V.G Sabhahit J.:— These three appeals arise out of the common order passed by the Income-tax Appellate Tribunal (for short, “the Tribunal”) Bangalore Bench “B” in I.T.A Nos. 153.Bang./2004, 154.Bang./2004 and 152.Bang./2004, respectively, dated December 30, 2004 (since reported as Wipro Ltd. v. ITO, [2005] 278 ITR (AT) 57 (Bangalore)).
2. The material facts leading up to these three appeals are as follows: On a perusal of the details filed in respect of foreign remittances made by the respondent-assessee, it was noticed by the Revenue that certain payments had been made by the assessee to a non-resident, M/s. Gartner Group (hereinafter referred to as the “M/s. Gartner”), U.S A/Ireland, on which no tax was deducted under section 195 of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). It was found that the following payments had been made by the assessee during the period from April 18, 2000, to December 2, 2002:
Date
Financial year
Currency
Amount (in foreign currency)
Amount (in Rs.)
18-4-2000
2000-01
USD
1666.66
72,533
10-8-2000
2000-01
USD
2,16,166.67
97,16,691
17-11-2000
2000-01
USD
15,000
6,99,900
17-8-2001
2001-02
GBP
46,471.58
31,20,566
21-8-2001
2001-02
GBP
1,09,347
76,55,385
Date
Financial year
Currency
Amount (in foreign currency)
Amount (in Rs.)
18-3-2002
2001-02
USD
1,31,714
64,10,520
15-5-2002
2002-03
USD
58,000
28,34,460
2-12-2002
2002-03
USD
1,45,000
70,06,400
Since prima facie, the payments appeared to be royalty payments, wherein the respondent-assessee was required to deduct tax at source on such remittances and no deduction had been made as required under section 195(1) of the Act, show-cause notice under section 201 of the Act was issued to the assessee to explain the reasons for non-deduction of tax. In response to the show-cause notice, the assessee filed a reply dated January 10, 2003, wherein it was submitted that the payment is akin to making a subscription for a journal or magazine of a foreign publisher and though the journal contained information concerning commercial, industrial or technical knowledge, the payee makes no attempt to impart the same to the payer. Thus, the payment falls outside the scope of clause (ii) of Explanation 2 to section 9(1)(vi) of the Act and the payment was not contingent on productivity, use or disposition of the information concerning industrial, commercial or scientific experience in order to be construed as royalty within the meaning of article 12 of the Double Taxation Avoidance Agreement (for short, “the DTAA”) between India and the USA. In any case, the payment will not be covered by section 9(1)(vi) as it would fall into the exception (b) under that section and the payment is for the purposes of a business carried on outside India or for the purposes of making or earning any income from any source outside India.
3. The Assessing Officer held that the payments, as referred to above, made to M/s. Gartner was “royalty” within the meaning of Explanation 2 to section 9(1)(vi) of the Act and in the alternative “Fees for technical services” (included services), both of which are liable for tax in India in terms of section 195 read with section 9(1)(vi) and (vii) of the Income-tax Act and the relevant provisions of the DTAA, and, accordingly, passed the order of assessment on March 7, 2003, and demanded the amount of Rs. 52,96,440 (rupees fifty-two lakhs ninety-six thousand four hundred and forty only) towards payment of royalty under section 195 of the Act and interest at Rs. 11,33,640 (rupees eleven lakhs thirty-three thousand six hundred and forty only) under section 201(1A) of the Act. Being aggrieved by the said order of assessment made by the Income-tax Officer (International Taxation), Ward 19(2), Bangalore, three appeals were filed by the respondent herein in I.T.A Nos. 11, 12 and 13.R-19.CIT(A)IV/2003-04 on the file of the Commissioner of Income-tax (Appeals)-IV, Bangalore.
4. The appellate authority, by an order dated November 28, 2003, upheld the finding of the Assessing Officer that the payment made by the respondent to M/s. Gartner would amount to royalty and confirmed the order of assessment passed by the Assessing Officer in respect of the assessment years 2001-02 and 2003-04. However, in respect of the assessment year 2002-03, the appeal was allowed in part holding that the provisions of section 195 of the Act are not applicable to payment of Rs. 31,20,566 made by the respondent to M/s. Gartner in respect of professional fees on August 17, 2001, since the consideration involved was not “royalty” or “fees for included services” under article 12 of the DTAA with the USA. Being aggrieved by the said order of the appellate authority, the Revenue did not prefer any appeal regarding allowing of the appeal in part pertaining to the assessment year 2002-03, as referred to above. However, the respondent herein preferred I.T.A Nos. 152.Bang/2004, 153.Bang/2004 and 154.Bang/2004 before the Tribunal.
5. The Tribunal, by order dated December 30, 2004, allowed the appeals filed by the respondent-assessee by holding that the payment made by the respondent to M/s. Gartner did not constitute royalty as the same was in the nature of subscription made to the journal or magazine and no part of the copyright or copyright was transferred to the respondent and, wherefore, the income was not chargeable to tax in India. Further, the Tribunal held that there was no obligation on the part of the respondent to deduct tax under section 195(1) of the Act and, accordingly, set aside the orders passed by the appellate authority and the Assessing Officer and deleted both the tax liability under section 201(1) of the Act and the interest levied under section 201(1A) of the Act. Being aggrieved by the said order of the Tribunal dated December 30, 2004, these appeals are filed.
6. These appeals were admitted for consideration of the substantial questions of law raised in the respective appeal memo and ordered to be posted along with I.T.A No. 2988 of 2005. This court, by common order dated September 24, 2009, allowed the said I.T.A No. 2988 of 2005 and connected cases filed by the Revenue by setting aside the order passed by the Tribunal. Being aggrieved by the said common order, the respondent in those cases, filed Civil Appeal Nos. 7541-7542 of 2010 and connected matters before the hon'ble Supreme Court and the hon'ble Supreme Court by order dated September 9, 2010 (since reported as GE India Technology Centre P. Ltd. v. CIT, [2010] 327 ITR 456 (SC)), set aside the order passed by the Division Bench of this court by analysing the provisions of section 195 of the Act and remitted the matter to this court for answering the substantial question of law framed by it, which reads as under (page 466 of 327 ITR):
“The question which the High Court will answer is —‘whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the amount(s) paid by the appellants) to the foreign software suppliers was not ‘royalty’ and that the same did not give rise to any ‘income’ taxable in India and, therefore, the appellants) was not liable to deduct any tax at source?’”
7. We have heard the learned counsel appearing for the appellants and the learned counsel appearing for the respondent.
8. The learned counsel appearing for the appellants-Revenue submitted that the finding of the Tribunal is erroneous as the payment made by the respondent to M/s. Gartner is by way of royalty as what is granted to the respondent is a licence to have access to the database maintained by M/s. Gartner, which is a scientific, technical service and, wherefore, there is transfer of copyright to the extent of having access to the database maintained by M/s. Gartner, which access, but for the licence would have been an infringement of copyright and copyright continued to be with M/s. Gartner and, wherefore, the payments made by the respondent amount to royalty and the same cannot be considered akin to subscription made to a journal or magazine.
9. On the other hand, the learned counsel appearing for the respondent submitted that the payment made by the respondent to M/s. Gartner is not by way of royalty and no part of copyright or copyright is transferred to the respondent for having access to the database. Further, the payment made by the respondent would only amount to income from business to the nonresident company, i.e, M/s. Gartner and can never be called as “royalty” as right conferred upon the respondent is only to have access to the database, which is akin to subscription made to a journal or magazine and nothing more than that. Therefore, the Tribunal has rightly allowed the appeals filed by the respondent herein by setting aside the order passed by the appellate authority and the Assessing Officer and the said order of the Tribunal is justified. It is clear from the material on record that in identical cases, i.e, I.T.A No. 2988 of 2005 and connected cases1, this court, after considering the contentions, which are identical to the contentions raised in these appeals, in the light of the decisions relied upon by the learned counsel appearing for the parties in the said cases, by a separate order, held that the payment made by the respondent to M/s. Gartner, which is a non-resident company would amount to “royalty” and, wherefore, there is statutory obligation on the part of the respondent to make tax deduction, failing which, it is liable to pay tax and interest under section 201(1) and 201(1A) of the Act. Mere fact that, in the instant case, the issue do not pertain to shrink wrapped software or off-the-shelf software and access to database maintained by M/s. Gartner is granted online, would not make any difference in the reasoning assigned by us to hold that such right to access would amount to transfer of right to use the copyright held by M/s. Gartner and the payment made by the respondent to M/s. Gartner in that behalf is for the licence to use the said database maintained by M/s. Gartner and such payment is to be treated as “royalty”. Therefore, following the detailed reasons assigned by us in I.T.A No. 2808 of 2005 and connected cases, we hold that the finding of the Tribunal that payment made by the respondent to M/s. Gartner, a non-resident company would not amount to royalty is not justified and liable to be set aside and, accordingly, we answer the substantial question of law in the negative in favour of the Revenue and against the respondent and pass the following Order:
All the appeals are allowed. The order passed by the Income-tax Appellate Tribunal, Bangalore Bench “B” in I.T.A Nos. 152 to 154.Bang./2004, dated December 30, 2004, is set aside and the order passed by the appellate authority confirming the order passed by the Assessing Officer in respect of the assessment years 2001-02 and 2003-04 and modifying the order of the Assessing Officer in respect of the assessment year 2002-03 is restored.