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

ITA 7126/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5251 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2016-2017
• Appeal Filed On: 19-11-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR SUBRAMANIYAM
• Keywords: Double taxation relief; Permanent establishment; Initiation of penalty proceedings; Wholly owned subsidiary
• Section: 271(1)(c); 143(3); 234B; 144C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI , !',#$ !% BEFORE SHRI PRAMOD KUMAR, VICE-PRESIDENT & SHRI VIKAS AWASTHY, JUDICIAL MEMBER . 7126 / /201 9 ($,. . 2016-17 ) ITA NO.7126/MUM/2019 (A.Y.2016-17) ELSEVIER INFORMATION SYSTEMS GMBH, C/O. DELOITTE HASKINS AND SELLS LLP, INDIA BULLS FINANCE CENTRE, TOWER-3, 27 TH TO 32 ND FLOOR, ELPHINSTONE MILL COMPOUND, SENAPATI BAPAT MARG, ELPHINSTONE (W), MUMBAI 400 013 PAN: AACCE 5671L ...... '. / APPELLANT , VS. DY. COMMISSIONER OF INCOME TAX (IT)-2(2)(1), 17 TH FLOOR, AIR INDIA BUILDING, NARIMAN POINTS, MUMBAI 400 021. ..... $// RESPONDENT '.0/ APPELLANT BY : SHRI KETAN VED & MS. URVI MEHTA $/0/ RESPONDENT BY : SHRI VIJAY KUMAR SUBRAMANIYAM ,1$/ '/ DATE OF HEARING : 08/02/2021 23 1$/ '/ DATE OF PRONOUNCEMENT : 03/05/2021 2 ITA NO.7126/MUM/2019 (A.Y.2016-17) %/ ORDER PER VIKAS AWASTHY, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 24/09/2019 PASSED UNDER SECTION 143(3) R.W.S. 144C (13) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT) FOR THE ASS ESSMENT YEAR 2016-17. 2. THE ASSESSEE HAS ASSAILED THE ASSESSMENT ORDER O N FOLLOWING GROUNDS: THE APPELLANT COMPANY OBJECTS TO THE ORDER DATED 24 SEPTE MBER 2019 PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), 2 (2)(1), MUMBAI CAO') UNDER SECTION 143(3) READ WITH SECTION 144C(13) OF THE INCOME TAX ACT , 1961 (THE ACT') ON THE FOLLOWING GROUNDS: 1. THE LEARNED AO ERRED IN HOLDING THAT AN AMOUNT OF RS . 14,86,39,250 RECEIVED BY THE APPELLANT IS CHARGEABLE TO TAX IN INDIA. 2. SUBSCRIPTION FEES CONSIDERED AS FEES FOR TECHNI CAL SERVICES THE LEARNED AO ERRED IN HOLDING THAT THE SUBSCRIPTION FEES OF RS. 14,86,39,250 RECEIVED BY THE APPELLANT ARE IN THE NATURE OF 'FEES FOR TECHNICAL SERVICES ' CRTS') AS DEFINED UNDER SECTION 9(L)(VII) OF THE ACT AND ALSO UNDER ARTICLE 12 OF THE INDIA-GERMAN Y TAX TREATY. 3. SUBSCRIPTION FEES CONSIDERED AS ROYALTY THE LEARNED AO ERRED IN HOLDING THAT THE SUBSCRIPTION FEES OF RS. 14,86,39,250 RECEIVED BY THE APPELLANT ARE ALSO IN THE NATURE OF 'ROYALTY' AS DEFINED UNDER SECTION 9(L)(VI) OF THE ACT AND ALSO UNDER ARTICLE 12 OF THE INDIA-GERMANY TAX TREATY. 4. THE LEARNED AO/ DRP ERRED IN HOLDING THAT THE SUBSCRI PTION FEES RECEIVED BY THE APPELLANT ARE IN THE NATURE OF FTS AS WELL AS ROYALTY. THE APPELLANT SUBM ITS THAT THE SUBSCRIPTION FEES RECEIVED BY THE APPELLANT ARE NOT SUBJECT TO TAX IN INDIA. 5. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT SUB MITS THAT THE SUBSCRIPTION PAYMENTS COULD EITHER FALL UNDER THE DEFINITION OF FTS OR FALL UNDER TH E DEFINITION OF ROYALTY AND NOT BOTH. 6. THE LEARNED AO/ DRP ERRED IN NOT CONSIDERING THE SUBM ISSIONS FILED BY THE APPELLANT AND ALSO THE FOLLOWING DECISIONS RELIED UPON BY THE APPELLANT: DECISION OF MUMBAI TRIBUNAL IN ASSESSEE'S OWN CASE FOR AY 2011-12, AY 2013-14, AY 2014-15 AND AY 2015-16; DIT V. DUN & BRADSTREET INFORMATION SERVICES INDI A (P.) LTD. [2011] 338 ITR 95 (BOMBAY); M/S DUN & BRADSTREET INFORMATION SERVICES INDI A PVT LTD V. ADIT 2010-TH-59-ITAT-MUM-INTL (MUM TRIB); DUN & BRADSTREET ESPANA, S.A., IN RE [2005J27 2 ITR 99 (AAR); FACTSET RESEARCH SYSTEMS INC., IN RE [2009] 3 17 ITR 169 (AAR); GVK OIL & GAS LTD V. ADIT [2016] 68 TAXMANN.C OM 134 (HYDERABAD ITAT); ITO VS CADILA HEALTHCARE LTD [(2017) 77 TA XMANN.COM 309 (AHMEDABAD ITAT)]; 3 ITA NO.7126/MUM/2019 (A.Y.2016-17) DCIT VS WELSPUN CORPORATION LIMITED [(IT N O 48/RJT/2015)(AHMEDABAD ITAT)]; ITO VS ME KINSEY KNOWLEDGE CENTRE INDIA PVT L TD (2017) (DELHI ITAT); KITARA CAPITAL PRIVATE LIMITED V ITO (ITA NO 130/ MUM/ 2014) (MUMBAI TRIBUNAL); SULPHUR MILLS LTD VS. ADDL. CIT [(2019) ITA 5 349/MUM/ 2016 7. SURCHARGE AND EDUCATION CESS WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED AO ERRE D IN LEVYING SURCHARGE OF RS. 7,43,196 AND EDUCATION CESS OF RS. 4,68,214 AND FAILED TO APPREC IATE THAT THE TREATY RATE OF 10% AS PER ARTICLE 12 OF THE INDIA-GERMANY TAX TREATY IS INCLUSIVE OF SURCHA RGE AND EDUCATION CESS. 8. INTEREST UNDER SECTION 234B OF THE ACT THE LEARNED AO ERRED IN LEVYING INTEREST UNDER SECT ION 234B OF THE ACT AT RS. 67,51,626. 9. PENALTY PROCEEDINGS UNDER SECTION 271(L)(C) O F THE ACT THE LEARNED AO ERRED IN HOLDING THAT THE APPELLANT HAS CONCEALED THE PARTICULARS OF HIS INCOME AND ALSO ERRED IN INITIATING PENALTY PROCEED INGS UNDER SECTION 271(L)(C) OF THE ACT. 10. GENERAL 10.1 EACH ONE OF THE ABOVE GROUNDS OF APPEAL IS W ITHOUT PREJUDICE TO ONE ANOTHER, 10.2 THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER OR WITHDRAW ALL OR ANY OF THE GROUNDS OF APPEAL. 3. THE BRIEF FACTS OF THE CASE AS EMANATING FROM RE CORDS ARE: THE ASSESSEE /APPELLANT FILED ITS RETURN OF INCOME FOR THE IMPUG NED ASSESSMENT YEAR DECLARING NIL INCOME. THE APPELLANT IS A TAX RESIDENT OF GERMANY AND A 100% SUBSIDIARY OF REED ELSEVIER DEUTSCHLAND GMBH. THE ASSESSEE IS ENGAGED IN PROVIDING ACCESS TO PROPRIETARY DATA BASES NAMELY - REAXYS & EMBASE TO ITS CLIENT IN INDIA PURSUANT TO SUBSCRIPTION AGREEMENT. BOTH THE DATA BASE ARE SCIE NTIFIC DATA BASE RENDERING UNIQUE SEARCH AND RESEARCH. THE ASSESSEE HAS EARNED SUBSC RIPTION FEE OF RS.14,86,39,251/- FOR PROVIDING ACCESS TO THE DATABASE TO INDIAN CLIE NTS DURING THE PERIOD RELEVANT TO ASSESSMENT YEAR UNDER APPEAL. THE CONTENTION OF THE ASSESSEE IS THAT SINCE THE ASSESSEE IS NOT HAVING ANY PERMANENT ESTABLISHMENT (PE) IN INDIA, THE RECEIPTS FROM SUBSCRIPTION ARE NOT TAXABLE IN INDIA AS PER ARTICL E -12 OF INDIA GERMANY DTAA . THE ASSESSING OFFICER WHILE PASSING THE DRAFT ASSESSMEN T ORDER HELD THAT THE SUBSCRIPTION FEE RECEIPTS ARE IN THE NATURE OF ROYALTY/FEE FOR T ECHNICAL SERVICES (FTS) AND HENCE, TAXABLE IN INDIA UNDER SECTION 9 OF THE ACT READ WI TH ARTICLE 12 OF INDIA-GERMANY DTAA. CONSEQUENTLY, THE ASSESSING OFFICER MADE ADDI TION OF THE AFORESAID AMOUNT AS ROYALTY/FTS. AGAINST THE DRAFT ASSESSMENT ORDER DAT ED 08/12/2018, THE ASSESSEE FILED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANE L (DRP). THE DRP REJECTED THE OBJECTIONS OF THE ASSESSEE IN TOTO. THE ASSESSING O FFICER PASSED THE IMPUGNED 4 ITA NO.7126/MUM/2019 (A.Y.2016-17) ASSESSMENT ORDER IN LINE WITH THE DIRECTIONS OF DRP MAKING ADDITION OF RS.14,86,39,251/- ON ACCOUNT OF ROYALTY/FTS TAXA BLE IN INDIA. 4. SHRI KETAN VED APPEARING ON BEHALF OF THE ASSESS EE SUBMITTED THAT IN THE IMMEDIATELY PRECEDING ASSESSMENT YEARS I.E. ASSESSM ENT YEAR 2013-14 TO 2015-16 SIMILAR ADDITION WAS MADE BY THE ASSESSING OFFICER IN RESPECT OF SUBSCRIPTION FEE TREATING IT AS ROYALTY/FTS. THE ASSESSEE CARRIED TH E ISSUE IN APPEAL BEFORE THE TRIBUNAL IN ITA NO.6573/MUM/2016, ITA NO.7267/MUM/2017, AND ITA NO.7098/MUM/2018 FOR THE RESPECTIVE ASSESSMENT YEARS. THE TRIBUNAL A FTER EXAMINING THE FACTS AND NATURE OF TRANSACTIONS DECIDED THE APPEALS BY COMMO N ORDER DATED 28/06/2019 HOLDING SUBSCRIPTION FEE CAN NEITHER BE CONSIDERE D AS ROYALTY/FTS WITHIN THE MEANING OF SECTION 9(1)(VI)/(VII) OF THE ACT NOR UN DER INDIA-GERMANY DTAA. THE LD. AUTHORIZED REPRESENTATIVE FURTHER POINTED THAT THE ISSUE WAS FIRST DECIDED IN FAVOUR OF ASSESSEE BY THE TRIBUNAL IN APPEAL BY THE ASSESS EE FOR AY 2011-12 IN ITA NO.1683/MUM/2015 DECIDED ON 15/4/2019. IN LATER ASS ESSMENT YEARS THE TRIBUNAL FOLLOWED THE ORDER PASSED IN AY2011-12. THE LD. AUT HORISED REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IN PRESENT APPEAL BY THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE. 5. SHRI VIJAY KUMAR SUBRAMANIYAM REPRESENTING THE D EPARTMENT FAIRLY ADMITTED THAT THE ISSUE OF TREATING SUBSCRIPTION FEE BEING C ONSIDERED AS ROYALTY/FTS RAISED IN PRESENT APPEAL BY THE ASSESSEE HAS BEEN CONSIDERED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN THE PRECEDING ASSESSMENT YEARS. 6. WE HAVE HEARD THE SUBMISSIONS MADE BY RIVAL SIDE S AND HAVE EXAMINED THE ORDERS OF AUTHORITIES BELOW. IN GROUND NO.2 TO 6 O F THE APPEAL, THE ASSESSEE HAS ASSAILED THE FINDINGS OF ASSESSING OFFICER IN TREAT ING SUBSCRIPTION FEE RECEIVED FROM THE CLIENTS IN INDIA AS ROYALTY/FTS WITHIN THE MEA NING OF SECTION 9(1)(VI) AND 9(1)(VII) R.W. ARTICLE -12 OF INDIA GERMANY TAX TREATY. WE FI ND THAT THIS ISSUE IS PERENNIAL. IN ASSESSMENT YEAR 2011-12 SIMILAR ADDITION WAS MADE B Y THE ASSESSING OFFICER BY 5 ITA NO.7126/MUM/2019 (A.Y.2016-17) TREATING SUBSCRIPTION FEE AS ROYALTY/FTS. AFTER BEI NG UNSUCCESSFUL BEFORE THE DRP, THE ASSESSEE CARRIED THE ISSUE IN APPEAL BEFORE THE TRIBUNAL IN ITA NO.1683/MUM/2015 (SUPRA). THE CO-ORDINATE BENCH AF TER EXAMINING THE FACTS OF THE CASE THREADBARE HELD AS UNDER:- 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUS ED MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. BEFORE WE PROCEED TO DECIDE THE NATURE OF SUBSCRIPTION FEE EARNED BY THE ASSESSEE F ROM INDIAN ENTITIES, WHETHER FEES FOR TECHNICAL SERVICES/ROYALTY OR BUSINESS PROFIT, IT IS NECESSARY TO UNDERSTAND THE ACTIVITIES CARRIED ON BY THE ASSESSEE FOR GENERATIN G SUCH INCOME. UNDISPUTEDLY, THE ASSESSEE HAS CREATED AN ONLINE DATABASE NAMED REAX YS.COM PERTAINING TO CHEMICAL INFORMATION WHICH THE USERS HAVING INTEREST IN CHEM ISTRY TOPIC, SUBSTANCE DATA AND PREPARATION AND REACTION METHOD CAN ACCESS FOR THEI R OWN BENEFIT AND USE. IT IS ALSO NOT DISPUTED THAT THE DATA STORED IN THE ONLINE DAT ABASE IS COLLATED BY THE ASSESSEE FROM ARTICLES PRINTED IN VARIOUS JOURNALS ON SIMILA R TOPICS WHICH ARE OTHERWISE AVAILABLE TO PUBLIC ON SUBSCRIPTION BASIS. THE DATA COLLATED BY THE ASSESSEE FROM VARIOUS JOURNALS ARE ENTERED AND STORED IN THE DATA BASE IN A STRUCTURED AND USER- FRIENDLY MANNER TO ENABLE THE USERS TO SEARCH AND R ETRIEVE THE DATA REQUIRED BY THEM AND BENEFICIAL TO THEM. THE USERS OF THE ONLINE DAT ABASE CAN ACCESS IT THROUGH REGULAR WEB BROWSERS SUCH AS INTERNET EXPLORER, GOO GLE CHROME OR FIREFOX ON PAYMENT OF SUBSCRIPTION FEE. THE CUSTOMERS AND USER S ARE ALLOWED TO ACCESS THE ONLINE DATABASE ON A 24 HOURS BASIS FROM AN AGREED INTERNET PROTOCOL RANGE EITHER AUTHENTICATED VIA USER NAME AND PASSWORD OR VIA INT ERNET PROTOCOL (IP) NUMBER. THUS, IT IS EVIDENT, THE DATABASE IS ACCESSIBLE TO THE USERS THROUGH REGULAR INTERNET ACCESS AND NO PARTICULAR SOFTWARE OR HARDWARE IS RE QUIRED FOR ACCESSING IT. HOWEVER, EACH CUSTOMER/USER HAS TO ENTER INTO A SUBSCRIPTION AGREEMENT WITH THE ASSESSEE FOR ACCESSING THE DATABASE. WHILE ACCESSING THE DATABAS E THE CUSTOMER/USER CAN ACCESS, SEARCH, BROWSE AND VIEW THE SUBSCRIBED PRODUCTS. ON A PERUSAL OF A SAMPLE COPY OF THE SUBSCRIPTION AGREEMENT PLACED AT PAGE56 OF THE PAPER BOOK IT IS TO BE SEEN THAT AS PER CLAUSE1.1 OF THE SAID AGREEMENT, THE ASSESS EE GRANTS NONEXCLUSIVE AND NON TRANSFERRABLE RIGHT TO THE SUBSCRIBER TO ACCESS AND USE THE PRODUCTS AND SERVICES IDENTIFIED IN SCHEDULEI. AS PER SCHEDULEI, THE PR ODUCT TO BE ACCESSED BY THE SUBSCRIBER IS REAXYS.COM. FURTHER, SCHEDULEI OF TH E SUBSCRIPTION AGREEMENT PROVIDES THAT UPON TERMINATION OF THE SUBSCRIPTION AGREEMENT , THE SUBSCRIBER SHALL DELETE ALL STORED COPIES OF ITEMS FROM REAXYS AND DOCUMENT THE SAME TO ASSESSEES REASONABLE SATISFACTION. BY AGREEING TO SUCH SUBSCRIPTION, THE AUTHORISED USER/CUSTOMER MAY ACCESS SEARCH AND BROWSE AND VIEW THE SUBSCRIBE PRO DUCT. FURTHER, THE CUSTOMER OR USER CAN PRINT, MAKE ELECTRONIC COPIES OF AND STORE FOR ITS EXCLUSIVE USE INDIVIDUAL ITEMS FROM THE SUBSCRIBED PRODUCTS. FURTHER, IT CAN INCORPORATE LINKS TO THE SUBSCRIBED PRODUCTS TO THE SUBSCRIBERS INTRANET AND INTERNET WEBSITES PROVIDED THE APPEARANCE OF SUCH LINK AND / OR STATEMENTS ACCOMPANYING SUCH LINKS SHALL BE CHANGED AS PER THE REQUEST OF THE ASSESSEE. CLAUSE 1.4 OF THE SUBSCRIP TION AGREEMENT ENLISTS THE FOLLOWING RESTRICTIONS ON USE OF SUBSCRIBED PRODUCT S. 1.4 RESTRICTIONS ON USE OF SUBSCRIBED PRODUCTS. EX CEPT AS MAY BE EXPRESSLY PERMITTED IN THIS AGREEMENT, THE SUBSCRIBER AND ITS AUTHORISED USER MAY NOT; 6 ITA NO.7126/MUM/2019 (A.Y.2016-17) 1.4.1 ABRIDGE, MODIFY TRANSLATE OR CREATE ANY DERIV ATIVE WORK BASED ON THE SUBSCRIBED PRODUCTS WITHOUT THE PRIOR WRITTEN PERMI SSION OF ELSEVIER, EXCEPT TO THE EXTENT NECESSARY TO MAKE THEM PERCEPTIBLE ON A COMPUTER SCREEN TO AUTHORISED USERS; 1.4.2 REMOVE, OBSCURE OR MODIFY IN ANY WAY ANY COPY RIGHT NOTICES, OTHER NOTICES OR DISCLAIMERS AS THEY APPEAR IN THE SUBSCR IBED PRODUCTS; OR 1.4.3 SUBSTANTIALLY OR SYSTEMATICALLY REPRODUCE, RE TAIN OR REDISTRIBUTE THE SUBSCRIBED PRODUCTS. AUTHORISED USERS WHO ARE INDEPENDENT CONTRACTIONS M AY USE THE SUBSCRIBED PRODUCTS ONLY FOR THE PURPOSES OF THE CONTRACTED WO RK FOR THE SUBSCRIBER. 11. CLAUSE 1.5 OF THE AGREEMENT MAKES IT CLEAR THAT ALL RIGHT, TITLE AND INTEREST IN THE SUBSCRIBED PRODUCTS REMAIN WITH THE ASSESSEE AND AN Y UNAUTHORIZED REDISTRIBUTION OF THE SUBSCRIBED PRODUCTS WHICH MAY HARM THE ASSES SEE AND ITS SUPPLIER IS PROHIBITED. CLAUSE2.3 OF THE AGREEMENT PROVIDES TH AT THE ASSESSEE RESERVES THE RIGHT TO WITHDRAW FROM THE SUBSCRIBED PRODUCTS CONTENT TH AT IT NO LONGER RETAINS THE RIGHT TO PROVIDE OR THAT IT HAS REASONABLE GROUNDS TO BEL IEVE IS UNLAWFUL, HARMFUL, FALSE OR INFRINGING. AS PER CLAUSE4 OF THE AGREEMENT, SUBSC RIBER SHALL PAY THE SUBSCRIPTION FEE TO THE ASSESSEE AS SET FORTH IN SCHEDULE1 WITHIN 3 0 DAYS OF THE DATE OF INVOICE. CLAUSE5.1 OF THE AGREEMENT STIPULATES THE DURATION OF AGREEMENT FROM 1ST FEBRUARY 2010 TO 30TH JUNE 2010 WITH AN OPTION FOR RENEWAL O F THE AGREEMENT FOR AN ADDITION TERM UPON MUTUAL AGREEMENT. 12. THUS, ON READING OF THE AFORESAID IMPORTANT TER MS OF THE AGREEMENT IT IS VERY MUCH CLEAR THAT THE ASSESSEE HAS CREATED A DATABASE WHEREIN THE DATA RELATING TO CHEMISTRY ARE COLLATED FROM VARIOUS JOURNALS AND AR TICLES AND ARE STORED IN A STRUCTURED AND USER FRIENDLY MANNER WHICH IS ACCESS IBLE TO CUSTOMERS/USERS ON SUBSCRIPTION BASIS WITHOUT CONFERRING ANY EXCLUSIVE OR TRANSFERRABLE RIGHT ON THE CUSTOMER/USER. FURTHER, THE ASSESSEE RETAINS ITS EX CLUSIVE RIGHT AND OWNERSHIP OVER THE INTELLECTUAL PROPERTY RELATING TO THE PRODUCT A ND THE USERS SUBSCRIBERS ARE SPECIFICALLY DEBARRED FROM USING THE DATA IN ANY MA NNER OTHER THAN FOR THEIR OWN EXCLUSIVE PURPOSE. KEEPING IN VIEW THE AFORESAID FA CTUAL POSITION, WE NEED TO EXAMINE WHETHER THE SUBSCRIPTION FEE RECEIVED BY THE ASSESS EE FROM THE CUSTOMERS IN INDIA FOR ALLOWING ACCESS TO THE ONLINE DATABASE IS TRANSFER OF RIGHT TO USE THE COPYRIGHT, HENCE, CAN BE TREATED AS ROYALTY UNDER THE INDIAGERMANY T AX TREATY. THE DEPARTMENTAL AUTHORITIES HAVE HELD THAT WHILE ALLOWING ACCESS TO USE ITS ONLINE DATABASE I.E., REAXYS.COM THE ASSESSEE HAS TRANSFERRED THE RIGHT T O USE THE COPYRIGHT WHICH IS IN THE NATURE OF A LITERARY WORK, HENCE, TO BE TREATED AS ROYALTY. NO DOUBT, THE ASSESSEE BEING A TAX RESIDENT OF GERMANY IS GOVERNED BY INDI AGERMANY DTAA. THEREFORE, IT IS NECESSARY TO EXAMINE WHETHER THE SUBSCRIPTION FEE R ECEIVED BY THE ASSESSEE FITS INTO THE DEFINITION OF ROYALTY AS PROVIDED UNDER ARTRICL E12 OF THE INDIAGERMANY TAX TREATY. ARTICLE12.1 OF THE TAX TREATY PROVIDES THA T ROYALTY AND FEES FOR TECHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THE OTHER STATE. AS PER THE P LAIN MEANING OF THE AFORESAID PROVISION, THE SUBSCRIPTION FEE PAID TO THE ASSESSE E IS ORDINARILY TAXABLE IN GERMANY. HOWEVER, ARTICLE12.2 ALSO PROVIDES FOR TAXATION OF ROYALTY AND FEES FOR TECHNICAL SERVICES IN INDIA SUBJECT TO CONDITION THAT THE TAX LEVIABLE SHALL NOT EXCEED 10% OF THE 7 ITA NO.7126/MUM/2019 (A.Y.2016-17) GROSS AMOUNT OF ROYALTY OR FEES FOR TECHNICAL SERVI CES. ARTICLE12.3 OF THE TAX TREATY DEFINES ROYALTY IN THE FOLLOWING MANNER. THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CI NEMATOGRAPH FILMS OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING ANY PATENT, TRADE MARK, CINEMATOGRAPH FILMS OR FILMS OR TAPES USED FOR RADI O OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MOD EL, PLAN, SECRET FORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 13. AS PER THE AFORESAID DEFINITION OF ROYALTY IN T HE TAX TREATY, ANY AMOUNT RECEIVED FOR USE OF OR RIGHT TO USE OF ANY COPYRIGHT OR LITE RARY, ARTISTIC OR SCIENTIFIC WORK, ETC., CAN BE TREATED AS ROYALTY. IN THE FACTS OF THE PRES ENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE HAS COLLATED DATA FROM VARIOUS JOURNALS AN D ARTICLES, WHICH ARE OTHERWISE AVAILABLE FOR SUBSCRIPTION TO THE GENERAL PUBLIC, A ND ENTERED THEM INTO THE DATABASE IN STRUCTURED MANNER. IT IS ALSO CLEAR FROM THE TER MS OF SUBSCRIPTION AGREEMENT, THE ASSESSEE HAS NOT TRANSFERRED USE OR RIGHT TO USE OF ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK TO ITS SUBSCRIBERS. WHAT THE ASSESSEE HAS DONE IS, IT HAS ALLOWED CUSTOMERS TO ACCESS ITS DATABASE AND UTILIZE THE IN FORMATION AVAILABLE THEREIN FOR THEIR USE. FURTHER, IT IS OBSERVED, THE DATA AVAILA BLE IN ASSESSEES DATABASE RELATES TO THE SUBJECT OF CHEMISTRY AND FROM THE LIST OF CL IENTS SUBMITTED IN THE PAPER BOOK IT IS VERY MUCH CLEAR THAT THEY ARE EITHER CHEMICAL OR CHEMICAL RELATED COMPANIES. THERE IS NO MATERIAL ON RECORD WHICH COULD EVEN REM OTELY DEMONSTRATE THAT WHILE ALLOWING THE CUSTOMER /USERS TO THE ACCESS THE DATA BASE, THE ASSESSEE HAD TRANSFERRED ITS RIGHT TO USE THE COPYRIGHT OF ANY L ITERARY, ARTISTIC OR SCIENTIFIC WORK TO THE SUBSCRIBERS. FURTHER, FROM THE INVOICES RAISED BY THE ASSESSEE, SAMPLE COPIES OF WHICH ARE PLACED IN THE PAPER BOOK, IT IS NOTICED T HAT THE SUBSCRIPTION IS PERIOD BASED AND FURTHER THE SUBSCRIBER MAY NOT EVEN USE T HE DATA STORED IN THE DATABASE. THAT BEING THE CASE, THE PAYMENT MADE CANNOT BE TRE ATED AS ROYALTY UNDER ARTICLE 12(3) OF THE INDIAGERMANY TAX TREATY . 14. X X X 15. X X X 16. X X X 17. HAVING HELD SO, THE NEXT ISSUE WHICH ARISES FOR CONSIDERATION IS, WHETHER THE SUBSCRIPTION FEE CAN BE TREATED AS FEES FOR TECHNIC AL SERVICES. AS DISCUSSED EARLIER, IT IS EVIDENT THAT THE ASSESSEE HAS COLLATED DATA FROM VA RIOUS JOURNALS AND ARTICLES AND PUT THEM IN A STRUCTURED MANNER IN THE DATABASE TO MAKE IT MORE USER FRIENDLY AND BENEFICIAL TO THE USERS/CUSTOMERS WHO WANT TO ACCES S THE DATABASE. THE ASSESSEE HAS NEITHER EMPLOYED ANY TECHNICAL/SKILLED PERSON T O PROVIDE ANY MANAGERIAL OR TECHNICAL SERVICE NOR THERE IS ANY DIRECT INTERACTI ON BETWEEN THE CUSTOMER/USER OF THE DATABASE AND THE EMPLOYEES OF THE ASSESSEE. THE CUSTOMER/USER IS ALLOWED ACCESS TO THE ONLINE DATABASE THROUGH VARIOUS SEARC H ENGINES PROVIDED THROUGH 8 ITA NO.7126/MUM/2019 (A.Y.2016-17) INTERNET CONNECTION. THERE IS NO MATERIAL ON RECORD TO DEMONSTRATE THAT WHILE PROVIDING ACCESS TO THE DATABASE THERE IS ANY HUMAN INTERVENTION. AS HELD BY THE HON'BLE SUPREME COURT IN CIT V/S BHARATI CELLULAR L TD., [2010] 193 TAXMAN 97 (SC) AND DIT V/S A.P. MOLLER MAERSK A.S., [2017] 392 ITR 186 (SC), FOR PROVIDING TECHNICAL / MANAGERIAL SERVICE HUMAN INTERVENTION IS A SIN QUA NON. FURTHER, ARTICLE12(4) OF INDIAGERMANY TAX TREATY PROVIDES THAT PAYMENT FOR THE SERVICE OF MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE INCLUDING THE PROVI SIONS OF SERVICES BY TECHNICAL OR OTHER PERSONNEL CAN BE TERMED AS FEES FOR TECHNICAL SERVICES. NONE OF THE FEATURES OF FEES FOR TECHNICAL SERVICES AS PROVIDED UNDER ARTIC LE 12(4) OF THE INDIA GERMANY TAX TREATY CAN BE FOUND IN THE SUBSCRIPTION FEE REC EIVED BY THE ASSESSEE. FURTHER, THE DEPARTMENT HAS NOT BROUGHT ANY MATERIAL ON RECOR D TO DEMONSTRATE THAT THE ASSESSEE HAS EMPLOYED ANY SKILLED PERSONNEL HAVING KNOWLEDGE OF CHEMICAL INDUSTRY EITHER TO ASSIST IN COLLATING ARTICLES FRO M JOURNALS / MAGAZINES WHICH ARE PUBLICLY AVAILABLE OR THROUGH THEM THE ASSESSEE PRO VIDES INSTRUCTIONS TO SUBSCRIBERS FOR ACCESSING THE ONLINE DATABASE. THE ASSESSEE EVE N DOES NOT ALTER OR MODIFY IN ANY MANNER THE ARTICLES COLLATED AND STORED IN THE DATABASE. IN THE AFORESAID VIEW OF THE MATTER, THE SUBSCRIPTION FEE RECEIVED CANNOT BE CONSIDERED AS A FEE FOR TECHNICAL SERVICES AS WELL. BY WAY OF ILLUSTRATION WE MAY FURTHER OBSERVE, ONL INE DATABASES ARE PROVIDED BY TAXMAN, CTR ONLINE, ETC. WHICH ARE ACCESSIBLE ON SUBSCRIPTION NOT ONLY TO PROFESSIONALS BUT ALSO ANY PERSON WHO MAY BE HAVING INTEREST IN THE SUBJECT OF LAW. WHEN A SUBSCRIBER A CCESSES THE ONLINE DATABASE MAINTAINED BY TAXMAN/CTR ONLINE ETC. HE ONLY GETS A CCESS TO A COPYRIGHTED ARTICLE OR JUDGMENT AND NOT THE COPYRIGHT. SIMILAR IS THE CASE WITH THE ASSESSEE. THEREFORE, IN THE FACTS OF THE PRESENT CASE, THE SUBSCRIPTION FEE RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS ROYALTY UNDER ARTILE12(3) OF INDIAGERM ANY TAX TREATY. [EMPHASISED BY US] THUS, THE CO-ORDINATE BENCH IN AN UNAMBIGUOUS MANNE R HAS HELD THAT THE ASSESSEE HAS NOT TRANSFERRED ANY OF ITS RIGHT TO USE COPYRIG HT OF ANY LITERARY, ARTISTIC OR SCIENTIFIC WORK TO THE SUBSCRIBERS NOR ANY TECHNICA L SERVICES HAVE BEEN PROVIDED BY THE ASSESSEE TO ITS SUBSCRIBERS, THEREFORE, SUBSCR IPTION FEE RECEIVED FOR PROVIDING ACCESS TO DATABASE BY THE ASSESSEE TO ITS SUBSCRIBE RS NEITHER FALLS WITHIN THE AMBIT OF ROYALTY OR FEE FOR TECHNICAL SERVICES. 7. IN SUBSEQUENT ASSESSMENT YEARS I.E. AY 2013-14 T O 2015-16, THE ASSESSING OFFICER MADE ADDITION FOR SIMILAR REASONS BY TREATI NG SUBSCRIPTION FEE AS ROYALTY/FTS. THE TRIBUNAL FOLLOWING ITS OWN ORDER IN ITA NO.168 3/MUM/2015 (SUPRA) HELD THAT THE SUBSCRIPTION FEE IS NEITHER ROYALTY NOR FTS, HE NCE, THE PROVISIONS OF SECTION 9(1)(VI) OR 9(1)(VII) ARE NOT ATTRACTED. THE TRANSA CTION IS NOT EVEN COVERED BY ARTICLE- 12 OF INDIA GERMANY DTAA. THE FACTS AND NATURE OF T RANSACTIONS IN IMPUGNED 9 ITA NO.7126/MUM/2019 (A.Y.2016-17) ASSESSMENT YEAR ARE PARI MATERIA , HENCE, RESPECTFULLY FOLLOWING THE DECISION OF CO- ORDINATE BENCH, WE ALLOW GROUND NO.2 TO 6 OF THE AP PEAL FOR PARITY OF REASONS. 8. IN GROUND NO.7 OF THE APPEAL, THE ASSESSEE WITHO UT PREJUDICE TO THE PRIMARY CONTENTIONS HAS ASSAILED LEVY OF SURCHARGE AND EDUC ATION CESS. SINCE, WE HAVE HELD THAT SUBSCRIPTION FEE RECEIVED BY THE ASSESSEE IS N OT IN THE NATURE OF ROYALTY/FTS, THE SAME IS NOT TAXABLE IN INDIA, CONSEQUENTLY, THE GRO UND NO.7 HAS BECOME INFRUCTUOUS AND IS DISMISSED AS SUCH. 9. IN GROUND NO.8, THE ASSESSEE HAS ASSAILED CHARGI NG OF INTEREST UNDER SECTION 234B OF THE ACT. LEVY OF INTEREST UNDER SECTION 234 B IS CONSEQUENTIAL, IN VIEW OF OUR FINDINGS ON GROUND NO.2 TO 6, GROUND NO.8 DOES NOT REQUIRE SPECIFIC ADJUDICATION. 10. IN GROUND NO.9 OF APPEAL, THE ASSESSEE HAS ASSA ILED INITIATION OF PENALTY PROCEEDINGS UNDER SECTION. 271(1)(C) OF THE ACT. C HALLENGE TO PENALTY PROCEEDINGS AT THIS STAGE IS PREMATURE, HENCE, GROUND NO.9 IS DISM ISSED. 11. GROUND NO.1 & 10 OF THE APPEAL ARE GENERAL IN N ATURE, HENCE, REQUIRES NO ADJUDICATION. 12. IN THE RESULT, APPEAL BY THE ASSESSEE IS PARTLY ALLOWED IN THE AFORESAID TERMS. ORDER PRONOUNCED IN THE OPEN COURT ON MONDAY THE 3 RD DAY OF MAY, 2021. SD/- SD/- (PRAMOD KUMAR) (VIKAS AWASTHY) / VICE PRESIDENT #$ ! / JUDICIAL MEMBER / MUMBAI, 5,/ DATED: 03/05/2021 VM , SR. PS(O/S) 10 ITA NO.7126/MUM/2019 (A.Y.2016-17) COPY OF THE ORDER FORWARDED TO : 1. '. / THE APPELLANT , 2. $/ / THE RESPONDENT. 3. 6/ ( )/ THE CIT(A)- 4. 6/ CIT 5. 78 $/$, , . . . , / DR, ITAT, MUMBAI 6. 89: ;< / GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI