the model, design, secret formula or process or trade mark or similar property; model, design, secret formula or process or trade mark or similar property; imparting of any information concerning technical, industrial, commercial or imparting of any information concerning technical, industrial, commercial or imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;[(iv-a) the use or right to use, any scientific knowledge, experience or skill; a) the use or right to use, any industrial, commercial or scientific equipment but not including the amounts industrial, commercial or scientific equipment but not including the amounts industrial, commercial or scientific equipment but not including the amounts referred to in section 44 erred to in section 44-BB;] [ Inserted by Act 14 of 2001, Section 4 (w.e.f. [ Inserted by Act 14 of 2001, Section 4 (w.e.f. 1.4.2002).](v)the transfer of all or any rights (including the granting of a licence) the transfer of all or any rights (including the granting of a licence) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or in respect of any copyright, literary, ar tistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection video tapes for use in connection with television or tapes for use in connection video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution with radio broadcasting, but not including consideration for the sale, distribution with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or(vi)the rendering of any services in or exhibition of cinematographic films; or the rendering of any services in connection with the activities referred to in [sub-clauses (i) to (iv), (iva) and (v)] connection with the activities referred to in [sub clauses (i) to (iv), (iva) and (v)] [ Substituted by Act 14 of 2001, Section 4, for " sub-clauses (i) to (v)" (w.e.f. Substituted by Act 14 of 2001, Section 4, for " sub clauses (i) to (v)" (w.e.f. 1.4.2002).]. 9.2 Therefore, the issue in dispute the issue in dispute before us is whether the is whether the transaction transaction transaction of of of the the the assessee assessee assessee under under under reference, reference, reference, could be characterized in the nature of business income or ‘Royalty’ characterized in the nature of business income or ‘Royalty’ characterized in the nature of business income or ‘Royalty’ income under the DTAA or under domestic law under the DTAA or under domestic law. As far as As far as first component of the income i.e. income from sale of subscription to component of the income i.e. income from sale of subscription to component of the income i.e. income from sale of subscription to ‘Gartner India’ for further resale to its customers for further resale to its customers, is concerned, , is concerned, the assessee has change assessee has changed its business model w.e.f. year under its business model w.e.f. year under consideration. Prior to assessment year under consideration rior to assessment year under consideration rior to assessment year under consideration, the assessee used to sale assessee used to sale subscription of its digital research products research products to to the the customers customers directly, directly whereas whereas in in the the year year under under consideration, according to according to the assessee, it has engaged has engaged ‘Gartner India’ as intermediary as intermediary. It is submitted that the assessee is selli he assessee is selling its research products to its research products to ‘Gartner India’ and ‘Gartner India Gartner India’ after charging certain markup certain markup, is further selling to customers in India. to customers in India.
9.3 We have examined the financial of ‘Gartner India’ furnished We have examined the financial of ‘Gartner India’ furnished We have examined the financial of ‘Gartner India’ furnished before us by the assessee vide additional paper book –III. On before us by the assessee vide additional paper book before us by the assessee vide additional paper book perusal of profit and loss account ( perusal of profit and loss account ( PB-11). We find that e find that ‘Garnter India’ has shown revenue from operations at Rs. 7,37,49,79,570/ has shown revenue from operations at Rs. 7,37,49,79,570/ has shown revenue from operations at Rs. 7,37,49,79,570/-. Break up this revenue has been provided on PB Break up this revenue has been provided on PB-23, where revenue 23, where revenue from sale of subscription based products has been reported at Rs. from sale of subscription based products has been reported at Rs. from sale of subscription based products has been reported at Rs. 2,52,64,68,624/-. The purchase of subscription has been reported . The purchase of subscription has been reported . The purchase of subscription has been reported at Rs. 35,78,90,830/ at Rs. 35,78,90,830/-(PB-23) . Though, the assessee claimed to . Though, the assessee claimed to have sold the subscription based products to its Indian subsidiary, have sold the subscription based products to its Indian subsid have sold the subscription based products to its Indian subsid but no stock of subscription based product is found in the books of but no stock of subscription based product is found in the books of but no stock of subscription based product is found in the books of ‘Gartner India’. In view of the ‘Gartner India’. In view of the above doubt arose in the claim of the doubt arose in the claim of the assessee of sale of products to its subsidiary assessee of sale of products to its subsidiary and further resale and further resale, the assessee was asked to correlate sale of e assessee was asked to correlate sale of each subscription based ach subscription based product to ‘Gartner India Gartner India’ and further resale of the same product by and further resale of the same product by Gartner India to end customer. Gartner India to end customer. Before us, the assessee has filed a Before us, the assessee has filed a copy of the sample invoice issued by the assessee on ‘Gartner copy of the sample invoice issued by the assessee on copy of the sample invoice issued by the assessee on India’. The relevant copy of the in . The relevant copy of the invoice available on voice available on PB-III/68 as extracted as under:
9.4 As part of schedule of above invoice, t As part of schedule of above invoice, the assessee assessee enclosed a list of periodicals (PB list of periodicals (PB-III/69-72) which were sold under the above 72) which were sold under the above invoice. The list contains only product name f invoice. The list contains only product name from Sr No. 1 to 179. It m Sr No. 1 to 179. It is noted that the assessee has raised a is noted that the assessee has raised a consolidated invoice for all consolidated invoice for all those products, but quantity of each product sold or sale price of se products, but quantity of each product sold or sale price of se products, but quantity of each product sold or sale price of each product was not provided each product was not provided. Therefore, the matter matter was fixed for clarification by the Bench by the Bench and assessee was asked to supply basis assessee was asked to supply basis of price for which each product was sold by the assessee to ‘Gartner of price for which each product was sold by the assessee to of price for which each product was sold by the assessee to India’. In next hearing, the assessee provided a basis of charging . In next hearing, the assessee provided a basis of charging . In next hearing, the assessee provided a basis of charging the ‘Gartner India’ for sale of products for sale of products, which is reproduced as which is reproduced as under:
Gartner Irela Gartner Ireland Limited ('the Appellant1 / 'GIL') AY 2019-20 Statement of working of Gartner Ireland Invoices raised on Gartner India Statement of working of Gartner Ireland Invoices raised on Gartner India Statement of working of Gartner Ireland Invoices raised on Gartner India Particulars Amount (INR) Reference to Paper Books Reference to Paper Books (A) 3,06,99,26,300 Gross Subscription-based Pg No 23 as per paper book Pg No 23 as per paper book product Revenue of Gartner consisting of 84 pages submitted consisting of 84 pages submitted on 09 Nov 2023 India as per its P&L for the year year on 09 Nov 2023 ended 31 March 2019 (B) 2,15,78,01,737 Less: Direct & Indirect Pg No 37 as per paper book No 37 as per paper book Operating Cost of Gartner India Operating Cost of Gartner India consisting of 84 pages submitted consisting of 84 pages submitted relating to Subscription-based on 09 Nov 2023 -Segment on 09 Nov 2023 product Revenues expenses (295,68,97,227) expenses (295,68,97,227) includes operating cost includes operating cost (215,78,01,737) + cost of goods (215,78,01,737) + cost of goods sold (79,90,95,490) sold (79,90,95,490) (C) 11,30,29,072 Less: Return on Subscription- Pg No 59 and 48 as per paper Pg No 59 and 48 as per paper based product sales to Gartner based product sales to Gartner book consisting of 157 pages book consisting of 157 pages India @ 3.7% submitted on 10Oct2023 submitted on 10Oct2023 (D)=(A)-(B)-(C) 79,90,95,490 Gartner Ireland's Aggregate Pg No 23 and 45 as per paper Pg No 23 and 45 as per paper Billing to Gartner India in book consisting of 84 pages book consisting of 84 pages submitted on 09 Nov 2023 respect of the subscription- submitted on 09 Nov 2023 based products (excluding Research Access Fees)
9.5 Further, the assessee submitted a sample copy of consolidated Further, the assessee submitted a sample copy of consolidated Further, the assessee submitted a sample copy of consolidated invoice raised for sale of subscription invoice raised for sale of subscription of products to products to ‘Gartner India’ for the period from 1/4/2018 to 30/6/2018 ( od from 1/4/2018 to 30/6/2018 (one quarter of the year one quarter of the year ), which is extracted as under: , which is extracted as under:
9.6 A copy of the invoice raised by copy of the invoice raised by ‘Gartner India’ to to its customers is available on page 73 of the Paper Book on page 73 of the Paper Book. For ready reference ready reference same is reproduced as under s under:
9.7 Before us, the Ld. Counsel Before us, the Ld. Counsel for the assessee has referred to the has referred to the reseller agreement and reseller agreement and submitted that Indian customers approach submitted that Indian customers approach the ‘Gartner India’ for purchase for purchase of subscription of the research of subscription of the research product and the ‘Gartner India Gartner India’ forward said request request to the assessee and the assessee provide user ID and password and the assessee provide user ID and password directly directly to those customers for downloading the subscription from the website of the customers for downloading the subscription from the website of the customers for downloading the subscription from the website of the assessee. In the entire entire process, the assessee has shown to have shown to have sold the products to ‘Gartner India Gartner India’ on quarterly basis on quarterly basis. But in such quarterly invoices raised by the assessee on Gartner India , there is quarterly invoices raised by the assessee on Gartner India , there is quarterly invoices raised by the assessee on Gartner India , there is no mention of quantity of products sold no mention of quantity of products sold , thus it can be inferred , thus it can be inferred that assessee has charged for one product that assessee has charged for one product only or in other words we or in other words we may say that assessee i.e. GIL has ee i.e. GIL has charged onetime onetime quarterly fee to Gartner India for product products having Sr No. 1 to 179 having Sr No. 1 to 179, whereas ‘Gartner India’ had option to resale the same product option to resale the same product option to resale the same product multiple times and actually sold the same product to multiple customers. Thus, in and actually sold the same product to multiple customers. T and actually sold the same product to multiple customers. T substance, the ‘Gartner India Gartner India’ purchased not only the product but not only the product but right of copying of the research product right of copying of the research products and selling the same to and selling the same to Indian customers multiple multiple times, thus the transaction the transaction under reference of sale of subscription based research to ‘Gartner India’ of sale of subscription based research to ‘Gartner India’ of sale of subscription based research to ‘Gartner India’, for all practical purposes, purposes, can be characterized as in the nature of in the nature of ‘sale of copyright’ in the database of in the database of research products of research products of the assessee. Though the assessee has not specifically mentioned in its the assessee has not specifically mentioned in its the assessee has not specifically mentioned in its invoice as license fee for use of the copyright in the data fee for use of the copyright in the database but in fee for use of the copyright in the data substance it becomes fee in the nature substance it becomes fee in the nature for the use of the copyright the use of the copyright in the digital product of the assessee in the digital product of the assessee. During the course of hearing, . During the course of hearing, the ld Counsel for the assessee was specifically asked to correlate the ld Counsel for the assessee was specifically asked to correlate the ld Counsel for the assessee was specifically asked to correlate each invoice of resale by each invoice of resale by ‘Gartner India’ with corresponding sale with corresponding sale invoice issued by the assessee, so as to prove the claim of the invoice issued by the assessee, so as to prove the claim of the invoice issued by the assessee, so as to prove the claim of the assessee that transaction of the assessee that transaction of the assessee was a pur assessee was a pure sale and purchase of products i.e. trading transaction, purchase of products i.e. trading transaction, but the assessee but the assessee failed in substantiating that failed in substantiating that quantity of research products research products sold to ‘Gartner India’ was equivalent to the equivalent to the quantity of products resold by of products resold by ‘Gartner India’ to its customers. to its customers. At least from the invoices raised by At least from the invoices raised by the assessee and submitted before us, it is not getting established the assessee and submitted before us, it is not getting established the assessee and submitted before us, it is not getting established that number of subscriptions sold by the Indian entity are equal to that number of subscriptions sold by the Indian entity that number of subscriptions sold by the Indian entity the number of subscription sold by the assessee as number of the number of subscription sold by the assessee as number of the number of subscription sold by the assessee as number of subscription are not mentioned in the invoices raised by the subscription are not mentioned in the invoices raised by the subscription are not mentioned in the invoices raised by the assessee. The assessee was asked to provide invoices raised in The assessee was asked to provide invoices raised in The assessee was asked to provide invoices raised in subsequent years also but no such invoices have been provided. If sequent years also but no such invoices have been provided. If sequent years also but no such invoices have been provided. If we try to compare sale of sale of the ‘digital products’ of assessee ’ of assessee with ‘physical products’ i.e. magazine or a book in i.e. magazine or a book in market, market, then, it may be like that the assessee had be like that the assessee had sold one copy of different copy of different physical magazines to ‘Gartner Gartner India’, and then ‘Gartner India Gartner India’ got copies of those printed and sold the same multiple times printed and sold the same multiple times to its customers to its customers. It hardly matters whether the user ID and password for downloading hardly matters whether the user ID and password for downloading hardly matters whether the user ID and password for downloading of the report has been issue of the report has been issued by the assessee, because ecause same has been done on behalf of been done on behalf of ‘Gartner India’ only. Therefore herefore, in substance the assessee has sold the assessee has sold not only the digital product but product but along with all copyrights there in, which which squarely falls in the definition of squarely falls in the definition of ‘royalty’ both under Article 12 both under Article 12 of ‘DTAA’ between India Ireland between India Ireland and provisions of the Act (domestic law).
9.8 Another argument by the Revenue is that Another argument by the Revenue is that Another argument by the Revenue is that the word ‘information’ ‘information’ ‘information’ concerning concerning concerning industrial, industrial, industrial, commercial commercial commercial or or or scientific scientific scientific experience also covers the case of the assessee because in the case experience also covers the case of the assessee because in the case experience also covers the case of the assessee because in the case of the assessee information has been collected based on the past f the assessee information has been collected based on the past f the assessee information has been collected based on the past experience in the field of industrial commercial or scientific field experience in the field of industrial commercial or scientific field experience in the field of industrial commercial or scientific field ,therefore, the case of the assessee squarely falls under the ,therefore, the case of the assessee squarely falls under the ,therefore, the case of the assessee squarely falls under the definition of the royalty. But neither the assessee has filed any definition of the royalty. But neither the assessee has filed definition of the royalty. But neither the assessee has filed details of the products nor the lower authorities have examined the details of the products nor the lower authorities have examined the details of the products nor the lower authorities have examined the issue as how the research issue as how the research products could be characterized as products could be characterized as information in the industrial, commercial or scientific field, which information in the industrial, commercial or scientific field, which information in the industrial, commercial or scientific field, which falls under the definition of ‘Royalty’ falls under the definition of ‘Royalty’ provided und under the DTAA. Before us also no such information has been provided. In absence Before us also no such information has been provided. In absence Before us also no such information has been provided. In absence of any such information, this issue can’t be adjudicated by us. In of any such information, this issue can’t be adjudicated by us. In of any such information, this issue can’t be adjudicated by us. In fact and circumstances of the case, we feel it appropriate to restore fact and circumstances of the case, we feel it appropriate to restore fact and circumstances of the case, we feel it appropriate to restore the whole issue in dispute back to the fi the whole issue in dispute back to the file of the AO for verification le of the AO for verification of the transaction of sale of subscription to the Gartner India afresh of the transaction of sale of subscription to the Gartner India afresh of the transaction of sale of subscription to the Gartner India afresh keeping in view our observation above and in accordance with law. keeping in view our observation above and in accordance with law. keeping in view our observation above and in accordance with law. If required, the AO may also examine claim of the assessee of not If required, the AO may also examine claim of the assessee of not If required, the AO may also examine claim of the assessee of not having any PE in India. having any PE in India.
9.9 As far as research access fee received from Gartner India is As far as research access fee received from Gartner India is As far as research access fee received from Gartner India is concerned though the assessee has claimed that same was for concerned though the assessee has claimed that same was for concerned though the assessee has claimed that same was for access of the database of the assessee for internal use by Gartner access of the database of the assessee for internal use by Gartner access of the database of the assessee for internal use by Gartner India in their business of consultancy but the Ld. DR has India in their business of consultancy but the Ld. DR has India in their business of consultancy but the Ld. DR has submitted that no enough information was filed by the assessee mitted that no enough information was filed by the assessee mitted that no enough information was filed by the assessee before the lower authorities to substantiate whether any copyright before the lower authorities to substantiate whether any copyright before the lower authorities to substantiate whether any copyright in the digital product has been exploited by Gartner India in the in the digital product has been exploited by Gartner India in the in the digital product has been exploited by Gartner India in the business of their preparation their preparation of research papers. Before us als of research papers. Before us also no such documentation as how the Research fee paid has been utilised such documentation as how the Research fee paid has been utilised such documentation as how the Research fee paid has been utilised in each quarter, other than the in each quarter, other than the general submission submission that such fee was paid for self consumption. was paid for self consumption. Therefore, we feel it appropriate to herefore, we feel it appropriate to restore this issue back to the file of the Assess restore this issue back to the file of the Assessing Officer for proper ing Officer for proper investigation and discovery of the true facts for determination of the investigation and discovery of the true facts for determination of the investigation and discovery of the true facts for determination of the issue whether there was any exploitation of the copyright of the issue whether there was any exploitation of the copyright of the issue whether there was any exploitation of the copyright of the assessee in the digital products sold to Gartner India under assessee in the digital products sold to Gartner India assessee in the digital products sold to Gartner India Research access fee. .
9.10 The ground No.1 No.1 of appeal of the assessee is accordingly partly of appeal of the assessee is accordingly partly allowed for statistical purposes. allowed for statistical purposes.
The ground No. 2 being consequential and therefore, same is The ground No. 2 being consequential and therefore, same is The ground No. 2 being consequential and therefore, same is dismisses as infructuous. The ground No. 3 and 4 are being dismisses as infructuous. The ground No. 3 and 4 are being dismisses as infructuous. The ground No. 3 and 4 are being premature at this stage therefore, same are dismissed as premature at this stage therefore, same are dismissed as premature at this stage therefore, same are dismissed as infructuous.
In the result, the appeal filed by the assessee is partly allo In the result, the appeal filed by the assessee is partly allo In the result, the appeal filed by the assessee is partly allowed for statistical purposes. for statistical purposes.