DCIT 4(3)(1), MUMBAI V. TAPI ENERGY PROJECTS LTD., MUMBAI

ITA 7267/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8994 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 19-12-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ASSESSMENT YEAR S; ARE DISPOSED OF
• Keywords: Double taxation relief; Permanent establishment; Advance ruling; Wholly owned subsidiary
• Section: 143(3); 234B

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER, ITA NO.6573MUM/2016 ASSESSMENT YEAR: 2013-14 ELSE VIER INFORMATION SYSTEMS GMBH, C/O DELOITTE HASKINS AND SELLS LLP TOWER3, 2732 FLOOR, INDIABULLS FINANCE CENTRE, ELPHINSTONE MILL COMPOUND SENAPATI BAPAT MARG, ELPHINSTONE (W) MUMBAI 400 013 / VS. DY. COMMISSIONER OF INCOME TAX (IT) CIRCLE2(2)(1), MUMBAI ( /ASSESSEE) ( / REVENUE) P.A. NO. AACCE5671L ITA NO.7267/MUM/2017 ASSESSMENT YEAR: 2014-15 ELSEVIER INFORMATION SYSTEMS GMBH, C/O DELOITTE HASKINS AND SELLS LLP TOWER3, 2732 FLOOR, INDIABULLS FINANCE CENTRE, ELPHINSTONE MILL COMPOUND SENAPATI BAPAT MARG, ELPHINSTONE (W) MUMBAI 400 013 / VS. DY. COMMISSIONER OF INCOME TAX (IT) CIRCLE2(2)(1), MUMBAI ( /ASSESSEE) ( / REVENUE) P.A. NO. AACCE5671L 2 ELSEVIER INFORMATION SYSTEMS GMBH, ITA NO.7098/MUM/2018 ASSESSMENT YEAR: 2015-16 EL S EVIER INFORMATION SYSTEMS GMBH, C/O DELOITTE HASKINS AND SELLS LLP TOWER3, 2732 FLOOR, INDIABULLS FINANCE CENTRE, ELPHINSTONE MILL COMPOUND SENAPATI BAPAT MARG, ELPHINSTONE (W) MUMBAI 400 013 / VS. DY. COMMISSIONER OF INCOME TAX (IT) CIRCLE2(2)(1), MUMBAI ( /ASSESSEE) ( / REVENUE) P.A. NO. AACCE5671L / O R D E R PER BENCH THESE THREE APPEALS FILED BY THE ASSESSEE ARE DIREC TED AGAINST SEPARATE, BUT IDENTICAL ORDERS OF THE LD. ASSESSING OFFICER PASSE D U/S 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961(HEREINAFTER THE ACT) DATED 3 1/08/2016, 31/10/2017 AND 28/09/2018 FOR ASSESSMENT YEARS 2013-14, 2014-15 AND 2015-16 I N PURSUANCE TO THE DIRECTION OF DRP- 1, MUMBAI. SINCE, THE FACTS ARE IDENTICAL AND ISSUE S ARE COMMON, FOR THE SAKE OF CONVENIENCE, THESE APPEALS WERE HEARD TOGETHER AND ARE DISPOSED OF BY THIS CONSOLIDATED ORDER. 2. THE ASSESSEE, HAS MORE OR LESS FILED COMMON GROU NDS OF APPEAL FOR ALL ASSESSMENT YEARS. FOR THE SAKE OF BREVITY, GROUNDS OF APPEAL T AKEN FOR AY-2013-14, IN ITA NO.6573/MUM/2016 ARE REPRODUCED AS UNDER:- / ASSESSEE BY SHRI NIRAJ SETH / REVENUE BY SHRI NARENDRA KUMAR CIT- DR / DATE OF HEARING : 17/06/2019 / DATE OF ORDER: 28/06/2019 3 ELSEVIER INFORMATION SYSTEMS GMBH, THE APPELLANT COMPANY OBJECTS TO THE ORDER DATED 3 1 AUGUST 2016 PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX (IN TERNATIONAL 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 O F RS. 13,09,24,870 RECEIVED BY THE APPELLANT IS CHARGEABLE TO TAX IN I NDIA. 2. SUBSCRIPTION AMOUNTS CONSIDERED AS FEES FOR TEC HNICAL SERVICES THE LEARNED AO ERRED IN HOLDING THE SUBSCRIPTION AM OUNTS OF RS. 13,09,24,870 RECEIVED BY THE APPELLANT ARE IN THE N ATURE OF 'FEES FOR TECHNICAL SERVICES' ('FTS') AS DEFINED UNDER SECTIO N 9(L)(VII) OF THE ACT AND ALSO UNDER ARTICLE 12 OF THE INDIA-GERMANY TAX TREA TY. 3. SUBSCRIPTION AMOUNTS CONSIDERED AS ROYALTY THE LEARNED AO ERRED IN HOLDING THE SUBSCRIPTION AM OUNTS OF RS. 13,09,24,870 RECEIVED BY THE APPELLANT ARE IN THE N ATURE OF 'ROYALTY' AS DEFINED UNDER SECTION 9(L)(VI) OF THE ACT AND ALSO UNDER ARTICLE 12 OF THE INDIA-GERMANY TAX TREATY. 4. INTEREST UNDER SECTION 234B OF THE ACT THE LEARNED AO ERRED IN LEVYING INTEREST OF RS.51,2 2,366 UNDER SECTION 234B OF THE ACT. 5. INTEREST UNDER SECTION 234C OF THE ACT THE LEARNED AO ERRED IN LEVYING INTEREST OF RS.6,30 ,925 UNDER SECTION 234C OF THE ACT. 6. 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 OR FURNISHED INACCURA TE PARTICULARS OF SUCH INCOME AND ALSO ERRED IN INITIATING PENALTY PROCEED INGS UNDER SECTION 271(L)(C) OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS RESIDENT OF GERMANY AND IT IS 100% SUBSIDIARY OF REED ELSEVIER DEUTSCHL AND GMBH. THE ASSESSEE IS INVOLVED IN THE BUSINESS OF PROVIDING ACCESS TO GENERAL DATABAS E TO THE DESIRED USERS IN ONLINE DATABASE MANAGEMENT SYSTEM REAXYS. THE ONLINE DAT ABASE SYSTEM REAXYS PERTAINING TO CHEMICAL INFORMATION WHICH ALLOWS USERS WITH AN INT EREST IN CHEMISTRY TOPICS, SUBSTANCE DATA AND PREPARATION AND REACTION METHODS TO FIND THE RE LEVANT DATA CONVENIENTLY. THE ASSESSEE PROVIDES ACCESS TO THE DATA BASE AND EARN SUBSCRIPT ION FEE FROM CUSTOMERS WORLDWIDE, 4 ELSEVIER INFORMATION SYSTEMS GMBH, INCLUDING FROM INDIA. FOR THE IMPUGNED ASSESSMENT Y EARS, THE ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING AT NIL INCOME ON THE GROUND THA T SUBSCRIPTION FEE EARNED FROM SUBSCRIBERS FROM INDIA IS NEITHER IN NATURE OF FEES FOR TECHNICAL SERVICES AS DEFINED U/S 9(1)(VI) AND (VII) OF THE ACT, NOR IN THE NATURE OF ROYALTY UNDER THE ACT AS WELL AS UNDER ARTICLE-5 OF INDIA GERMANY TAX TREATY. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO FURNISH A COPY OF AGREEMENT ENTERED INTO WITH VARIO US INDIAN ENTITIES AND DETAILS OF AMOUNT EARNED FROM THEM. IN RESPONSE, THE ASSESSEE HAS FIL ED SAMPLE COPY OF AGREEMENT AND ALSO FILED DETAILS OF SUBSCRIPTION FEE EARNED FOR THE YE ARS UNDER CONSIDERATION. THE ASSESSEE FURTHER CLAIMED THAT IN ABSENCE OF PERMANENT ESTABL ISHMENT IN INDIA (PE) AS PER ARTICLE-5 OF INDIA GERMANY TAX TREATY, THE SUBSCRIPTION FEE RECE IVED FROM THE SUBSCRIBERS CANNOT BE TAXED INDIA EITHER UNDER PROVISIONS OF SECTION 9(1) (VI) AND (VII) OF THE ACT, OR UNDER INDIA GERMANY TAX TREATY. THE AO AFTER CONSIDERING RELEVA NT SUBMISSIONS OF THE ASSESSEE AND ALSO TAKEN NOTE OF COPY OF AGREEMENT ENTERED INTO W ITH VARIOUS INDIAN ENTITIES WAS OF THE VIEW THAT SUBSCRIPTION FEE RECEIVED BY THE ASSESSEE IS IN THE NATURE OF ROYALTY/ FEE FOR TECHNICAL SERVICES ON THE GROUND THAT THE ASSESSEE HAS RECEIVED SUBSCRIPTION FEE FOR PROVIDING SPECIFIC DATABASE FACILITY TO DIFFERENT I NDIAN CHEMICAL AND PHARMACEUTICAL COMPANIES. HE FURTHER OBSERVED THAT DATABASE INCLUD ES GENERAL SCIENCE BOOKS, MAGAZINES, AS WELL AS SPECIFIC RESEARCH-BASED REPORT, FORMULA FOR COMPLEX REACTION AND ITS RESULT, ETC. ONCE THE USER ENTERS INTO THE DATABASE, THE EXECUTI ON TOOLS AFTER INTERACTION OF GENERAL DATABASE CONVERTS IT INTO A STRUCTURED AND QUALITY CONTROLLED SPECIFIC DATABASE ANALOGOUS TO 5 ELSEVIER INFORMATION SYSTEMS GMBH, A GENERAL PHYSICAL LIBRARY. THUS, HE OBSERVED THAT THE DATABASE IS AKIN TO A VERY WELL- EQUIPPED LIBRARY OF RELEVANT INFORMATION ALONG WITH KNOWLEDGEABLE, THEREFORE, HE CAME TO THE CONCLUSION THAT SERVICE RENDERED BY THE ASSESSE E TO ITS SUBSCRIBERS IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS DEFINED U/S.9(1)(VII ) OF THE ACT. HE FURTHER OBSERVED THAT CERTAIN COPYRIGHTED PRODUCTS OF THE ASSESSEE LIKE C ROSS FIRE WERE LOANED TO THE CUSTOMERS IN INDIA AND WERE SOLD. REFERRING TO SECTION 9(1)(VI) OF THE ACT AND THE PROVISIONS OF THE INDIAN COPYRIGHT ACT, 1957 AS WELL AS VARIOUS JUDICIAL PRE CEDENTS, HE CAME TO THE CONCLUSION THAT SUBSCRIPTION RECEIVED BY THE ASSESSEE FOR PROVIDING ACCESS SERVICE TO THE ONLINE DATABASE TO THE SUBSCRIBERS IS IN THE NATURE OF LITERARY WOR K, HENCE, HAS TO BE TREATED AS ROYALTY AS DEFINED UNDER SECTION 9(1)(VI) OF THE ACT. THEREFOR E, COMPUTED INCOME ON THE BASIS OF ARTICLE 12(3) OF INDO-GERMANY TAX TREATY @ 10% OF T OTAL SUBSCRIPTION FEE RECEIVED IN INDIA AS TAXABLE INCOME UNDER THE INDO-GERMAN TAX TREATY. 5. THE ASSESSEE HAS RAISED OBJECTION AGAINST THE DR AFT ASSESSMENT ORDER BEFORE THE LD. DRP-1, MUMBAI, BUT COULD NOT SUCCEED. THE LD. D RP, FOR THE REASONS STATED IN ITS ORDER EVEN DATED UPHELD THE FINDINGS OF THE LD. AO AND RE JECT THE OBJECTIONS FILED BY THE ASSESSEE. AGGRIEVED BY THE FINDINGS OF LD. DRP, THE ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. AR FOR THE ASSESSEE, AT THE TIME OF HEAR ING, SUBMITTED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE ITAT, MUMBAI I BENCH IN ASSESSEES OWN CASE FOR AY 2011-12 IN ITA NO.168 3/MUM/2015 DATED 15/04/2019, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HA S EXAMINED THE ISSUE OF TAXABILITY OF SUBSCRIPTION FEE RECEIVED BY THE ASSESSEE FROM ITS CUSTOMERS IN INDIA IN LIGHT OF DEFINITION OF 6 ELSEVIER INFORMATION SYSTEMS GMBH, FEES FOR TECHNICAL SERVICES AND ROYALTY AS DEFINED U/S 9(1)(VI) AND 9(1)(VII) OF THE ACT AND ALSO UNDER INDIA GERMANY TAX TREATY AND HELD THAT S UBSCRIPTION FEES RECEIVED BY THE ASSESSEE FROM ITS CUSTOMERS IN INDIA IS NEITHER IN THE NATURE OF FEES FOR TECHNICAL SERVICES NOR ROYALTY WITHIN THE MEANING OF SECTION U/S 9(1)( VI) AND 9(1)(VII) OF THE ACT, NOR UNDER INDIA GERMANY TAX TREATY. THE LD. AR FURTHER SUBMITTED TH AT FACTS FOR THE IMPUGNED ASSESSMENT YEARS ARE IDENTICAL AND THE LD. AO AS WELL AS THE L D. DRP HAD REPRODUCED THE ORDER FOR THE AY 2011-12 IN VERBATIM AND HELD THAT SUBSCRIPTION F EE RECEIVED FROM CUSTOMERS IN INDIA FOR ACCESS TO ONLINE DATABASE IS IN THE NATURE OF FEES OF TECHNICAL SERVICES/ROYALTY. THE LD. AR FOR THE ASSESSEE FURTHER SUBMITTED THAT FOR AY 2015 -16, THERE IS SLIGHT DIFFERENCE IN FACTS IN AS MUCH AS FOR THIS YEAR THE ASSESSEE HAS TWO DATA PROCESS IN ADDITION TO EXISTING DATABASE WHICH HAS ALREADY BEEN CONSIDERED BY THE TRIBUNAL F OR EARLIER YEARS IN THE NAME OF EMBASE BUT BOTH DATABASE ARE SCIENTIFIC DATABASE RE NDERING UNIQUE SEARCH AND RESEARCH ACCESS, THEREFORE, EXCEPT THIS LIMITED CHANGES NO O THER CHANGES IN ITS AGREEMENT WITH SUBSCRIBERS AS WELL AS CONTENT OF DATABASE. FURTHER , THE LD. DRP HAS ACCEPTED THE FACT THAT FACTS WERE ALSO SIMILAR TO THE FACTS CONSIDERED BY THE DEPARTMENT FOR AY 2011-12. 7. THE LD. DR ON THE OTHER HAND, FAIRLY ACCEPTED TH AT THE ISSUE INVOLVED IN THE PRESENT APPEALS IS COVERED BY THE DECISION OF ITAT FOR EARL IER YEARS, WHERE UNDER IDENTICAL SET OF FACTS, THE TRIBUNAL HELD THAT SUBSCRIPTION FEES REC EIVED BY THE ASSESSEE IN INDIA IS NEITHER IN THE NATURE OF FEES FOR TECHNICAL SERVICES NOR ROYAL TY, AS DEFINED UNDER SECTION 9(1)(VI) AND 9(1)(VII) OF THE ACT AND ALSO UNDER INDIA GERMANY T AX TREATY. HOWEVER, HE STRONGLY SUPPORTED THE ORDER OF THE AO AS WELL AS THE LD. DR P. 7 ELSEVIER INFORMATION SYSTEMS GMBH, 8. WE HAVE HEARD BOTH PARTIES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH ORDERS OF THE AUTHORITIES BELOW. WE HAVE AL SO CAREFULLY CONSIDERED THE DECISION OF THE CO-ORDINATE BENCH OF ITAT, MUMBAI I BENCH IN ASSESSEES OWN CASE FOR AY 2011-12. WE FIND THAT THE CO-ORDINATE BENCH HAS DISCUSSED TH E ISSUE THREADBARE IN THE LIGHT OF FACTS BROUGHT OUT BY THE ASSESSEE AND PROVISION OF SECTIO N 9(1)(VI) AND 9(1)(VII) AND ALSO ARTICLE 5 AND 12(3) OF THE INDO GERMANY TAX TREATY AND HELD T HAT SUBSCRIPTION FEES RECEIVED BY THE ASSESSEE FROM ITS CUSTOMERS IN INDIA IS NEITHER IN THE NATURE OF FEES FOR TECHNICAL SERVICES NOR ROYALTY AS DEFINED UNDER SECTION 9(1)(VI) AND 9 (1)(VII) OF THE ACT, AND ALSO UNDER INDIA GERMANY TAX TREATY. THEREFORE, THE SAME CANNOT BE T AXED IN INDIA UNLESS THE ASSESSEE IS HAVING PERMANENT ESTABLISHMENT IN INDIA. THE RELEVA NT FINDINGS OF THE TRIBUNAL ARE AS UNDER:- 10. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSE D MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND T O 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 SERVICE S/ROYALTY OR BUSINESS PROFIT, IT IS NECESSARY TO UNDERSTAND T HE ACTIVITIES CARRIED ON BY THE ASSESSEE FOR GENERATIN G SUCH INCOME. UNDISPUTEDLY, THE ASSESSEE HAS CREATED AN O NLINE DATABASE NAMED REAXYS.COM PERTAINING TO CHEMICAL INFORMATION WHICH THE USERS HAVING INTEREST IN CHEM ISTRY TOPIC, SUBSTANCE DATA AND PREPARATION AND REACTION METHOD CAN ACCESS FOR THEIR OWN BENEFIT AND USE. IT IS ALS O NOT DISPUTED THAT THE DATA STORED IN THE ONLINE DATABAS E IS COLLATED BY THE ASSESSEE FROM ARTICLES PRINTED IN V ARIOUS JOURNALS ON SIMILAR TOPICS WHICH ARE OTHERWISE AVAI LABLE TO PUBLIC ON SUBSCRIPTION BASIS. THE DATA COLLATED BY THE ASSESSEE FROM VARIOUS JOURNALS ARE ENTERED AND STOR ED IN THE DATABASE IN A STRUCTURED AND USER-FRIENDLY MANN ER TO ENABLE THE USERS TO SEARCH AND RETRIEVE THE DATA RE QUIRED BY THEM AND BENEFICIAL TO THEM. THE USERS OF THE ON LINE DATABASE CAN ACCESS IT THROUGH REGULAR WEB BROWSERS SUCH 8 ELSEVIER INFORMATION SYSTEMS GMBH, AS INTERNET EXPLORER, GOOGLE 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 DATA BASE IS ACCESSIBLE TO THE USERS THROUGH REGULAR INTERNET AC CESS AND NO PARTICULAR SOFTWARE OR HARDWARE IS REQUIRED FOR ACCESSING IT. HOWEVER, EACH CUSTOMER/USER HAS TO EN TER 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 T HE SUBSCRIBED PRODUCTS. ON A PERUSAL OF A SAMPLE COPY OF THE SUBSCRIPTION AGREEMENT PLACED AT PAGE56 OF THE PAP ER BOOK IT IS TO BE SEEN THAT AS PER CLAUSE1.1 OF THE SAID AGREEMENT, THE ASSESSEE GRANTS NONEXCLUSIVE AND NO N TRANSFERRABLE RIGHT TO THE SUBSCRIBER TO ACCESS AND USE THE PRODUCTS AND SERVICES IDENTIFIED IN SCHEDULEI. AS PER SCHEDULEI, THE PRODUCT TO BE ACCESSED BY THE SUBSC RIBER IS REAXYS.COM. FURTHER, SCHEDULEI OF THE 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 AGREE ING 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 ELECT RONIC COPIES OF AND STORE FOR ITS EXCLUSIVE USE INDIVIDUA L ITEMS FROM THE SUBSCRIBED PRODUCTS. FURTHER, IT CAN INCOR PORATE LINKS TO THE SUBSCRIBED PRODUCTS TO THE SUBSCRIBER S INTRANET AND INTERNET WEBSITES PROVIDED THE APPEARANCE OF SU CH LINK AND / OR STATEMENTS ACCOMPANYING SUCH LINKS SHALL B E CHANGED AS PER THE REQUEST OF THE ASSESSEE. CLAUSE 1.4 OF THE SUBSCRIPTION AGREEMENT ENLISTS THE FOLLOWING RESTRICTIONS ON USE OF SUBSCRIBED PRODUCTS. 1.4 RESTRICTIONS ON USE OF SUBSCRIBED PRODUCTS. EXCEPT AS MAY BE EXPRESSLY PERMITTED IN THIS AGREEM ENT, THE SUBSCRIBER AND ITS AUTHORISED USER MAY NOT; 9 ELSEVIER INFORMATION SYSTEMS GMBH, 1.4.1 ABRIDGE, MODIFY TRANSLATE OR CREATE ANY DERIV ATIVE WORK BASED ON THE SUBSCRIBED PRODUCTS WITHOUT THE PRIOR WRITTEN PERMISSION OF ELSEVIER, EXCEPT TO THE EXTENT NECESS ARY 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 APPEA R IN THE SUBSCRIBED PRODUCTS; OR 1.4.3 SUBSTANTIALLY OR SYSTEMATICALLY REPRODUCE, R ETAIN OR REDISTRIBUTE THE SUBSCRIBED PRODUCTS. AUTHORISED USERS WHO ARE INDEPENDENT CONTRACTIONS M AY USE THE SUBSCRIBED PRODUCTS ONLY FOR THE PURPOSES OF TH E CONTRACTED WORK FOR THE SUBSCRIBER. 11. CLAUSE 1.5 OF THE AGREEMENT MAKES IT CLEAR THAT ALL RIGHT, TITLE AND INTEREST IN THE SUBSCRIBED PRODUCTS REMAI N WITH THE ASSESSEE AND ANY UNAUTHORIZED REDISTRIBUTION OF TH E SUBSCRIBED PRODUCTS WHICH MAY HARM THE ASSESSEE AND ITS SUPPLI ER IS PROHIBITED. CLAUSE2.3 OF THE AGREEMENT PROVIDES TH AT THE ASSESSEE RESERVES THE RIGHT TO WITHDRAW FROM THE SU BSCRIBED PRODUCTS CONTENT THAT IT NO LONGER RETAINS THE RIGH T TO PROVIDE OR THAT IT HAS REASONABLE GROUNDS TO BELIEVE IS UNLAWF UL, HARMFUL, FALSE OR INFRINGING. AS PER CLAUSE4 OF THE AGREEME NT, SUBSCRIBER SHALL PAY THE SUBSCRIPTION FEE TO THE ASSESSEE AS S ET FORTH IN SCHEDULE1 WITHIN 30 DAYS OF THE DATE OF INVOICE. C LAUSE5.1 OF THE AGREEMENT STIPULATES THE DURATION OF AGREEMENT FROM 1 ST FEBRUARY 2010 TO 30 TH JUNE 2010 WITH AN OPTION FOR RENEWAL OF THE AGREEMENT FOR AN ADDITION TERM UPON MUTUAL AGRE EMENT. 12. THUS, ON READING OF THE AFORESAID IMPORTANT TER MS OF THE AGREEMENT IT IS VERY MUCH CLEAR THAT THE ASSESSEE H AS CREATED A DATABASE WHEREIN THE DATA RELATING TO CHEMISTRY ARE COLLATED FROM VARIOUS JOURNALS AND ARTICLES AND ARE STORED I N A STRUCTURED AND USER FRIENDLY MANNER WHICH IS ACCESSIBLE TO CUSTOMERS/USERS ON SUBSCRIPTION BASIS WITHOUT CONFE RRING ANY EXCLUSIVE OR TRANSFERRABLE RIGHT ON THE CUSTOMER/US ER. FURTHER, THE ASSESSEE RETAINS ITS EXCLUSIVE RIGHT AND OWNERS HIP OVER THE INTELLECTUAL PROPERTY RELATING TO THE PRODUCT AND T HE USERS SUBSCRIBERS ARE SPECIFICALLY DEBARRED FROM USING TH E DATA IN ANY MANNER OTHER THAN FOR THEIR OWN EXCLUSIVE PURPOSE. KEEPING IN VIEW THE AFORESAID FACTUAL POSITION, WE NEED TO EXA MINE WHETHER THE SUBSCRIPTION FEE RECEIVED BY THE ASSESS EE FROM THE CUSTOMERS IN INDIA FOR ALLOWING ACCESS TO THE ONLIN E DATABASE IS TRANSFER OF RIGHT TO USE THE COPYRIGHT, HENCE, CAN BE TREATED AS ROYALTY UNDER THE INDIAGERMANY TAX TREATY. THE DEP ARTMENTAL AUTHORITIES HAVE HELD THAT WHILE ALLOWING ACCESS TO USE ITS ONLINE DATABASE I.E., REAXYS.COM THE ASSESSEE HAS TRANSFER RED THE RIGHT TO USE THE COPYRIGHT WHICH IS IN THE NATURE O F A LITERARY 10 ELSEVIER INFORMATION SYSTEMS GMBH, WORK, HENCE, TO BE TREATED AS ROYALTY. NO DOUBT, TH E ASSESSEE BEING A TAX RESIDENT OF GERMANY IS GOVERNED BY INDI AGERMANY DTAA. THEREFORE, IT IS NECESSARY TO EXAMINE WHETHER THE SUBSCRIPTION FEE RECEIVED BY THE ASSESSEE FITS INTO THE DEFINITION OF ROYALTY AS PROVIDED UNDER ARTRICLE12 OF THE IND IAGERMANY TAX TREATY. ARTICLE12.1 OF THE TAX TREATY PROVIDES THAT ROYALTY AND FEES FOR TECHNICAL SERVICES ARISING IN A CONTRA CTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE M AY BE TAXED IN THE OTHER STATE. AS PER THE PLAIN MEANING OF THE AF ORESAID PROVISION, THE SUBSCRIPTION FEE PAID TO THE ASSESSE E IS ORDINARILY TAXABLE IN GERMANY. HOWEVER, ARTICLE12.2 ALSO PROV IDES FOR TAXATION OF ROYALTY AND FEES FOR TECHNICAL SERVICES IN INDIA SUBJECT TO CONDITION THAT THE TAX LEVIABLE SHALL NO T EXCEED 10% OF THE GROSS AMOUNT OF ROYALTY OR FEES FOR TECHNICA L SERVICES. ARTICLE12.3 OF THE TAX TREATY DEFINES ROYALTY IN T HE FOLLOWING MANNER. THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITER ARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAP H FILMS OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROA DCASTING ANY PATENT, TRADE MARK, CINEMATOGRAPH FILMS OR FILM S OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, AN Y PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET F ORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SC IENTIFIC 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 A NY COPYRIGHT OR LITERARY, ARTISTIC OR SCIENTIFIC WORK, ETC., CAN BE TREATED AS ROYALTY. IN THE FACTS OF THE PRESENT CASE, THERE IS NO DISPUTE THAT THE ASSESSEE HAS COLLATED DATA FROM VARIOUS JOURNAL S AND ARTICLES, WHICH ARE OTHERWISE AVAILABLE FOR SUBSCRI PTION TO THE GENERAL PUBLIC, AND ENTERED THEM INTO THE DATABASE IN STRUCTURED MANNER. IT IS ALSO CLEAR FROM THE TERMS OF SUBSCRIPTION AGREEMENT, THE ASSESSEE HAS NOT TRANSF ERRED USE OR RIGHT TO USE OF ANY COPYRIGHT OF LITERARY, ARTIS TIC OR SCIENTIFIC WORK TO ITS SUBSCRIBERS. WHAT THE ASSESSEE HAS DONE IS, IT HAS ALLOWED CUSTOMERS TO ACCESS ITS DATABASE AND UTILIZ E THE INFORMATION AVAILABLE THEREIN FOR THEIR USE. FURTHE R, IT IS OBSERVED, THE DATA AVAILABLE IN ASSESSEES DATABASE RELATES TO THE SUBJECT OF CHEMISTRY AND FROM THE LIST OF CLIEN TS SUBMITTED IN THE PAPER BOOK IT IS VERY MUCH CLEAR THAT THEY ARE EITHER CHEMICAL OR CHEMICAL RELATED COMPANIES. THERE IS NO MATERIAL 11 ELSEVIER INFORMATION SYSTEMS GMBH, ON RECORD WHICH COULD EVEN REMOTELY DEMONSTRATE THA T WHILE ALLOWING THE CUSTOMER /USERS TO THE ACCESS THE DATA BASE, THE ASSESSEE HAD TRANSFERRED ITS RIGHT TO USE THE COPYR IGHT OF ANY LITERARY, ARTISTIC OR SCIENTIFIC WORK TO THE SUBSCR IBERS. FURTHER, FROM THE INVOICES RAISED BY THE ASSESSEE, SAMPLE CO PIES OF WHICH ARE PLACED IN THE PAPER BOOK, IT IS NOTICED T HAT THE SUBSCRIPTION IS PERIOD BASED AND FURTHER THE SUBSCR IBER MAY NOT EVEN USE THE DATA STORED IN THE DATABASE. THAT BEIN G THE CASE, THE PAYMENT MADE CANNOT BE TREATED AS ROYALTY UNDER ARTICLE 12(3) OF THE INDIAGERMANY TAX TREATY. 14. HAVING HELD SO, AT THIS JUNCTURE, IT IS NECESSA RY TO LOOK INTO SOME OF THE DECISIONS GOVERNING THE ISSUE AS C ITED BY THE LEARNED SR. COUNSEL FOR THE ASSESSEE. THE FIRST DEC ISION WHICH WE MAY REFER TO IS THE DECISION OF AUTHORITY FOR AD VANCE RULING IN DUN & BRAD STREET ESPANA, S.A., (272 ITR 99), WH EREIN THE ASSESSEE CONCERNED IS MAINTAINING A DATABASE OF BUS INESS INFORMATION REPORTS (BIRS). BIR IS A STANDARDIZED P RODUCT OF DUN & BRAD STREET ESPANA, S.A., PROVIDING THE FOLLO WING INFORMATION IN RESPECT OF A COMPANY: FACTUAL INFORMATION ON THE EXISTENCE, OPERATIONS, F INANCIAL CONDITION, MANAGEMENT EXPERIENCE, LINE OF BUSINESS, FACILITIES AND LOCATIONS OF PROSPECT; SPECIAL EVENTS AS WELL AS ANY SUITS, LEANS, JUDGMEN TS OR PREVIOUS DATA BEING BANKRUPTS; BANKING RELATIONSHIP AND ACCOUNTS; PARENT COMPANY AFFILIATED CONCERN, SUBSIDIARIES BRA NCHES AND DIVISIONS, REFERRED WITH NAME AND D&B DUNS NUMBE R; AND A RATING WHICH WOULD HELP TO PREDICT WHICH PROSPECT WILL PAY SLOWLY OR NOT AT ALL. 15. A CUSTOMER/SUBSCRIBER CAN ACCESS THE DATA STORE D IN THE DATABASE BY PAYING SUBSCRIPTION. THE DEPARTMENT HEL D THE SUBSCRIPTION PAID TO DUN & BRAD STREET ESPANA, S.A. , FOR ACCESSING THE DATA TO BE IN THE NATURE OF ROYALTY. THE AUTHORITY FOR ADVANCE RULING AFTER DEALING WITH THE ISSUE ULT IMATELY CONCLUDED THAT THE SUBSCRIPTION RECEIVED BY DUN & B RAD STREET ESPANA, S.A., FOR ALLOWING ACCESS TO THE DATABASE I S NOT IN THE NATURE OF ROYALTY/FEES FOR TECHNICAL SERVICES. FOLL OWING THE AFORESAID DECISION, THE TRIBUNAL, AHMEDABAD BENCH, IN ITO V/S CEDILLA HEALTHCARE LTD. [2017] 77 TAXMANN.COM 309, WHILE CONSIDERING THE NATURE OF SUBSCRIPTION PAID TO A U. S. BASED 12 ELSEVIER INFORMATION SYSTEMS GMBH, COMPANY VIZ. CHEMICAL ABSTRACT SERVICES, WHICH IS I N THE SAME LINE OF BUSINESS AND IS STATED TO BE THE COMPETITOR OF THE ASSESSEE, HELD THAT THE SUBSCRIPTION PAID FOR ONLIN E ACCESS TO THE DATABASE SYSTEM SCIFINDER IS NOT IN THE NATUR E OF ROYALTY. THE OBSERVATIONS OF THE TRIBUNAL WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE ARE AS UNDER: 17. WE FIND THAT AS THE TREATY PROVISION UNAMBIGUO USLY REQUIRES, IT IS ONLY WHEN THE USE IS OF THE COPYRIGHT THAT THE TAXA BILITY CAN BE TRIGGERED IN THE SOURCE COUNTRY. IN THE PRESENT CASE, THE PAY MENT IS FOR THE USE OF COPYRIGHTED MATERIAL RATHER THAN FOR THE USE OF COP YRIGHT. THE DISTINCTION BETWEEN THE COPYRIGHT AND COPYRIGHTED ARTICLE HAS B EEN VERY WELL POINTED OUT BY THE DECISIONS OF HON'BLE DELHI HIGH COURT IN THE CASE OF DIT V. NOKIA NETWORKS OY [2013] 358 ITR 259/212 TAXMAN 68/25 TAXMANN.COM 225 . IN THIS CASE ALL THAT THE ASSESSEE GETS RIGHT IS TO ACCESS THE COPYRIGHTED MATERIAL AND THERE IS NO DISPUTE ABOUT. AS A MATTER OF FACT, THE AO RIGHTY NOTED THAT 'ROYALTY' HAS BEEN DEFINED AS 'PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR RIGHT TO USE OF, ANY COPYRIGHT OF LITERARY, ARTISTIC OR S CIENTIFIC WORK' AND THAT THE EXPRESSION 'LITERARY WORK', UNDER SECTION 2(O) OF THE COPYRIGHT ACT, INCLUDES 'LITERARY DATABASE' BUT THEN HE FELL IN ER ROR OF REASONING INASMUCH AS THE PAYMENT WAS NOT FOR USE OF COPYRIGH T OF LITERARY DATABASE BUT ONLY FOR ACCESS TO THE LITERARY DATABA SE UNDER LIMITED NON EXCLUSIVE AND NON TRANSFERABLE LICENCE. EVEN DURING THE COURSE OF HEARING BEFORE US, LEARNED DEPARTMENTAL REPRESENTAT IVE COULD NOT DEMONSTRATE AS TO HOW THERE WAS USE OF COPYRIGHT. I N OUR CONSIDERED VIEW, IT WAS SIMPLY A CASE OF COPYRIGHTED MATERIAL AND THEREFORE THE IMPUGNED PAYMENTS CANNOT BE TREATED AS ROYALTY PAYM ENTS. THIS VIEW IS ALSO SUPPORTED BY HON'BLE BOMBAY HIGH COURT'S JUDGM ENT IN THE CASE OF DIT (INTERNATIONAL TAXATION) V. DUN & BRADSTREET INFORMATION SERVICES INDIA (P.) LTD. [2011] 338 ITR 95/[2012] 20 TAXMANN.COM 695 . 16. THE SAME VIEW WAS AGAIN EXPRESSED BY THE TRIBUN AL IN DCIT V/S WELSPUN CORPORATION LTD., [2017] 77 TAXMAN N.COM 165. IF WE EXAMINE THE FACTS OF THE PRESENT APPEAL IN JUXTAPOSITION TO THE FACTS OF THE DECISIONS REFERRE D TO HEREIN BEFORE, IT CAN BE SEEN THAT THE FACTS ARE ALMOST ID ENTICAL AND AKIN. IN THE REFERRED CASES THE ASSESSEES WERE ALSO MAINTAINING DATABASES OF INFORMATION COLLATED FROM VARIOUS JOUR NALS AND ARTICLES AND ALLOWED ACCESS TO THE USERS TO USE SUC H MATERIAL AS REQUIRED BY THEM. KEEPING IN VIEW THE RATIO LAID DO WN IN THE DECISIONS (SUPRA), THE PAYMENT RECEIVED BY THE ASSE SSEE HAS TO BE HELD TO HAVE BEEN RECEIVED FOR USE OF COPYRIGHTE D ARTICLE RATHER THAN FOR USE OF OR RIGHT TO USE OF COPYRIGHT . 17. HAVING HELD SO, THE NEXT ISSUE WHICH ARISES FOR CONSIDERATION IS, WHETHER THE SUBSCRIPTION FEE CAN BE TREATED AS FEES FOR TECHNICAL SERVICES. AS DISCUSSED EARLIER, IT IS EVIDENT THAT THE ASSESSEE HAS COLLATED DATA FROM VARIOUS JO URNALS AND ARTICLES AND PUT THEM IN A STRUCTURED MANNER IN THE DATABASE TO 13 ELSEVIER INFORMATION SYSTEMS GMBH, MAKE IT MORE USER FRIENDLY AND BENEFICIAL TO THE USERS/CUSTOMERS WHO WANT TO ACCESS THE DATABASE. TH E ASSESSEE HAS NEITHER EMPLOYED ANY TECHNICAL/SKILLED PERSON TO PROVIDE ANY MANAGERIAL OR TECHNICAL SERVICE NOR THE RE IS ANY DIRECT INTERACTION BETWEEN THE CUSTOMER/USER OF THE DATABASE AND THE EMPLOYEES OF THE ASSESSEE. THE CUSTOMER/USE R IS ALLOWED ACCESS TO THE ONLINE DATABASE THROUGH VARIO US SEARCH ENGINES PROVIDED THROUGH INTERNET CONNECTION. THERE IS NO MATERIAL ON RECORD TO DEMONSTRATE THAT WHILE PROVID ING 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. FURTHE R, ARTICLE 12(4) OF INDIAGERMANY TAX TREATY PROVIDES THAT PAY MENT FOR THE SERVICE OF MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE INCLUDING THE PROVISIONS OF SERVICES BY TECHNICAL O R OTHER PERSONNEL CAN BE TERMED AS FEES FOR TECHNICAL SERVI CES. NONE OF THE FEATURES OF FEES FOR TECHNICAL SERVICES AS PROV IDED UNDER ARTICLE 12(4) OF THE INDIAGERMANY TAX TREATY CAN B E FOUND IN THE SUBSCRIPTION FEE RECEIVED BY THE ASSESSEE. FURT HER, THE DEPARTMENT HAS NOT BROUGHT ANY MATERIAL ON RECORD T O DEMONSTRATE THAT THE ASSESSEE HAS EMPLOYED ANY SKIL LED PERSONNEL HAVING KNOWLEDGE OF CHEMICAL INDUSTRY EI THER TO ASSIST IN COLLATING ARTICLES FROM JOURNALS / MAGAZI NES WHICH ARE PUBLICLY AVAILABLE OR THROUGH THEM THE ASSESSEE PRO VIDES INSTRUCTIONS TO SUBSCRIBERS FOR ACCESSING THE ONLIN E DATABASE. THE ASSESSEE EVEN DOES NOT ALTER OR MODIFY IN ANY M ANNER THE ARTICLES COLLATED AND STORED IN THE DATABASE. IN TH E AFORESAID VIEW OF THE MATTER, THE SUBSCRIPTION FEE RECEIVED C ANNOT BE CONSIDERED AS A FEE FOR TECHNICAL SERVICES AS WELL. BY WAY OF ILLUSTRATION WE MAY FURTHER OBSERVE, ONLINE DATABAS ES ARE PROVIDED BY TAXMAN, CTR ONLINE, ETC. WHICH ARE ACCE SSIBLE ON SUBSCRIPTION NOT ONLY TO PROFESSIONALS BUT ALSO ANY PERSON WHO MAY BE HAVING INTEREST IN THE SUBJECT OF LAW. WHEN A SUBSCRIBER ACCESSES THE ONLINE DATABASE MAINTAINED BY TAXMAN/C TR ONLINE ETC. HE ONLY GETS ACCESS TO A COPYRIGHTED ARTICLE O R JUDGMENT AND NOT THE COPYRIGHT. SIMILAR IS THE CASE WITH THE ASSESSEE. THEREFORE, IN THE FACTS OF THE PRESENT CASE, THE SU BSCRIPTION FEE RECEIVED BY THE ASSESSEE CANNOT BE TREATED AS ROYAL TY UNDER ARTILE12(3) OF INDIAGERMANY TAX TREATY. 18. IN VIEW OF THE AFORESAID, THE ADDITION MADE HAS TO BE DELETED, AS, THE PAYMENT RECEIVED BY THE ASSESSEE I S ONLY IN THE NATURE OF BUSINESS PROFIT WHICH CANNOT BE BROUGHT T O TAX IN INDIA IN THE ABSENCE OF PE. GROUNDS ARE ALLOWED. 14 ELSEVIER INFORMATION SYSTEMS GMBH, 9. IN THIS VIEW OF THE MATTER AND CONSISTENT WITH V IEW TAKEN BY THE CO-ORDINATE BENCH, WE ARE OF THE CONSIDERED VIEW THAT SUBSCRIPTION FEE S RECEIVED BY THE ASSESSEE FROM CUSTOMERS IN INDIA FOR ALLOWING THEM TO ACCESS ONLI NE DATABASE CREATED BY THE ASSESSEE IN THE NAME OF REAXYS AND EMBASE CANNOT BE CONSIDE RED AS FEES FOR TECHNICAL SERVICES OR ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) AND 9(1)(VII) OF THE ACT, NOR UNDER INDIA GERMANY TAX TREATY. THEREFORE, BY RESPECTFULLY FOLL OWING THE DECISION OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DI RECT THE AO TO DELETE THE ADDITIONS MADE TOWARDS INCOME COMPUTED @10% OF TOTAL SUBSCRIP TION FEES AS PER INDIA GERMANY TAX TREATY. 10. IN THE RESULT, APPEALS FILED BY THE ASSESSEE FO R ALL ASSESSMENT YEARS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/06/2019. SD/- SD/- ( SAKTIJIT DEY ) (G. MANJUNATHA) ! ' /JUDICIAL MEMBER # ' / ACCOUNTANT MEMBER MUMBAI; DATED : 28/06/2019 F{X~{T F{X~{T F{X~{T F{X~{T? P.S / /. .. $!%&'(')% / COPY OF THE ORDER FORWARDED TO : 1. !' / THE APPELLANT (RESPECTIVE ASSESSEE) 2. #$%!' / THE RESPONDENT. 3. % % & ( ) / THE CIT, MUMBAI. 4. % % & / CIT(A)- , MUMBAI, 5. ()* %# + , % %+ - , / DR, ITAT, MUMBAI 6. *./ / GUARD FILE. / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI