FACTIVA LTD. C/o. PRICE WATERHOUSE & CO. LLTP, MUMBAI V. ASSTT. CIT (INTERNATIONAL TAXATION)-2(3)(1), MUMBAI

ITA 1247/MUM/2021

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The case involves appeals by M/s. Factiva Limited against the assessment orders for the assessment years 2016-17 and 2017-18, which treated certain payments received from Dow Jones Consulting India Pvt. Ltd. as royalty and taxable in India. The Tribunal examined whether these payments qualified as royalty under section 9(1)(vi) of the Income Tax Act read with Article 13 of the India-UK DTAA, and whether the appellant had a permanent establishment in India under Article 5 of the DTAA. The Tribunal referenced a previous decision in favor of the appellant for the assessment year 2015-16, which had similar facts and legal issues.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302476 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 20-04-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 23-06-2021
• Other Referred Cases: Dow Jones and Company India Pvt. Ltd. vs. ACIT
• Laws Referred To: Income Tax Act, India-UK DTAA
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment; TDS; Set aside
• Section: 92; 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘I‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA No.5489/Mum/2019 (Assessment Year :2016-17) & ITA No.1247/Mum/2021 (Assessment Year :2017-18) M/s. Factiva Limited C/o. Price Waterhouse Coopers Pvt. Ltd. PWC House, Plot No.18- A Guru Nanak Road, Bandra (W), Mumbai- 400 050 Vs. Deputy Commissioner of Income Tax (International Taxation)-2(3)(1), Mumbai Room No.1614, 16 th Floor Air India Building Nariman Point Mumbai – 400 001 PAN/GIR No.AACCF5745J (Appellant) .. (Respondent) Assessee by Shri Dhanesh Bafna & Shri Amol Mahajan Revenue by Shri Manoj Sinha Date of Hearing 21/04/2023 Date of Pronouncement 09/05/2023 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeals have been filed by the assessee against final assessment order dated 29/06/2019 passed in ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 2 pursuance of direction given by the ld. DRP vide order dated 20/04/2019 for the A.Y.2016-17; and final assessment order dated 26/04/2021 passed in pursuance of direction given by the ld. DRP vide order dated 15/03/2021 for the A.Y.2017-18. 2. In both the appeals identical issues have been raised arising out of similar set of facts and findings of the authorities below, therefore, same were heard together and are being disposed of by way of this consolidated order. 3. In both the appeals, assessee has challenged two issues,  firstly, ld. AO and ld. DRP have erred in holding that amount received from Dow Jones Consulting India Pvt. Ltd. is taxable as ‘royalty’ u/s. 9(1)(vi) of the Income Tax Act r.w. Article 13 of India-UK DTAA; and  secondly, assessee did not have any permanent establishment in India under Article 5, therefore, the sum received in the nature of business profit, and hence nothing is taxable in India.  In A.Y.2016-17 assessee has challenged the payment received of Rs.3,22,32,290/- treated as ‘Royalty’ by the ld. AO and Rs.6,42,86,188/- in A.Y.2017-18. 4. Before us ld. Counsel submitted that this issue stands covered in favour of the assessee vide earlier order of the Tribunal in the case of the assessee decided on 31/05/2022 for the A.Y.2015-16. ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 3 5. The facts in brief are that assessee company, i.e., Factiva Limited is incorporated in United Kingdom (UK) and is engaged in providing global news and business information services with content delivery tools and services through a suite of products and services under the name of ‘Factiva’. To distribute these financial products in the territory of India, the assessee has entered into agreement with Dow Jones Consulting India Pvt. Ltd. (DJCIPL) while distribution agreement dated 07/08/2014, wherein assessee had granted rights to distribute its various financial and related products in the Indian market to DJCIPL on a principal to principal basis and at arm’s length price. During the relevant Assessment Year 2016-17, assessee has received an amount of Rs.3,19,87,030/- from DJCIPL towards distribution of its products; and in A.Y.2017-18 it has received Rs.6,40,31,392/- It was also received some minor amount for direct sales on similar products to KPMG which works to the tune of Rs.2,45,256/- in A.Y. 2016-17 and Rs.2,54,796/- in A.Y.2017-18. In the return of income, the assessee claimed that the amount received towards distribution of its products by DJCIPL is not taxable in India in terms of Article 13 of India UK DTAA and also not under Article 7, because assessee did not have any PE in India in terms of Article 5. Accordingly, Nil income was shown in India. 6. The ld. AO in the draft assessment order held that payment made by DJCIPL to the assessee is taxable as ‘Royalty’ ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 4 u/s.9(1)(vi) of the Act read with Article 13 since the payment is for; (a) use of copyright in literary work b) use of information concerning commercial, scientific knowledge, experience and skill and c) use or right to use equipment or process 7. Therefore, the amount received by the assessee is taxable as ‘Royalty’ as well as under the treaty. The ld. DRP has also confirmed the action of the ld. AO quoting that in A.Y.2015-16 ld. DRP has taken similar decision against assessee. 8. After considering the observation and finding of the ld. AO and ld. DRP as well as the material placed on record before us including earlier orders of the Tribunal, we find that similar issue had come up for consideration before this Tribunal wherein the matter has been decided in favour of the assessee. 9. However, before that, in succinct manner, the brief discussion and nature of the product which has been distributed can be described in the following manner:-  Factiva is an online database of contents from key newspapers and newswires from all over the world including global business and trade publications, targeted industry and regional publications, key websites and business blogs, market data and company profiles. The Appellant collaborates with the news publishers/other sources and ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 5 collates such relevant publicly available news/information to create a systematic database of news articles/information with advanced search capabilities.  Once a subscriber of the Factiva product gets access to the database and puts a query in the search box, various news articles and other information in relation to the search term, as actually published, appear on the screen, providing due reference to the publication/source and the copyright holder of the content. It will be extremely important to note that the copyright in the news article/blog never does belong to the Appellant but always belongs to its publisher/author.  Along with providing access to the aforesaid database, certain ancillary tools/services are also provided in the portal, viz.: a) Factiva Reader: Helps in sharing the news/articles available on Factiva database with others Factiva subscribers. b) My Company Today: A general awareness newsletter compiled daily especially for a subscriber company to ensure that its staff gets the relevant news regarding the company, competitors and key issues affecting the relevant industry. c) Factiva Newsletter Builder: Helps to share relevant news, information and custom content with the rest of the organization. ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 6 d) Factiva Charts: Helps subscribers to create charts which help in evaluating media coverage. e) Alerts: A subscriber may choose to get real-time or scheduled alerts in respect of any particular news topic. 10. This Tribunal in A.Y.2015-16, in ITA No.6455/Mum/2018, vide order dated 31/05/2022, held that the purchase price received by the assessee from the distributor in India for granting access to its database does not amount to ‘Royalty’ under the India-UK DTAA. The relevant finding and the observation reads as under:- 16. From the discussion made in the preceding paras and following the decision rendered by the co-ordinate Bench of the Tribunal and Hon'ble High Court of Bombay, we are of the considered view that Article 13 of India-UK DTAA defined „royalty' only when a payment is made for the use or the right to use a copy right of literary, artistic or scientific work. So the only those payments which allow payers to use/acquire a right to use a copy right in literary, artistic or scientific work are commissioned under the definition of royalty. In the instant case the assessee used to collect the information available in the public domains viz. newspaper and news wires from all over the world including global business and trade publications, targeted industry and regional publications, key websites and business blogs, market data and company professionals by collaborating with the news publishers and other sources and collates such relevant publically available news/information, then create a systematic database of news, article/information with advanced search capabilities and then subscriber of Factiva product gets access to the database, business puts a query in the search box, various, news articles and other information in relation to search term, as actual public appears on the screen. ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 7 18. Moreover, payment received by the assessee is not for any information qua industrial scientific or commercial experience rather it is only for preparing a database on the basis of information already available in the public domain in the form of news, articles etc. Moreover, payment received by the assessee is merely for the use of database and not for the use or right to use any equipment as the subscriber and DJCIPL have no access, right or control of any manner whatsoever offer the data storage devises or the server maintained by the assessee to update its database. 19. In these circumstances, copy right in the news article/blog never belongs to the assessee but always belongs to the publisher or author. So the database prepared by the assessee does not have any copy right or intellectual copy right with the assessee and the customer only gets the right to search, view and display information. So in these circumstances findings returned by the Ld. DRP that Factiva product (access to database) is in the nature of royalty' under Article 13 of India-UK DTAA was sector specific specialized knowledge portal as the assessee has a dedicated team of 100 specialists to collate and update the data on daily basis and as such fall within the ambit of use of copy right as well as information concerning industrial scientific or commercial experience is not sustainable in the eyes of law. 20. Even otherwise this issue is covered in favour of the assessee in its group company case M/s. Dow Jones and Company India Pvt. Ltd. (supra). So the question framed is answered in the negative and as such the payment received by the assessee is not a royalty under Article 13 of India-UK DTAA. So we hereby set aside the addition made by the AO under section 9(1)(vi) of the Act read with Article 1313) of India- UK DTAA and as such ordered to be deleted the same.” 11. The Tribunal had referred and relied upon the decision in the group company of Dow Jones Consulting India Pvt. Ltd. vs. ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 8 ACIT of Delhi ITAT Bench reported in 135 taxmann.com 270 wherein it has been held that the purchase price received by the assessee from the distributor in India for granting access to its database does not amount to 'royalty under the India-USA DTAA. In the said case, the distributor in India was the same as that of the assessee (i.e., DJCIPL) and the terms of the distribution agreement between Dow Jones & Company Inc. and DJCIPL were also similar in essence to the Factiva Distribution Agreement between the assessee and DJCIPL. Relevant extract from the decision is reproduced hereunder:- "10. We have given thoughtful consideration to the orders of the authorities below. At the very outset, we have to state that basis the provisions of section 92 of the Act, the assessee is entitled to invoke the provisions of India-USA DTAA to the extent it is more beneficial. Our view is fortified by the decision of the Hon'ble Supreme Court in the case of Union of India v. Azadi Bachao Andolan [2003] 132 Taxman 373/263 TTR 706. Accordingly, we will consider the beneficial provisions of the tax treaty to see whether the contention of the assessee that the alleged payment from DJCIPL is not royalty income. 11. As per article 12 of the Tax Treaty, "Royalty" is defined as under: 10.1.4.1. (a) "payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 9 equipment, other than income, derived by an enterprise of a Contracting State from the operation of ships or aircraft in International traffic. 10.1.5. Thus, article 12 of the Tax Treaty brings within the ambit of the definition of royalty, a payment made for the use of or the right to use a copyright of a literary, artistic or scientific work. Thus, only those payments that allow a payer to use/acquire a right to use a copyright in a literary, artistic or scientific work are covered within the definition of royalty. Payments made for acquiring the right in use the product it sell, without allowing any right to use the copyright in the product, are not covered within the scope of royally winch may gel covered under the term Royalty' as per the Act. Further, unless the payments are made towards acquiring the right to use a copyright in a literary, artistic, or scientific work, definition of Royalty would not get attracted. 10.1.6 In the current case, there is no transfer of legal title in the copyrighted article as the same rests with the Applicant. All rights, title and interest in the licensed software, which is being claimed to be copyrighted article, are the exclusive property of the Applicant. DJCIPL has no authority to reproduce the data in any material form, to make any translation in the data or to make any adaptation in the data. Further, the end user cannot be said to have acquired a copyright or right to use the copyright in the data and accordingly, the payments made by DJCIPL for accessing the database would not qualify as payments for the use of copyright. 10.1.7 The Applicant submits that the payments made by DJCIPL is not for the transfer of all or any rights in respect of the database Under the agreement, DJCIPL does not acquire any right in relation to the products. 10.1.8 Thus in view of the above arguments, n shall be possible to conclude that the payment received by the Applicant cannot be treated as a consideration for the transfer of any 'copyright'. The transaction under consideration is tor the provision of accessing the database of the Applicant/financial products ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 10 license, the same cannot he considered as 'royally' under article 12 of the India-US DTAA. 10.1.9 Furthermore, in determining whether or not a payment is for the use of copyright, it is important to distinguish between a payment for the right to use the copyright in a programme and the right to use the programme itself. We have outlined below our detailed submission on the distinction between copyright and the copyrighted article:" 12. A perusal of the above article shows that it brings within the ambit of the definition of Royalty' the payment made for use of, or the right to use any copyright of a literary, artistic, or scientific work. In our understanding of the article, only those payments that allow a payer to use/acquire a right to use copyright in literary. artistic or scientific work are covered within the definition of Royalty In our considered view, the payments made for acquiring right to use product itself, without allowing any right to use the copy right in the product are not covered with the scope of Royalty which may get covered under the term under Royalty as per the Act. 13. The facts of the case in hand show that there is no transfer of legal title in the copyrighted article as the same rests with the assessee. All rights, title and interest in the licensed software which is being claimed to be copyrighted article are the exclusive property of the assessee. DJCIPL has no authority to reproduce the date in any material form to make any translation in the date or to make adaptation in the data. 14. We further find that the end user cannot be said to have acquired a copy right or right to use the copy right in data. A perusal of the agreement with DJCIPL shows that DJCIPL does not acquire any right in relation to the products. In our considered view, in determining whether or not a payment is for use of copyright, it is important to distinguish between 'a payment for right to use the copy right in a program' and 'right to use the program itself 15. In the case in hand, the revenue derived by the assessee from granting limited access to its data base is akin to sale of book, wherein purchaser does not acquire any right to exploit ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 11 the underlying copyright. In the case of a book, the publisher of the book grants the purchaser certain rights to use the content of the book, which is copyrighted. The purchaser of the book does not acquire the right to exploit the underlying copyright. When the purchaser reads the book, he only enjoys the contents. Similarly, the user of the database does not receive the right to exploit the copyright in the database he only enjoys the product in the normal course of his business. 16. In the present case, the appellant is only granting access to its database to DJCIPL. In our considered opinion, the payments received cannot be said to be Royalty' in nature. The transaction under consideration is for provision of accessing database of the assessee. Hence the same cannot be considered as 'Royalty' under article 12 of the India-US DTAA. We, therefore, set aside the findings of the Assessing Officer and direct the Assessing Officer to delete the impugned addition. Ground No.1 is, accordingly, allowed.” 13. Thus, following the earlier year precedence, we hold that purchase price of Factiva products distributed by DJCIPL is not taxable as ‘royalty’ under India UK DTAA in the hands of the assessee. 14. In so far as the issue whether DJCIPL constituted agency PE which ld. AO has just made a very passing remark has also been confirmed by the ld. DRP, this issue too has been decided in favour of the assessee by the Tribunal after observing as under:- “22. We have perused the findings returned by the AO as well as Lal DRP. AO in part 8.6 of its order has given a stray remarks that DICIPL could constitute an ogry PE of the assessee by returning following findings ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 12 8.6 Alternatively, without prejudice to the above, the assessee's argument that the assessee is having business income but the same is not taxable, since the assessee is not having permanent establishment in India, is also not acceptable, in view of the facts and circumstances of the case. The assessee has granted rights for distribution of its product in the specified territory only to the Distributor. All the rights, titles and interest in the products are vested with the assessee company and not parted with. The assessee has insulated the Distributor from the loss with dynamic pricing structure of cost plus mark up of 5%. The Distributor Le. M/s. Dow Jones Consulting India Private Limited is wholly owned indirect subsidiary of the assessee company. Considering these facts of the case, it is evident that the Distributor is falls within the concept of agency PE and therefore it is incorrect to say that the assessee does not have any permanent establishment in India." 23. Since assessee has vehemently opposed the observation made by the AO that DJCIPL is an agency PE of the assessee. Moreover, there is not an iota of material on record to prove this fact. So the payment received by the assessee is not taxable in India as the Revenue has failed to prove that the assessee has a PE in India in terms of Article 5 of India-UK DTAA”. 14. In any case, ld. AO has not made any addition in respect of PE as alleged by him and has restricted the addition by characterizing the receipts as ‘royalty’ only. Therefore, we are not going into this issue, because, if ld. AO is alleging PE, then ld. AO should have brought on record as to how DJCIPL is an agency PE of the assessee. Such casual and passing remark cannot lead to conclusion that assessee had agency PE in India. Therefore, this issue is purely academic. Accordingly, the grounds raised by the assessee in this regard are treated as allowed. ITA No.5489/Mum/2019 & 1247/Mum/2021 M/s. Factiva Limited 13 15. In so far as the grounds raised by the assessee with regard to grant credit for TDS, is premature and consequential, therefore, same is dismissed as infructuous. 16. In the result, both the appeals of the assessee are allowed. Order pronounced on 9 th May, 2023 Sd/- (S RIFAUR RAHMAN) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 09/05/2023 KARUNA, sr.ps 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//