M/s. McKinsey Knowledge Centre India Pvt. Ltd., Gurgaon V. ITO, New Delhi

ITA 407/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3133 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 27-04-2017
• Assessment Year: misc
• Appeal Filed On: 22-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: POURAS KAKA
• Keywords: Double taxation relief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E, NEW DELHI BEFORE SH. N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER ITA NO. 407/DEL/2013 (ASSESSMENT YEAR: 2008-09) A APPELLANT BY : SH. POURAS KAKA, SR. ADV. RESPONDENT BY : SH. RAJESH KUMAR, SR. DR DATE OF HEARING : 27.04.2017 DATE OF PRONOUNCEMENT : 11.05.2017 O R D E R PER BEENA A. PILLAI, J.M : 1. THE PRESENT APPEAL HAS BEEN FILED BY ASSESSEE AGAI NST ORDER DATED 29.10.2012 PASSED BY LD. CIT(A)-XXIX, N EW DELHI, ON FOLLOWING GROUNDS OF APPEAL: 1.1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XXIX, NEW DELHI (HEREINAFTER REFERRED TO AS 'CIT(A)'), HAS ERRED ON FACTS AND IN LAW IN HOLDING THAT THE PAYMENTS MADE BY APPELLANT TO THOMSON ASIA PTE LIMITED ('THOMSON' 1 ) FOR ACCESSING ITS DATABASE AND DOWNLOADING READILY AVAILABLE INFORMATION IS IN THE NATURE OF ROYALTY UNDER SECTION 9(L)(VI) OF THE ACT AS WELL AS UNDER ARTICLE 12(3) OF THE INDIA- SINGAPORE MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD. 3 RD FLOOR OF BLOCK III, VATIKA BUSINESS PARK, SECTOR 49, BADSHAHPUR, SOHNA ROAD, GURGAON. VS. ITO TDS WARD 1(2) INTERNATIONAL TAXATION, NEW DELHI GIR/PAN: AACCM2356G (APPELLANT) (RESPONDENT) 2 ITA NO. 407/DEL/2013 (AY 2007-08) DOUBLE TAXATION AVOIDANCE AGREEMENT ('TREATY') AND SUBJECT TO TAX AT THE RATE OF 10 PERCENT. 1.2 WITHOUT PREJUDICE TO THE ABOVE THE CIT(A) HAS ERRED IN LAW AND ON FACTS OF THE CASE IN HOLDING THAT THE PAYMENT MADE BY THE APPELLANT IS IN THE NATURE OF ROYALTY UNDER CLAUSES (I),{II) AND (JII) OF EXPLANATION 2 OF SECTION 9(L)(VI) OF T HE ACT BEING IN THE NATURE OF 'SIMILAR PROPERTY' AND IS AKIN TO PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY. 1.3 THE CIT(A) HAS FURTHER ERRED ON FACTS AND IN LAW IN HOLDING THAT THE PAYMENT MADE BY APPELLANT IS COVERED UNDER CLAUSE (IV) OF EXPLANATION 2 TO SECTION 9(L)(VI) OF THE ACT WITHOUT APPRECIATING THAT THE RECIPIENT IS NOT ENGAGED IN ANY INDUSTRIAL OR COMMERCIAL ACTIVITY AND DOES NOT HAVE THE EXPERIENCE, SKILL, KNOWLEDGE OR CAPABILITY TO IMPART SUCH INDUSTRIAL OR COMMERCIAL KNOWLEDGE TO THE APPELLANT WHICH MAY BE COVERED UNDER THE SAID CLAUSE. GROUND NO. 2J WITHOUT PREJUDICE TO GROUND NO. 1 ABOVE, THE CIT(A) HAS ERRED ON FACTS AND IN LAW IN DENYING THE BENEFIT OF EXCLUSIONARY CLAUSE UNDER SECTION 9(1 )(VI)(B) OF THE ACT BY REJECTING THE APPELLANTS CLAIM OF EXCLUSION OF ROYALTY FROM AMBIT OF TAXATION IN INDIA BY HOLDING THAT THE SOURCE OF INCOME OF THE APPELLANT FOR WHICH PAYMENT IS BEING MADE IS IN INDIA. 3. THE ABOVE GROUNDS OF APPEAL ARE MUTUALLY EXCLUSIVE AND WITHOUT PREJUDICE TO EACH OTHER. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR MODIFY ANY OF THE GROUNDS OF APPEAL AT OR BEFORE THE HEARING OF THE APPEAL. 2. BRIEF FACTS OF CASE ARE AS UNDER: 3 ITA NO. 407/DEL/2013 (AY 2007-08) MC KINSEY KNOWLEDGE CENTRE INDIA PVT. LTD., (HEREIN AFTER REFERRED TO AS ASSESSEE) FILED AN APPLICATION UNDER SECTION 195(2) OF THE ACT, REQUESTING ITO TO ISSUE AN ORDER OF NIL DEDUCTION OF TAX, IN RESPECT OF PAYMENT OF US $ 39, 427.502 TO THOMSON ASIA PVT. LTD, SINGAPORE (HEREINAFTER REFER RED TO AS THOMSON), AS CONSIDERATION FOR THE DATABASE ACCESS. DURING THE COURSE OF PROCEEDINGS, VARIOUS SUBMISSIONS WERE ADVANCED BY REPRESENTATIVES OF ASSESSEE. 3. LD. ITO OBSERVED THAT ASSESSEE IS ENGAGED IN THE E XPORT OF COMPUTER SOFTWARE (INCLUDING DATA PROCESSING), R ENDERING SUPPORT SERVICES AND ACTING AS A BACK-OFFICE TO ITS PARENT ENTITY BEING MC KINSEY AND CO. INC. IT HAS BEEN SUB MITTED BY ASSESSEE THAT FOR THE PURPOSE OF ITS BUSINESS, ASSE SSEE IS REQUIRED TO ACCESS CERTAIN DATABASE, MAINTAINED BY THOMSON WHICH PROVIDES GENERAL INFORMATION ON SHARE PRICE, MARKET, COMMODITY PRICE, CURRENCY EXCHANGE RATES ETC. IT WA S SUBMITTED THAT THESE ARE PUBLICLY AVAILABLE DATABAS E WHICH CAN BE ACCESSED BY ANYONE, WHO IS WILLING TO SUBSCR IBE TO IT. LD. ITO OBSERVED THAT THOMPSON IS A COMPANY INCORPO RATED IN SINGAPORE AND IS TAX RESIDENT OF SINGAPORE, ENTITLE D TO BENEFITS UNDER INDIA SINGAPORE DOUBLE TAXATION AVOIDANCE AGR EEMENT (DTAA). IT WAS SUBMITTED THAT THOMPSON, NEITHER REN DERS ANY SERVICES IN INDIA NOR HAS ANY PLACE OF BUSINESS/OFFICE/PERSONNEL IN INDIA. 4. BEFORE LD. ITO, IT WAS SUBMITTED THAT ASSESSEE ENT ERED INTO A MASTER AGREEMENT NO. 105337 WITH THOMSON, WH EREIN CERTAIN PAYMENTS WERE TO BE MADE BY ASSESSEE FOR AC CESSING 4 ITA NO. 407/DEL/2013 (AY 2007-08) THE DATABASE OF THOMSON. CERTAIN CLAUSES OF AGREEME NTS, FOR THE SAKE OF CONVENIENCE ARE REPRODUCED HERE WITH: 3. USE OF THE SERVICE, DATA AND SOFTWARE PRODUCT CLIENT SHALL NOT USE THE SERVICES IN ANY MANNER EXC EPT AS EXPRESSLY PERMITTED HEREUNDER OR IN THE APPLICABLE SCHEDULES. AFFILIATES MAY USE THE SERVICES UNLESS IT IS SPECIF ICALLY PROVIDED IN THE AGREEMENT. AN END USER MAY ONLY USE THE SERVICES FOR CLIENT'S INTERNAL BUSINESS PURPOSES OR TO TRANSACT BUSINESS WITH THE CLIENT IN ACCORDANCE WIT H THE TERMS OF THE SCHEDULES. EXCEPT AS EXPRESSLY PROVIDED IN THE ATTACHED SCHEDU LES. CLIENT SHALL NOT DISCLOSE, SELL, RESELL, DUPLICATE, DISPLAY, USE OR OTHERWISE CONVEY TO OR FOR ANY THIRD PARTY, OR TO OR FOR ANY OF ITS EMPLOYEES OR AGENTS AT SITES OTHER T HAN THE LOCATIONS, ANY OF THE SERVICES OR THE SOFTWARE, PRO DUCT, REGARDLESS OF THE METHOD OF DISTRIBUTION. CLIENT AND EACH END USER MAY MAKE ONE COPY OF EACH AUTHORIZED SOFTWARE PRODUCT FOR ARCHIVAL AND BACKUP PURPOSES, PROVIDED THAT SUCH COPY SHALL BE SUBJECT TO THIS AGREEMENT AND BEAR THE APPROPRIATE TRADEMARKS, COPYRIGHT NOTICES AND OTHER PROPRIETARY NOTICES CON TAINED IN THE VERSIONS OF THE SOFTWARE PROVIDED BY THOMSON . CLIENT SHALL AISO BE AUTHORIZED TO MAKE COPIES OF AUTHORIZED SOFTWARE PRODUCT SOLELY FOR PURPOSES OF DISASTER RECOVERY. FROM AND AFTER THE DATE OF A WRITTEN REQUEST BY THO MSON. CSIENT SHALL DELIVER TO THOMSON WRITTEN REPORTS CER TIFYING THE NUMBER OF AUTHORIZED DISPLAY DEVICES USING THE SOFTWARE PRODUCT OR DISPLAYING THE SERVICE. THE CLIENT MAY NOT REDISTRIBUTE THE DATA OR ANY PART THEREOF TO ANY COMPETITOR OF THOMSON OR OF THIRD PARTY DATA SUPPLIERS THE CLIENT MAY REDISTRIBUTE INSUBSTANTIAL PORTIONS OF T HE DATA IN THE ORDINARY COURSE OF ITS BUSINESS. IF. HOWEVER , THOMSON NOTIFIES CLIENT THAT, IN THE REASONABLE BUS INESS JUDGMENT OF THOMSON, SUCH REDISTRIBUTION BY CLIENT, INCLUDING THE SCOPE OF SUCH REDISTRIBUTION, INVOLVE S MORE 5 ITA NO. 407/DEL/2013 (AY 2007-08) THAN INSUBSTANTIAL PORTIONS OF THE DATA, CLIENT AGR EES FO IMMEDIATELY CEASE ANY SUCH REDISTRIBUTION. CLIENT H EREBY AGREES TO INDEMNIFY AND HOLD HARMLESS THOMSON FOR A NY LOSS, DAMAGE, INJURY OR EXPENSE (INCLUDING REASONAB LE ATTORNEY'S FEES) SUFFERED BY THOMSON THAT ARISES BY REASON OF THE REDISTRIBUTION OF INSUBSTANTIAL PORTI ONS BY CLIENT. TO PROTECT THOMSON'S RIGHTS, TO THE EXTENT REASONABLY APPROPRIATE, ANY SUCH REDISTRIBUTION OF DATA BY CLIENT SHAIL, CLEARLY AND UNAMBIGUOUSLY CITE THO MSON OR APPLICABLE THIRD PARTY DATA SUPPLIER, AS THE CAS E MAY BE, AS THE SOURCE AND OWNER OF THE DATA CONTAINED I N SUCH REPORTS OR PRESENTATIONS. 4. LEASED EQUIPMENT THE LEASED EQUIPMENT RENTED TO CLIENT, IS, AND WILL REMAIN THE PROPERTY OF THOMSON. CLIENT WILL NOT PAR T WITH POSSESSION OR CONTROL OF THE LEASED EQUIPMENT FOR PURPOSES OF INSTALLATION, REMOVAL, MAINTENANCE, OR REPAIR DURING REASONABLE BUSINESS HOURS. CLIENT AGREES NOT TO MOVE THE LEASED EQUIPMENT WITHOUT GIVING THOMSON NO LESS THAN TEN (10} DAYS PRIOR WRITTEN NOTICE. CLIEN T AGREES NOT TO USE ANY APPARATUS OR DEVICE, DIRECTLY INDIRE CTLY, WITH THE LEASED EQUIPMENT SUPPLIED WITHOUT THE PRIO R WRITTEN CONSENT OF THOMSON. CLIENT SHALL MAINTAIN T HE LEASED EQUIPMENT IN GOOD WORKING ORDER SUBJECT TO ORDINARY WEAR AND TEAR AND LOCATE THE LEASED EQUIPM ENT IN AN APPROPRIATE ENVIRONMENT. CLIENT AGREES TO INS URE THE LEASED EQUIPMENT IN A SUM EQUAL TO ITS REPLACEMENT VALUE UNDER A COMMERCIAL MULTI-PERIL POLICY OR ITS EQUIVA LENT. CLIENT FURTHER AGREES TO FURNISH THOMSON WITH A CER TIFICATE OF INSURANCE EVIDENCING SUCH COVERAGE. 5. PROPRIETARY RIGHTS CLIENT AGREES THAT THE SERVICES AND THE SOFTWARE PR ODUCT CONSIST OF FACTUAL INFORMATION GATHERED, SELECTED A ND ARRANGED BY THOMSON, THIRD PARTY DATA SUPPLIERS, OR THIRD PARTY LICENSORS AT CONSIDERABLE EXPENSE AND B Y THE APPLICATION OF METHODS OF SELECTION AND JUDGMENT TH AT ARE ORIGINAL AND UNIQUE TO THOMSON, SUCH THIRD PARTY DA TA SUPPLIER OR SUCH THIRD PARTY LICENSOR AND, IN CASE OF ANY SOFTWARE PRODUCT, SOFTWARE ORIGINALLY TREATED AND 6 ITA NO. 407/DEL/2013 (AY 2007-08) DEVELOPED AS TRADE SECRETS AT THOMSON'S EXPENSE, AN D THAT THE SERVICES AND THE SOFTWARE PRODUCT (INCLUDI NG ALL COPYRIGHTS AND OTHER PROPRIETARY RIGHTS THEREIN) AR E AND SHALL REMAIN THE EXCLUSIVE PROPERTY OF THOMSON OR S UCH THIRD PARTY DATA SUPPLIER OR THIRD PARTY LICENSOR E XCEPT TO THE EXTENT OTHERWISE PROVIDED HEREIN, BOTH PARTI ES AGREE NOT TO MAKE ANY USE OF THE TRADE NAMES AND TRADEMAR KS OF THE OTHER PARTY WITHOUT THE PRIOR WRITTEN CONSEN T OF THE REQUESTED PARTY. CLIENT AGREES NOT TO REVERSE ENGIN EER, DECOMPILE, DISASSEMBLE OR OTHERWISE SEEK TO DUPLICA TE THE PERFORMANCE CHARACTERISTICS OF THE SERVICE OR NAY P ART THEREOF CLIENT SHALL NOT: (I) USE, COPY, MODIFY, ME RGE OR TRANSFER COPIES OF THE SOFTWARE PRODUCT (EXCEPT AS EXPRESSLY PROVIDED M THE AGREEMENT); (II) MODIFY, AD APT, TRANSLATE, REVERSE ASSEMBLE OR REVERSE COMPILE THE SOFTWARE PRODUCT; (TII) SUBLICENSE, RENT. LEASE OR ASSIGN THE SOFTWARE PRODUCT OR ANY COPY THEREOF; OR (IV) ALLOW ANY PERSON (OTHER THAN CLIENT, ITS EMPLOYEES AND AGENTS ) IO COPY OR USE THE SOFTWARE PRODUCT FOR ANY PURPOSE WHATSOEVER CLIENT AGREES THAT, THE SERVICES ARE OF AN ORIGINAL AND UNIQUE CHARACTER, AND THAT LOSSES CAUS ED BY A VIOLATION OR THREATENED VIOLATION OF THIS SECTION CANNOT BE ADEQUATELY COMPENSATED BY MONEY DAMAGES ALONE. ACCORDINGLY, CLIENT AGREES THAT THOMSON SHALL BE ENT ITLED TO INJUNCTIVE RELIEF IN THE EVENT OF A VIOLATION OR THREATENED VIOLATION OF THIS SECTION AS WELL AS TO MONEY DAMAG ES AND SUCH OTHER APPROPRIATE RELIEF. CLIENT AGREES TO ADV ISE ITS EMPLOYEES AND AGENTS OF THE TERMS AND CONDITIONS OF THIS SECTION AND ALSO AGREES THAT ANY VIOLATION OF THIS SECTION BY ANY SUCH EMPLOYEE OR AGENT SHALL CONSTITUTE A VI OLATION OF THIS SECTION BY CLIENT. CLIENT AGREES TO ATTRIBU TE OWNERSHIP OF THE SERVICES IN THE COURSE OF ITS USE TO THOMSON. CLIENT AGREES NOT TO REMOVE OR OBSCURE ANY PROPRIETARY RIGHTS NOTICES OF THOMSON. 6. CONFIDENTIALITY AND PRIVACY EACH PARTY SHALL PRESERVE THE CONFIDENTIAL INFORMAT ION FO THE OTHER PARTY AND SHALL NOT, WITHOUT FIRST OBTAIN ING THE OTHER PARTY'S WRITTEN CONSENT, DISCLOSE TO ANY PERS ON OR ORGANIZATION, OR USE FOR ITS OWN BENEFIT, ANY SUCH 7 ITA NO. 407/DEL/2013 (AY 2007-08) CONFIDENTIAL INFORMATION, BOTH DURING THE SERVICE T ERM OF THIS AGREEMENT AND THEREAFTER. 4.3 AS REFERRED IN THE AGREEMENT, THE SERVICE ORDER IS MADE BETWEEN MCKINSEY OMSON AND THIS READS AS BELOW : AS PER THE MASTER AGREEMENT BETWEEN ASSESSEE AND THOMSAN ASSIS PTE. LTD. THE DETAILS REGARDING SERVI CE RECEIVED AND VALUE OF SUCH SERVICE ARE AS UNDER: NO OF REGIST ERED USERS UNIT PRICE DESCRIPTION (PACKAGE COMPONENTS ARE ATTACHED) DELIVERY PLATFORM PRODUCTS FEES (INDICATE ANNUAL OR MONTHLY] EQUIPMENT FEES THIRD PARTY FEE TOTAL CONTRAC T VALUE PLEASE SEE BELOW DATA STREAM ADVANCE GLOBAL EQUIIIES & ECONOMICS INTERNET ANNUAL $ 112.200 NA T/S/E/S GLOBAL CURRENT SUMMARY ANA GLOBAL HISTORY SUMMARY DATA STREAM ANNUAL $ 20,000 NA 1/8/E/S INTERNATIONAL GLOBA- AGGREGATES AND S&P 500 AGGREGATES DATASTREAM ANNUAL $ 18.000 CURRENT & HISTORY TOTAL VALUE USD $ 150,200 5. SUBSEQUENT TO AGREEMENT FOR ACCESS OF DATABASES FOLLOWING INVOICES WERE RAISED UPON ASSESSEE BY THO MSON ON 04.01.2007, THE DETAILS OF WHICH ARE AS UNDER: TAX VOICE # AGREEMENT # P.O# BILLING DATE DUE DATE AMOUNT DUE AMOUNT ENCLOSED 866150 206656 04-JAN- 2007 03-FEB-2007 39,427.50 USD QTY. PRODUCT SERVICE PERIOD FREQUENCY AMOUNT 1 GLOBAL EQUITIES & ECONOMICS WORLDWIDE 01-JAN-2007 31-MAR-2007 QUARTERLY GROSS NET 29,452.50 USD 29452.50 USD 1 IBES GLOBAL CURRENT SUMMARY & GLOBAL HISTORY SUMMARY I/B/E/S CONSENSUS CURRENT & HISTORY(GLOBAL) 01-JAN-2007 31-MAR-2007 QUARTERLY GROSS NET 5,250.00 USD 5,250.00 USD 1 IBES GLOBAL CURRENT SUMMARY & GLOBAL AGGREGATE I/B/E/S CONSENSUS CURRENT & HISTORY(GLOBAL) 01-JAN-2007 31-MAR-2007 QUARTERLY GROSS NET 4,725.00 USD 4,725.00 USD SUBTOTAL GST @ 0% INVOICE TOTAL 39,427.50 USD 0.00 USD 39,427.50 USD ADJUSTMENTS 0.00 USD EXCHANGE RATE 1.5376 TOTAL AMOUNT DUE 39427.50 USD 8 ITA NO. 407/DEL/2013 (AY 2007-08) 6. ASSESSEE CONTENDED BEFORE LD. ITO THAT THE ABOVE PAYMENTS ARE NOT OF NATURE OF ROYALTY AS PER SECTIO N 9(1)(VI) OF THE ACT. IT WAS CONTENDED THAT PAYMENTS WERE MERELY FOR ACCESSING DATABASES AND IT DOES NOT HAVE ANY LICENS E FOR COMMERCIAL EXPLOITATION OF COPYRIGHT, WITH REGARD T O DATABASE MAINTAINED AND OWNED EXCLUSIVELY BY THOMSON. REJECT ING SUBMISSIONS ADVANCED BY ASSESSEE, LD. ITO PASSED OR DER DATED 24.08.2007 UNDER SECTION 195(2) OF THE ACT, T REATING PAYMENT AS ROYALTY/FTS, THEREBY DIRECTING ASSESSEE TO WITHHOLD TAX AT SOURCE AT RATE OF 20%. SUBSEQUENT T O THIS, ASSESSEE FILED TAX RESIDENCY CERTIFICATE AND TDS OF FICER RECTIFIED THE ORDER PASSED BY LD. ITO TO THE EXTENT OF GRANTI NG BENEFIT TO ASSESSEE UNDER THE TREATY. AS PER REVISED ORDER PAS SED BY ITO ON 11.09.2007, THE RATE OF WITHHOLDING TAX WAS GRAN TED AT 10%, UNDER ARTICLE 12 OF TREATY. 7. AGGRIEVED BY THIS ORDER, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). LD. CIT(A) DISAGREEING WITH SUBMISSIONS ADVANCED BY ASSESSEE UPHELD ORDER PASSED BY ITO. 8. AGGRIEVED BY ORDER OF LD. CIT(A), ASSESSEE IS IN A PPEAL BEFORE US NOW. 9. LD. COUNSEL SUBMITTED THAT, DATABASE ACCESSED BY ASSESSEE IS A SOURCE OF INFORMATION FOR VARIOUS COM MERCIAL, ECONOMIC, FINANCIAL MATTERS. AS THE MAIN FUNCTION O F ASSESSEE IS TO PROVIDE CUSTOMIZED BACK-OFFICE OPERATIONS AND ACTING AS SUPPORT CENTRE, IT IS REQUIRED TO ACCESS CERTAIN DA TABASES SUCH AS BLOOMBERG, REUTERS, ONCE SOURCE, DOW JONES AND D ATA STREAM. IT HAS SUBMITTED THAT, ONE SUCH DATABASE AC CESSED BY 9 ITA NO. 407/DEL/2013 (AY 2007-08) ASSESSEE IS DATABASE MAINTAINED BY THOMSON. HE REFE RRED TO GLOBAL MASTER SERVICE AGREEMENT, WHICH IS PLACED AT PAGE 2 TO 5 OF PAPER BOOK DATED 21.04.2015 WHEREIN IT PROVIDE S THAT SERVICES TO BE AVAILED WOULD BE AGREED UPON BETWEEN PARTIES AS PER SEPARATE SERVICE ORDERS, TO BE EXECUTED FROM TIME TO TIME. LD. COUNSEL REFERRED TO SERVICE ORDER DATED 2 3.11.2005 WHICH IS PLACED AT PAGE 6 TO 8 OF PAPER BOOK. HE SU BMITTED THAT AS PER SERVICE ORDER BURDEN OF PAYMENT OF TAXE S IN INDIA IF ANY IS ON ASSESSEE. IT IS SUBMITTED THAT THIS IS ME RELY A SUBSCRIPTION FEE FOR ACCESSING DATABASE OF GENERAL, PUBLICLY AVAILABLE INFORMATION, WHICH, AS PER LAW IS NOT LIA BLE TO BE TAXED IN INDIA, AND THEREFORE, ASSESSEE MADE APPLIC ATION UNDER SECTION 195 OF THE ACT BEFORE TDS OFFICER FOR NIL WITHHOLDING TAX, WHICH STOOD REJECTED. LD. COUNSEL PLACED RELIANCE UPON OR OF DECISIONS ON IDENTICAL ISSUES D ECIDED BY HONBLE JURISDICTIONAL HIGH COURT, OTHER HIGH COURT S, AND VARIOUS CO-ORDINATE BENCHES OF THIS TRIBUNAL. 10. HE FURTHER SUBMITTED THAT THERE IS NO TRANSFER OF ANY RIGHT IN RESPECT OF COPYRIGHTS BY THOMSON AND IT IS A MERE SIMPLE CASE OF TRANSFER OF COPYRIGHTED ARTICLE. LD. COUNSEL SUBMITTED THAT IN ORDER TO QUALIFY PAYMENTS MADE TO THOMSON AS ROYALTY, IT IS NECESSARY TO ESTABLISH THAT THERE IS A TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF ANY LICENSE) IN RESPECT OF COPYRIGHT OF LITERARY, ARTISTIC OR SCIEN TIFIC WORK. HE SUBMITTED THAT IN ORDER TO TREAT CONSIDERATION PAID BY ASSESSEE AS ROYALTY, IT IS TO BE ESTABLISHED THAT A SSESSEE BY MAKING SUCH PAYMENT CLAIMS ALL OR ANY OF COPYRIGHTS OF SUCH 10 ITA NO. 407/DEL/2013 (AY 2007-08) LITERARY WORK. LD. COUNSEL SUBMITTED THAT DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS CO. LTD., REPORTED IN (2012) 345 ITR 494 HAS BEEN DISTINGUISHED BY HONBLE DELHI HIGH COURT IN CASE OF DIT VS. INFRASOFT LTD., REPORTED IN (2014) 264 CTR 329. HE PLACED SPECIFIC REFERENCE TO PARA 98 OF THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INFRASOT LTD., (S UPRA) WHICH READS AS UNDER: 98. WE ARE NOT IN AGREEMENT WITH THE DECISION OF THE KARNATAKA HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD., (SUPRA) THAT RIGHT TO MAKE A COPY OF SOFTWARE AND STORING THE SAME ON THE HARD DISK OF THE DESIGNATED COMPUTER AND TAKING BACKUP COPY WOULD AMOUNT TO COPYRIGHT UNDER ARTICLE 14 (1) OF THE COPYRIGHT ACT AND THE PAYMENTS MADE FOR THE GRANT OF THE LICENSE FOR THE SAID PURPOSE WOULD CONSTITUTE ROYALTY. THE LICENSE GRANTED TO THE LICENSEE PERMITTING HIM TO DOWNLOAD THE COMPUTER PROGRAM AND STORING IT IN THE COMPUTER FOR HIS OWN USE WAS ONLY INCIDENTAL TO THE FACILITY EXTENDED TO THE LICENSEE TO MAKE USE OF THE COPYRIGHTED PRODUCT FOR HIS INTERNAL BUSINESS PURPOSES. THE SAID PROCES S WAS NECESSARY TO MAKE THE PROGRAM FUNCTIONAL AND TO HAVE ACCESS TO IT AND IS QUALITATIVELY DIFFERENT FROM THE RIGHT CONTEMPT RELATED BY THE SAID PROVISION BECAUSE IT IS ONLY INTEGRAL TO THE USE OF COPYRIGHTED PRODUCT. THE RIGHT TO MAKE A BACKUP COPY PURELY AS A TEMPORARY PROTECTION AGAINST LOSS, DESTRUCTION OR DAMAGE HAS BEEN HELD BY DELHI HIGH COURT IN NOKIA NETWORKS OY (SUPRA) IS NOT AMOUNTING TO ACQUIRING A COPYRIGHT IN THE SOFTWARE.) 11. LD. COUNSEL SUBMITTED THAT ISSUE IS SQUARELY COVER ED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N CASE OF DIT VS. INFRASOFT (SUPRA) . 11 ITA NO. 407/DEL/2013 (AY 2007-08) 12. ON THE CONTRARY, LD. DR PLACED RELIANCE UPON DECIS IONS OF AUTHORITIES BELOW. HE SUBMITTED THAT EXPLANATION 2 CLAUSE (IV) TO SECTION 9 (1) (IV) COVERS INFORMATION RECEI VED BY ASSESSEE, FOR WHICH PAYMENT HAS BEEN MADE TO THOMSO N. HE SUBMITTED THAT CLAUSE (V) CANNOT BE MADE APPLICABLE TO ASSESSEE. 13. WE HAVE PERUSED THE SUBMISSIONS ADVANCED BY BOTH T HE PARTIES IN THE LIGHT OF RECORDS PLACED BEFORE US AN D JUDICIAL PRECEDENT RELIED UPON BY LD. COUNSEL. 14. TO ELUCIDATE NATURE OF TRANSACTION IN THE CASE OF ASSESSEE, IS NECESSARY TO EXAMINE SOME OF CLAUSES O F MASTER AGREEMENT ENTERED INTO BY ASSESSEE WITH THOMPSON, W HICH HAS BEEN REPRODUCED HEREINABOVE. ON PERUSAL OF THE AGREEMENT IT IS OBSERVED THAT THOMSON PROVIDES GENE RAL DATA RELATING TO EQUITY, SHARE PRICE, MARKET, EXCHANGE R ATES, COMMODITY PRICES ETC WHICH IS PUBLICLY AVAILABLE. T HE DATABASE PROVIDED BY THOMSON TO ASSESSEE IS COMPILATION ASIA N OF GENERAL INFORMATION, RELATING TO SHARE MARKET WHICH IS NEITHER RELATING TO THOMSONS OWN EXPERIENCE NOR IS IT SECR ET OR DIVULGED INFORMATION. THE PAYMENTS MADE BY ASSESSEE TO THOMSON ARE FOR MERELY ACCESSING THE DATABASE. WITH THIS ACCESS ASSESSEE HAS NOT RECEIVED ANY KNOWLEDGE AS T O HOW THE DATABASES ARE MAINTAINED NOR DOES IT HAVE ANY LICEN CE FOR COMMERCIAL EXPLOITATION OF THE COPYRIGHT WITH REGAR D TO THE DATABASE MAINTAINED BY THOMSON. ASSESSEE HAD CLAIME D A LIMITED RIGHT TO USE THE INFORMATION WHICH IS NO DO UBT THE COPYRIGHTED INFORMATION SOLELY BELONGING TO THOMS ON UNDER 12 ITA NO. 407/DEL/2013 (AY 2007-08) MASTER AGREEMENT. ASSESSEE IS ALSO NOT REQUIRED TO PAY ANY THIRD-PARTY FEE WHICH IS EVIDENT ON READING OF MAST ER AGREEMENT. 15. THE CLAUSES IN AGREEMENT ARE NON-EXCLUSIVE, NON TRANSFERABLE AND INFORMATION AVAILABLE ON DATABASE HAS TO BE USED IN ACCORDANCE WITH THE AGREEMENT ONLY. WE AGRE E WITH THE AGREEMENT ADVANCED BY LD. COUNSEL THAT IN ORDER TO QUALIFY PAYMENT MADE TO THOMSON AS ROYALTY PAYMENT IT IS NECESSARY TO ESTABLISH THAT THERE IS A TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF COPYRIGHT OF LITERARY WORK. IT IS OBSERVED THAT ASSESSEE IS NOT ALLOWED TO EXPLOIT THE DATABAS E COMMERCIALLY UNDER THE AGREEMENT. 16. WE FIND THAT TREATY PROVISIONS BETWEEN INDIA AND SINGAPORE UNAMBIGUOUSLY REQUIRE THE USE OF COPYRIGH T TO BE TAXED IN THE SOURCE COUNTRY. IN THE PRESENT CASE, T HE PAYMENT HAS BEEN MADE BY ASSESSEE FOR USE OF COPYRIGHTED M ATERIAL RATHER THAN FOR THE USE OF COPYRIGHT. THE DISTINCTI ON BETWEEN COPYRIGHT AND COPYRIGHT ARTICLE HAS BEEN WELL D EALT WITH BY HONBLE DELHI HIGH COURT IN THE CASE OF DIT VS. INFRASOFT (SUPRA) , WHEREIN IT HAS BEEN HELD THAT IN A CASE WHERE ASSES SEE GETS RIGHT TO ACCESS COPYRIGHTED MATERIAL, THERE IS NO DISPUTE REGARDING THE SAME TO FALL OUT OF DEFINITION OF TER M ROYALTY, UNDER INDIA SINGAPORE DTAA. IN THIS CASE, AS ASSESS EE HAS ONLY RECEIVED ACCESS OF COPYRIGHTED MATERIAL, THERE IS NO DISPUTE ABOUT PAYMENT FALLING OUT OF DEFINITION OF ROYALTY. DURING COURSE OF HEARING BEFORE US LD. DR COULD NOT DEMONSTRATE AS TO HOW THERE WAS USE OF COPYRIGHT AN D 13 ITA NO. 407/DEL/2013 (AY 2007-08) THEREFORE, ATTEMPT TO BRING PAYMENTS MADE UNDER EXP LANATION 2 CLAUSE (IV) TO SECTION 9 (1) (VI) OF THE ACT CANN OT BE ACCEPTED. ACCORDINGLY RESPECTFULLY FOLLOWING DECISION OF HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF DIT VS. INFRASOFT LTD. (SUPRA) AND ON THE BASIS OF DISCUSSIONS ABOVE WE ALLOW GROUNDS RAISED BY ASSESSEE. IN THE RESULT APPEAL FILED BY THE ASSESSEE STANDS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MAY, 2017. SD/- SD/- (N. K. SAINI) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE: 11.05.2017 @M!T