AMERICAN CHEMICAL SOCIETY,USA V. DCIT (INTERNATIONAL TAX), CIRCLE 1(1)(1), MUMBAI, MUMBAI

ITA 1160/MUM/2024

AI Insights

The case involves the American Chemical Society (ACS), which appealed against the order of the Deputy Commissioner of Income Tax (International Taxation) that assessed their income as royalty, taxable in India. The primary contention was whether the subscription fees received from Indian customers for access to online scientific journals and databases qualify as royalty under the Income Tax Act and the India-US DTAA. The Tribunal referenced previous decisions in favor of the ACS for similar assessment years, noting no change in facts or circumstances that would warrant a different conclusion. The Tribunal decided in favor of the ACS, aligning with earlier rulings that such subscription fees do not constitute royalty.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 314256 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2013-2014
• Other Referred Cases: Engineering Analysis Centre of Excellence Private Limited (Civil Appeal No. 8733-8734 of 2018), Tata Consultancy Services v. State of Andhra Pradesh
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK PERAMPURNA
• Assessee Lawyers: VISHAL KARLA; HARSH
• Keywords: Reassessment proceedings; Double taxation relief
• Section: 147; 148; 142(1); 271(1)(c)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, ‘I’ BENCH MUMBAI BEFORE: SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER & SHRI ANIKESH BANERJEE, JUDICIAL MEMBER ITA No. 1160/MUM/2024 (Assessment Year : 2013–14) American Chemical Society c/o Deloitte Haskins and Sells LLP, 7th Floor, Building 10, Tower B, DLF Cyber City Complex, DLF City Phase -II, Gurgaon-122002. Vs. The Deputy Commissioner of Income Tax (International Taxation) Circle-1(1)(1), Room No. 17, 3rd Floor, Mittal Court, 22 Nariman Point, Mumbai-400021. PAN/GIR No. AALCA4959L (Appellant) .. (Respondent) Assessee by Shri. Vishal Karla & Harsh Ranglani Revenue by Shri. Vivek Perampurna, CIT DR Date of Hearing 24/04/2025 Date of Pronouncement 08/05/2025 आदेश / O R D E R PER VIKRAM SINGH YADAV (A.M): 1. The present appeal has been preferred against the impugned order dated 29.12.2023 passed by the Ld. Commissioner of Income–tax(Appeals)/ National Faceless Appeal Centre (NFAC) [hereinafter referred to as the “CIT(A)”] u/s. 250 of the Income- Tax Act, 1961 [hereinafter referred to as \"Act\"] for the Assessment year [A.Y.] 2013-14. ITA no. 1160/MUM/2024 American Chemical Society 2 2. In its appeal, the assessee has taken the following grounds of appeal: “ 1. That on the facts and in the circumstances of the case and in law, the Ld. AO has erred in assessing the total income of the Appellant under section 147 read with section 144C(13) of the Act at INR 46,14,79,250 as against the returned income of Nil. 2. That on the facts and in the circumstances of the case and in law, the proceedings Initiated by the AO under section 147/148 of the Act for the subject assessment year without issuing the mandatory notice under section 143(2) of the Act are bad in law, without jurisdiction and thus, liable to be quashed. 3. That on the facts and in the circumstances of the case and in law, the proceedings initiated under sections 147/148 of the Act are bad in law, beyond jurisdiction and void ab initio, inter alia, for the reasons that (a) the proceedings were initiated by an officer not having jurisdiction over the Appellant, and (b) basis the Invalid initiation, a valid jurisdiction could not have been conferred on the Officers at Mumbai. 4. That on the facts and in the circumstances of the case and in law, the Ld. AO/Dispute Resolution Panel (\"DRP\") have grossly erred in not appreciating the facts of the case and holding that an order under section 148A(d) of the Act was validly passed for the subject assessment year, not appreciating that no such order was ever passed or required to be passed. 5. That on the facts and circumstances of the case and in law, the Ld. AO/ DRP have erred in holding that the receipts from Indian customers are chargeable to tax as royalty in terms of Article 12(3) of India-US Double Tax Avoidance Agreement (\"DTAA\") and under section 9(1)(vi) of the Act. 6. That on the facts and in the circumstances of the case and in law, the Ld. AO/DRP have erred in holding that the subscription charges received under Chemical Abstract Service (CAS) division and Publications (PUBS) division ITA no. 1160/MUM/2024 American Chemical Society 3 would be chargeable to tax in India under India-US DTAA being received for use or right to use of copyright in artistic, literary or scientific work and/or for use of information concerning industrial, commercial or scientific experience and / or for use of industrial, commercial or scientific equipment. 7. That on the facts and circumstances of the case and in law, the Ld. AO/ DRP have erred in holding that the subscription charges received under CAS and PUBS divisions would be chargeable to tax in India under India-US DTAA being received for use of ACS databases/software. 8. That on the facts and circumstances of the case and in law, the Ld. AO/DRP have erred in completely ignoring the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (Civil Appeal No. 8733-8734 of 2018) while holding that the receipts of the Appellant be treated as being received for the use or right to use copyright in a literary or scientific work within the meaning of royalty as per section 9(1)(vi) of the Act as well as Article 12(3) of India-US DTAA. 9. That on the facts and circumstances of the case and in law, the Ld. AO/DRP have erred in not following the decision passed by the Hon'ble Mumbai Bench of the Income-tax Appellate Tribunal (ITAT\") in Appellant's own case for Assessment Years i.e. AY 2014-15 to 2020-21, wherein on similar facts and circumstances, the Hon'ble ITAT held that the revenue from CAS and PUBS division cannot be taxed as royalty under section 9(1)(vi) of the Act as well as Article 12(3) of India-US DTAA. 10. That on the facts and circumstances of the case and in law, the Ld. AO has erred in levying interest of INR 5,25,13,416 and INR 5,98,83,720 under section 234A and 2348 of the Act respectively. 11. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act stating that the Appeliant has not filed accurate particulars of its income. ITA no. 1160/MUM/2024 American Chemical Society 4 12. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under section 271F of the Act for non-filing of Return of Income (\"ROI\"), not appreciating that the Appellant was not required to file ROI, in absence of any taxable income in India.” 3. Briefly the facts of the case are that the assessee company had not originally filed its return of income, thereafter, the matter was reopened u/s. 148 of the Act and notice u/s. 148 was issued on 31.03.2021 by DCIT(IT)- 2(1), Bangalore which was duly served on the assessee. As per the reasons so recorded before issuance of notice u/s. 148, the AO has stated that during the course of 201 proceedings in the case of M/s. Syngene International Limited, it has been found that the said company has paid an amount of Rs. 75,85,600/- to the assessee company towards subscription toward online scientific journals which is taxable under the provisions of the Act as well as double taxation avoidance agreement between India and USA and the same has escaped assessment due to omission/failure on the part of the assessee company to file the return of income for impugned assessment year. Later on, the case of the assessee was transferred to DCIT(IT) – 1(1)(1), Mumbai. In absence of any compliance to the notice u/s. 148 of the Act, a notice u/s. 142(1) was issued to the assessee company on 09.03.2022 to comply to the notice u/s. 148 for filing its return of income. In response, the assessee company filed its return of income on 22.03.2023 declaring Nil income. Thereafter, notice u/s. 143(2) was issued and the assessee company was asked to show-cause as to why receipts amounting to Rs. 26,14,79,249/- should not be treated as ITA no. 1160/MUM/2024 American Chemical Society 5 royalty under the Income Tax Act as well as India-US DTAA. In the interim, the assessee also raised objections to the reopening u/s. 147 vide letter dated 14.03.2022 which was disposed off by the AO by passing order dated 17.02.2023. 4. During the course of reassessment proceedings, the AO stated that the assessee has received payments from customers in India towards CASS and PUBS division which included payment received from M/s. Syngene International Limited amounting to Rs. 46,14,79,249/-. It was also observed by the AO that assessee’s business model has remained the same in comparison to A.Y. 2014-15 to A.Y. 2020-21 and stream of revenue was also the same and no other income has been earned by the assessee company from India. Thereafter, referring to the submissions filed by the assessee as to why its receipts should not be treated as royalty under the Act as well as India-USA DTAA, the AO held that the payment made by the Indian Customer to the assessee for use of ACS network and database including ACS product and scifinder may be treated as consideration for information concerning industrial or commercial experience which is defined as royalty within the meaning of section 9(1)(vi) of the Act as well as Article 12(3) of India-US DTAA. It was further held by AO that the payment to the assessee for use or right to use the software embedded in ACS network and the commercial and scientific database which the software operates upon may be treated as payment for use or right to use copyright in a ITA no. 1160/MUM/2024 American Chemical Society 6 literately or scientific work within the meaning of royalty as per section 9(1)(vi) as well as Article 12(3) of India-US DTAA. It was also held by the AO that the payment to the assessee may also be treated as payment for use of industrial, commercial or scientific equipment which is in the nature of royalty as per the provisions of 9(1)(vi) r/w Article 12(3) of DTAA. It was further stated by the AO that for the A.Y. 2014-15 to A.Y. 2020-21, the order passed by the AO were disputed by the assessee before the DRP and by separate orders, the DRP held that the amount received by the assessee towards the subscription fee for CASS and PUBS division is in the nature of royalty as per Article 12 of India-US DTAA as it falls under the ambit of use of copyrights of artistic, literally or scientific work as well as within the ambit of payment for information concerning industrial commercial or scientific experience. It has further been stated by the AO that the assessee has further challenged the matter before the Tribunal for all these years and which have been decided in favour of the assessee. However, the Revenue has filed further appeal before the Hon’ble Bombay High Court against the orders of the Tribunal and the same are pending necessary adjudication before the Hon’ble Bombay High Court. In view of the aforesaid, the AO passed the draft assessment order wherein amount of Rs. 46,14,79,249/- was brought to tax as royalty income in the hands of the assessee. ITA no. 1160/MUM/2024 American Chemical Society 7 5. The assessee thereafter filed objections before the DRP. The objections were disposed off by the DRP by holding that the material facts and circumstances in the instant assessment year remains the same as in the earlier assessment years wherein it has already given directions to tax the revenue as royalty. Therefore, following the directions for the earlier assessment years, the objections so raised by the assessee were dismissed. 6. Thereafter, following the directions of the DRP, the AO passed the final assessment order u/s. 147 r.w.s 144C(13) of the Act vide order dated 19.01.2024 wherein amount of Rs. 46,14,79,249/- was brought to tax as royalty income in the hands of the assessee and the assessed income was determined at Rs. 46,14,79,250/-. 7. Being aggrieved the assessee is in appeal before us. During the course, of hearing the ld. AR submitted that the matter has been decided in favour of the assessee by the decisions of the Co-ordinate Benches of the Tribunal in assessee’s own case right from A.Y. 2014-15 to A.Y. 2021-22 and our reference was drawn to the order passed by the Co-ordinate Bench dated 27.03.2024 for A.Y. 2021-22. It was submitted that there is no dispute in this regard and even the AO as well as the DRP has accepted the fact that there are no changes in the facts and circumstances of the case as compared to the preceding assessment years wherein the matter has been ITA no. 1160/MUM/2024 American Chemical Society 8 decided in favour of the assessee. It was submitted that merely because the Revenue has filed appeal against the order of the Tribunal before the Hon’ble Bombay High Court and in order to keep the matter alive, the AO has followed the earlier year order wherein, the addition has been made in the hands of the assessee holding the subscription revenues as royalty income in terms of the provisions of section 9(1)(vi) as well as Article of 12(3) of India-US DTAA. It was accordingly submitted that given that there are no changes in facts and circumstances of the case, the decisions so passed by the Co- ordinate Benches in the earlier years may be followed and necessary relief be provided to the assessee. 8. The Ld. CIT DR fairly submitted that though the matter is covered in favour of the assessee by the earlier decisions of the Co-ordinate Benches, the Revenue has not accepted the decisions of the Coordinate Benches for the earlier years and the matter is pending necessary adjudication before the Hon’ble Bombay High Court and therefore, the AO as well as DRP has followed the order for the earlier years. He accordingly relied on the orders of the lower authorities. 9. We have heard the rival contentions and the material available on record. We find that the Coordinate bench of the Tribunal in assessee’s own case for A.Y. 2014-15 has first decided the matter and vide its order dated 26.10.2011 has held the subscription revenue received by the assessee for providing ITA no. 1160/MUM/2024 American Chemical Society 9 access to online chemistry databases (CAS division) and from sale of online journals (PUBS division) doesn’t qualify as royalty in terms of section 9(1)(vi) of the Act as well as the Article 12(3) of the India-US DTAA and the relevant findings of the Coordinate Bench read as under: “7. We have carefully considered the rival submissions, perused the relevant material, including the orders of the lower authorities as well as the case laws referred at the time of hearing. Notably, the controversy before us primarily revolves around the characterization of the income earned by the assessee from the Indian subscribers The income-tax authorities have invoked section 9(1)(vi) of the Act and/or Article 12(3) of the India-USA Treaty in order to say that the receipts are in the nature of 'royalty', and therefore the same is taxable in India. On the contrary, as per the assessee, the impugned receipts are in the nature of business profits, and in the absence of any PE in India, the same are not taxable in India. In the earlier part of this order, we have noted in sufficient detail. the manner in which the assessee earns the CAS fee from Indian subscribers, and the same is not being repeated for the sake of brevity. Factually speaking, 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 (placed in the Paper book at pages 15 to 42) 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. Further, in para 7. 12 of the assessment order, the Assessing Officer has stated that the assessee has a wealth of industrial, commercial and scientific experience collected, developed and systemized over a period of time. Further, in para 7.13 of the assessment order, the Assessing Officer has also referred to paragraph 11 of OECD commentary on Article 12 to hold that the payment in question is to be understood as 'royalty'. As per the Assessing Officer, the technical, commercial or scientific information provided by the assessee to the Indian customers through SciFinder arises from its previous experience which gives economic benefit to the customers. The Assessing Officer ITA no. 1160/MUM/2024 American Chemical Society 10 also points out that ACS Network and SciFinder serve as a platform as well as a tool/gateway for access to such information. All these have been referred by the Assessing Officer to arrive at an inference that the CAS fee is in the nature of 'royalty'; and, for that purpose, the Assessing Officer has referred to para 11 of the OECD commentary on Article 12. In fact, the OECD commentary which has been referred to by the Assessing Officer itself provides an answer and belies the stand taken by the Assessing Officer. The OECD commentary referred in para 7.13 of 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. In our considered opinion, the fact-situation in the instant case does not 'royalty 8. As discussed earlier, 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 public domain, as is also evident from the factual position noted by the Assessing Officer himself in the assessment order 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 any way in the context of the receipts in question. In fact, it is nobody's plea that such experience is shared by the assessee with the Indian customers. 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. 11. With respect to the subscription fee for the CAS division being considered as Royalty for \"use\" of or \"right to use\" of a copyright, a reference to 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 ITA no. 1160/MUM/2024 American Chemical Society 11 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. 12. In the present context, we may also examine the issue from another angle as follows. 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. In our considered view, transfer of any right in a copyrighted article is analogous to the rights acquired by the purchaser of a book. In the case of a book, the publisher of the book grants the purchaser certain rights with respect to the use of the content of the book, which is copyrighted, but the purchaser of the book does not acquire the right to exploit the underlying copyright. When the purchaser reads the book, he only enjoys its contents. Similarly, the user of the copyrighted software does not receive the right to exploit the copyright in the software, he only enjoys the product/benefits of the product in the normal course of his business. Similarly, 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 Hon'ble Supreme Court of India in the case of Tata Consultancy Services v. State of Andhra Pradesh (supra). 13. In view of the aforesaid discussion, in our considered view, the income earned by the assessee from the Indian Customers with respect to the subscription fees for CAS cannot be taxed as royalty as per section 9(1)(vi) of the Act as well as Article 12(3) of the India-USA DTAA. Thus, assessee succeeds on this issue” “17. We have heard the rival submissions and perused the relevant material on record including the order of the lower authorities on the issue in dispute. We find that issue with respect to the PUBS division coincides with the issues on the CAS fee. The journal provided by the PUBS division do not provide any information arising from assessee's previous experience. The assessee's experience lies in the creation of maintaining such information online. By granting access to the journals, the assessee neither shares its experiences, techniques or methodology employed in evolving databases with the users, nor imparts any information relating to them. As is clearly evident from the sample agreements, all that the customers get is the right to search, view and display the articles (whether online or by taking a print) and ITA no. 1160/MUM/2024 American Chemical Society 12 reproducing or exploiting the same in any manner other than for personal use is strictly prohibited. Further, the customers do not get any rights to the journal or articles therein. They can only view the article in the journal that they have subscribed to and cannot amend or replicate or reproduce the journal. Thus, the customers are only able to access journal/articles for personal use of the information. No 'use or right to use' in any copyright or any other intellectual property of any kind is provided by the assessee to its customers. Furthermore, the information resides on servers outside India, to which the customers have no right or access, nor do they possess control or dominion over the servers in any way Therefore, the question of such payments qualifying as consideration for use or right to use any equipment, whether industrial, commercial or scientific, does not arise. 18. To put a comparison, if someone purchases a book, then the consideration paid is not for the use of the copyright in the book/ article. The purchaser of a book does not acquire the right to make multiple copies for re-sale or to make derivative works of the book, Le, the purchaser of a book does not obtain the copyright in the book. Similarly, the purchaser of the assessee's journals, articles or database access does not have the right to make copies for re-sale and does not have the right to make derivative works. In short, the purchaser has not acquired the copyright of the article or of the database. What the buyer gets is a copyrighted product, and accordingly the consideration paid is not royalty, but for purchase of a product. In the instant case too, what is acquired by the customer is a copyrighted article, copyrights of which continue to lie with assessee for all purposes. It is a well settled law that copyrighted article is different from a copyright, and that consideration for the former, ie, a copyrighted article does not qualify as royalties. 19. Thus, the principles noted by us in the earlier part of this order in the context of the income earned by way of CAS fee are squarely applicable to the subscription revenue received from customers of PUBS division for sale of journal also, and accordingly PUBS fee also does not qualify as 'Royalty' in terms of section 9(1)(vi) of the Act as well as Article 12(3) of the India-USA DTAA.” 10. The aforesaid order so passed by the Coordinate Bench has since been consistently followed by the Coordinate Benches while adjudicating the matter for subsequent assessment years right up to A.Y 2021-22. As we have noted in the beginning, the AO has also stated in the assessment order ITA no. 1160/MUM/2024 American Chemical Society 13 that assessee’s business model has remained the same in comparison to A.Y. 2014-15 to A.Y. 2020-21 and stream of revenue was also the same and no other income has been earned by the assessee company from India. Thus, admittedly and undisputedly, there are no changes in the facts and circumstances of the case in the impugned assessment year except that the matter was reopened u/s 147 of the Act. Though the Revenue has challenged the orders so passed by the Coordinate Benches before the Hon’ble Bombay High Court and the matter is currently pending adjudication, however, there is no stay which has either been sought or granted against the orders so passed by the Coordinate Benches. Given that there are no changes in the facts and circumstances of the case, we see no reason to deviate from the view so taken by the Coordinate Bench which has consistently been followed in subsequent years. In light of the same, we uphold the plea so taken by the ld AR on behalf of the assessee and hold that subscription revenues for CAS as well as PUBS divisions cannot be brought to tax as royalty in terms of section 9(1)(vi) as well as Article 12(3) of India-USA DTAA in the hands of the assessee and the addition so made is hereby directed to be deleted. 11. In light of the aforesaid, where we have deleted the addition, other grounds raised by the assessee including the ground challenging the jurisdiction of the AO have become academic ITA no. 1160/MUM/2024 American Chemical Society 14 in nature and we donot deem it necessary to adjudicate the same and the same are left open. 12. In the result, the appeal of the assessee is allowed. Order pronounced in open court on 08.05.2025. Sd/- (ANIKESH BANERJEE) Sd/- (VIKRAM SINGH YADAV) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai; Dated 08/05/2025 Anandi Nambi, Steno Copy of the Order forwarded to: BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// "