FAKHRI CO-OPERATIVE HOUSING SOCIETY LTD.USTEE COMPANY LTD AS TRUSTEE FOR FCCB ISSUED BY JINDAL SAW LTD., MUMBAI V. CIT (A), DELHI

ITA 785/MUM/2023

AI Insights

The case involves Factiva Limited, a UK tax resident, which appealed against the assessment order for the assessment year 2020-21, which treated certain payments as 'royalty' and taxable in India. The primary issues were whether the payments received from DJCIPL and other entities constituted 'royalty' under the India-UK DTAA and whether DJCIPL constituted an agency PE of Factiva in India. The Tribunal referenced previous decisions in similar cases involving Factiva for earlier assessment years, which had ruled in favor of Factiva on similar issues. The Tribunal's decision was based on the consistent application of legal principles regarding the definition of 'royalty' and the criteria for establishing a PE in India under the DTAA.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132088 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Next Hearing Date: 28-05-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 13-03-2023
• Other Referred Cases: Dow Jones of Company Inc. vs. ACIT, American Chemical Society vs. DCIT, Dun & Bradstreet Information Services India Private Limited
• Laws Referred To: Income Tax Act, 1961, Double Taxation Avoidance Agreement (DTAA) between India and UK
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Permanent establishment; Set aside
• Section: 143(3); 274; 13

Judgement Text

vk;dj vihyh; vf/kdj.k eqacbZ ihB ßvk;Þ eaqcbZ Jh fodkl voLFkh] U;kf;d lnL;],oa Jh xxu xks;y] ys[kkdkj lnL; ds le{k IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I” BENCH BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER & SHRI GAGAN GOYAL, ACCOUNTANT MEMBER vk-vk-la- 758@eaqcbZ@2023 ¼fu-oa- 2020&21½ ITA No.758/MUM/2023 (A.Y.2020-21) Factiva Limited C/o Price Waterhouse &Co LLP 252, Veer Savarkar Marg, Shivaji Park, Dadar Mumbai-400 028 PAN No. AACCF5745J ..... vihykFkhZ/Appellant cuke Vs. Assistant Commissioner of Income Tax, 2 (3) (1) Room No.1614, 16 th Floor, Air India Building, Nariman Point, Mumbai-400 021 ..... izfroknh/Respondent vihykFkhZ }kjk@Appellant by : S/Shri Pratik Shah & Amol Mahajan izfroknh }kjk@Respondent by : Shri Avneesh Tiwari, Sr. DR lquokbZ dh frfFk@Date of hearing : 23/05/2023 ?kks”k.kk dh frfFk@Date of pronouncement : 26/05/2023 vkns’k/ ORDER PER VIKAS AWASTHY, JM: This appeal by the assessee is directed against the assessment order dated 13.01.2023 passed u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”), for the assessment year 2020-21. 2. The assessee, in appeal has raised following grounds: P a g e | 2 ITA No.758/MUM/2023 (A.Y.2020-21) FACTIVA LIMITED “1. On the facts and in the circumstances of the case and in law, the Learned Assistant Commissioner of Income-tax (International Tax) 2(3)(1), Mumbai ('the Learned AO') and the Dispute Resolution Panel (the DRP') erred in holding the sum of INR 7,64.42,430 as 'Royalty' under Section 9(1)(vi) of the Income- tax Act, 1961 ('the Act') read with Article 13 of the Double Taxation Avoidance Agreement (the DTAA') entered into between India and UK. 2. On the facts and in the circumstances of the case and in law, the Learned AO erred in alleging that Dow Jones Consulting India Private Limited (DJCIPL) could constitute an Agency PE of the Appellant. 3. On the facts and in the circumstances of the case and in law, the Learned AO and the DRP erred in not considering that the sum of INR 7,64,42,430 is in the nature of "Business Profits" under Article 7 of the DTAA, not taxable in India as the Appellant did not have a Permanent Establishment in India under Article 5 of the DTAA. 4. On facts and in the circumstances of the case and in law, the learned AO has erred in initiating penalty proceedings under Section 270A read with Section 274 of the Act.” 3. The facts of the case in brief as emanating from records are: The assessee is a tax resident of United Kingdom. The assessee is engaged in providing information products and services containing global business and financial news to organisations worldwide. It provides news and business information services with content delivery tools and services and distributes various financial and related products in India through its group company Dow Jones Consulting India Private Limited (‘DJCIPL’). During the period relevant to the assessment year under appeal, the assessee received fee of Rs.7,35,93,522/- from DJCIPL against distribution rights of news and business information. Further, the assessee also made direct sales of similar product to KPMG, IQVIA Limited and Deloitte Touche Tohmatsu India LLP (in short ‘Deloitte’) worth Rs.3,04,008/-, Rs.20,90,768/- and 4,54,027/-, respectively. The assessee claimed the consideration received from its group company and other aforesaid entities as business income. The contention of the assessee is that the transaction between assessee and DJCIPL is on principal to P a g e | 3 ITA No.758/MUM/2023 (A.Y.2020-21) FACTIVA LIMITED principal basis at an arm’s length. The assesse further claimed that since, it does not have any Permanent Establishment (PE) in India, its income is not taxable in India under India-UK Double Taxation Avoidance Agreement (DTAA). The assessee filed its return of income for AY 2020-21 declaring Nil income. The assessee claimed refund of the tax deducted at source (Rs.78,38,420/-) on the payments made by DJCIPL and KPMG. The AO in draft assessment order held that the payment made by DJCIPL, KPMG, IQVIA Limited and Deloitte to the assessee are in nature of ‘royalty’ therefore liable to be taxed in India. Aggrieved by the draft assessment order dated 23.03.2022, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide directions dated 31.12.2022 rejected the objections of the assessee. The Assessing Officer (AO) vide impugned assessment order held: (i) the assessee has PE in India; (ii) the payment received by the assessee from DJCIPL, KPMG, IQVIA Limited and Deloitte are in the nature of royalty taxable u/s 9(1)(vi) of the Act read with Article 13(3) of DTAA. Hence, the present appeal by the assessee. 4. Shri Pratik Shah appearing on behalf of the assessee submitted at the outset that the issues raised by the assessee in appeal have already been adjudicated by the Tribunal in assessee’s own case in ITA 6455/Mum/2018 for AY 2015-16 decided on 31.05.2022 and in ITA No.5489/Mum/2019 for AY 2016-17 and ITA No.1247/Mum/2021 for AY 2017-18 decided vide composite order dated 09.05.2023. The ld. Authorised Representative (AR) submitted that the Tribunal in P a g e | 4 ITA No.758/MUM/2023 (A.Y.2020-21) FACTIVA LIMITED appeal by assessee has decided both the issues viz: nature of payments and assessee’s PE status in India, in favour of the assessee. 5. Per Contra, Shri Avneesh Tiwari representing the Department vehemently supporting the assessment order prayed for dismissing the appeal of assessee. However, the ld. DR fairly admitted that the issues raised by the assessee in present appeal are similar to the one considered by the Tribunal in assessee’s own case in preceding assessment years. 6. We have heard the submissions made by rival sides and have examined the orders of authorities below. We have also considered the decision on which the ld. AR has placed reliance in support of his submissions. Insofar as assessee’s nature of activity in the preceding assessment years and the assessment year under appeal is concerned, it is undisputed that there has been no change. Both the sides are unanimous in stating that the facts in the impugned assessment year and in the preceding assessment years are same. 7. We find that in AY 2015-16 addition was made in the hands of assessee treating the payment received from DJCIPL as royalty u/s 9(1)(vi) of the Act and further holding DJCIPL as Agency PE of the assessee. The Co-ordinate Bench after considering the facts of the case and placing reliance on the decision of Tribunal in one of assessee’s group company Dow Jones of Company Inc. vs. ACIT, 135 taxmann.com 270 (Delhi), the decision of Tribunal in the case of American Chemical Society vs. DCIT, 106 taxmann.com 253 (Mumbai) and the decision of Hon’ble Bombay High Court in the case of Dun & Bradstreet Information Services India Private Limited, 338 ITR 95 (Bombay) concluded 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 P a g e | 5 ITA No.758/MUM/2023 (A.Y.2020-21) FACTIVA LIMITED 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. 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 13(3) of India-UK DTAA and as such ordered to be deleted the same.” The Revenue has not brought on record any contrary material so as to distinguish the aforesaid decision by the Tribunal in assessee’s own case in AY 2015-16. The Tribunal in AY 2016-17 and 2017-18 (supra) in assessee’s own case following the decision of Co-ordinate Bench for AY 2015-16 has taken a similar view. Thus, in the facts of the instant case and the consistent view taken by the Tribunal in identical set of facts in assessee’s own case, we hold that the payment received by the assessee from DJCIPL, KPMG, IQVIA Limited and Deloitte are not in the nature of royalty as defined under Article 13 of India-UK DTAA or taxable u/s 9(1)(vi) of the Act. The addition made by the AO is directed to be deleted, for parity of reasons. The ground no. 1 of appeal is thus allowed. P a g e | 6 ITA No.758/MUM/2023 (A.Y.2020-21) FACTIVA LIMITED 8. In ground no.2 of appeal, the assessee has assailed the findings of AO in holding DJCIPL as agency PE of the assessee. This issue was also considered by the Co-ordinate Bench in the appeal for AY 2015-16 (supra) and has held as under: “22. We have perused the findings returned by the AO as well as Ld. DRP. AO in para 8.6 of its order has given a stray remarks that DJCIPL could constitute an agency PE of the assessee by returning following findings: "8.6 Alternatively, without prejudice to the above, the assessee's argument that the assessee is having business income but the same s 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 i.e. 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.” Thus, on parity of facts and absence of any contrary material on record, we follow the order of Co-ordinate Bench and hold that DJCIPL is not an agency PE of the assessee in India. Similar view has been taken by the Tribunal in assessee’s case for AY 2016-17 and 2017-18. The ground no.2 of appeal is thus, allowed. P a g e | 7 ITA No.758/MUM/2023 (A.Y.2020-21) FACTIVA LIMITED 9. The ground no.3 of appeal is consequential to ground no.2. Since, we have decided ground no.2 in favour of the assessee, the ground no.3 of appeal becomes infructuous and the same is dismissed, as such. 10. In ground no.4 of appeal, the assessee has assailed initiating of penalty proceedings u/s 270A r.w.s. 274 of the Act. Challenge to penalty proceedings at this stage is premature, ergo, ground no. 4 of appeal is dismissed. 11. In the result, appeal of the assessee is partly allowed. Order pronounced in the open court on Friday the 26 th day of May 2023. Sd/- Sd/- (GAGAN GOYAL) (VIKAS AWASTHY) Yks[kkdkj lnL;/ACCOUNTANT MEMBER U;kf;d lnL;/JUDICIAL MEMBER eaqcbZ/Mumbai, fnukad/Dated: 26/05/2023 Mahesh R. Sonavane P a g e | 8 ITA No.758/MUM/2023 (A.Y.2020-21) FACTIVA LIMITED izfrfyih vxzsf”kr of the Order forwarded to: 1. vihykFkh/The Appellant , 2. izfroknh/The Respondent. 3. vk;dj vk;qDr/ CIT 4. foHkkxh; izfrfu/kh] vk;- vih- vf/k-] eqacbZ/DR, ITAT, Mumbai 5. xkMZ QkbZy/Guard file. BY ORDER, //True Copy// (Dy. /Asst. Registrar)/ Sr. Private Secretary ITAT, Mumbai