ORDER
PERSAKTIJIT DEY, JM:
Captioned appeals by the assessee are against the final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (for short 'the Act') in
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pursuance to the direction of the Dispute Resolution Panel (DRP) pertaining to assessment years 2016-17 and 2017-18.
2. The common issue arising for consideration in both the appeals relate to taxability of amount received by the assessee from Dow Jones Consulting India Pvt. Ltd. (DJCIPL) for distributing its products in the Indian market as royalty.
3. Briefly, the facts are, the assessee is a non-resident corporate entity incorporated in United States of America (USA) and engaged in the business of providing information products and services, containing global and financial news to organizations worldwide. It offers information through newspapers, newswires, websites, applications, newsletters, magazines, proprietary databases, conferences, and radio etc. The assessee has entered into an agreement with DJCIPL for distribution of products in Indian market. In the assessment years under consideration, the assessee received certain amount from DJCIPL under the distribution agreement. In the assessment proceeding, the Assessing Officer called upon the assessee to explain, why the amount received should not be treated as royalty both under the Act as well as under the provisions of India - USA Double Taxation Avoidance Agreement 2 | P a g e
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(DTAA). In response, assessee submitted that the amount received is not in the nature of royalty under the provisions of the Act, as, the transaction with DJCIPL is on principal-to-principal basis. Further, it was submitted, the amount received does not fit into the definition of royalty as per the Treaty Provisions. The Assessing Officer, however, did not accept the submissions of the assessee and while framing the draft assessment order, treated the amount received by the assessee as royalty. Against the draft assessment order, the assessee raised objections before learned DRP. Following their directions in assessee's own case in assessment year 2015-16, learned DRP upheld the decision of the Assessing Officer. Accordingly, the Assessing Officer passed the final assessment orders.
4. Before us, it is a common point between the assessee and the Revenue that the issue is squarely covered by the decision of the Coordinate Bench in assessee's own case inassessment year 2015-16.
5. Having considered rival submissions and perused the materials on record, we find that while deciding identical issue in assessee's own case in assessment year 2015-16, the Coordiante Bench in the case of Dow Jones & Company Inc. Vs. ACIT [2022] 3 | P a g e
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135 taxmann.com 270 (Delhi - Trib.) [14.12.2021] has decided the issue in favour of the assesse by holding that the amount received from DJCIPL is not in the nature of royalty under Article 12 of the India - USA DTAA. The relevant observtions of the Coordinate Bench in this regard are as under:
"10. We have given thoughtful consideration to the orders of the authorities below. At the very outset, we have to state that basis the provisions of section 92 of the Act, the assessee is entitled to invoke the provisions of India -USA DTAA to the extent it is more beneficial. Our view is fortified by the decision of the Hon'ble Supreme Court in the case of Union of India Vs. Azadi Bachao Andalon 263 ITR 706. Accordingly, we will consider the beneficial provisions of the tax treaty to see whether the contention of the assessee that the alleged payment from DJCIPL is not royalty income.
11. As per Article 12 of the Tax Treaty, 'Royalty" is defined as under:
"10.1.4.1 (a) "payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and
(b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income, derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic.
10.1.5 Thus, Article 12 of the Tax Treaty brings within the ambit of the definition of royalty, a payment made for the use of or the right to use a copyright of a literary, artistic or scientific work. Thus, only those payments that allow a payer to use / acquire a right to use a copyright in a literary, artistic or scientific work arc covered within the definition of royalty. Payments made for acquiring the right in use the product it sell, without allowing any right to use the copyright in the product, are not covered within the scope of royally winch 4 | P a g e
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may gel covered under the term 'Royalty' as per the Act. Further, unless the payments are made towards acquiring the right to use a copyright in a literary, artistic, or scientific work, definition of Royalty would not get attracted.
10.1.6 In the current case, there is no transfer of legal title in the copyrighted article as the same rests with the Applicant. All rights, title and interest in the licensed software, which is being claimed to be copyrighted article, are the exclusive property of the Applicant. DJCIPL has no authority to reproduce the data in any material form, to make any translation in the data or to make any adaptation in the data. Further, the end user cannot be said to have acquired a copyright or right to use the copyright in the data and accordingly, the payments made by DJCIPL for accessing the database would not qualify as payments for the use of copyright.
10.1.7 The Applicant submits that the payments made by DJCIPL is not for the transfer of all or any rights in respect of the database Under the agreement, DJCIPL does not acquire any right in relation to the. products.
10.1.8 Thus in view of the above arguments, n shall be possible to conclude that the payment received by the Applicant cannot be treated as a consideration for the transfer of any 'copyright'. The transaction under consideration is tor the provision of accessing the database of the
Applicant/financial pr oducts license, the same cannot he considered as 'royally' under Article 12 of the India-US DTAA. 10.1.9 Furthermore, in determining whether or not a payment is for the use of copyright, it is important to distinguish between a payment for the right to use the copyright in a programme and the right to use the programme itself. We have outlined below our detailed submission on the distinction between copyright and the copyrighted article:"
12. A perusal of the above Article shows that it brings within the ambit of the definition of 'Royalty' the payment made for use of, or the right to use any copyright of a literary, artistic, or scientific work. In our understanding of the Article, only those payments that allow a payer to use/acquire a right to use copyright in literary, artistic or scientific work are covered within the definition of 'Royalty'. In our considered view, the payments made for acquiring right to use product itself, without allowing any right to use the copy right in the product are not covered with the scope of 'Royalty' which may get covered under the term under Royalty as per the Act. 5 | P a g e
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13. The facts of the case in hand show that there is no transfer of legal title in the copyrighted article as the same rests with the assessee. All rights, title and interest in the licensed software which is being claimed to be copyrighted article are the exclusive property of the assessee. DJCIPL has no authority to reproduce the date in any material form to make any translation in the date or to make adaptation in the data.
14. We further find that the end user cannot be said to have acquired a copy right or right to use the copy right in data. A perusal of the agreement with DJCIPL shows that DJCIPL does not acquire any right in relation to the products. In our considered view, in determining whether or not a payment is for use of copyright, it is important to distinguish between 'a payment for right to use the copy right in a program' and 'right to use the program itself'.
15. In the case in hand, the revenue derived by the assessee from granting limited access to its data base is akin to sale of book, wherein purchaser does not acquire any right to exploit the underlying copyright. In the case of a book, the publisher of the book grants the purchaser certain rights to use the content of the book, which is copyrighted. The purchaser of the book does not acquire the right to exploit the underlying copyright. When the purchaser reads the book, he only enjoys the contents. Similarly, the user of the database does not receive the right to exploit the copyright in the database he only enjoys the product in the normal course of his business.
16. In the present case, the appellant is only granting access to its database to DJCIPL. In our considered opinion, the payments received cannot be said to be 'Royalty' in nature. The transaction under consideration is for provision of accessing database of the assessee. Hence the same cannot be considered as 'Royalty' under Article 12 of the India-US DTAA. We, therefore, set aside the findings of the Assessing Officer and direct the Assessing Officer to delete the impugned addition. Ground No. 1 is, accordingly, allowed."
6. Facts in the impugned assessment year being identical, respectfully following the decision of the Coordinate Bench, as mentioned above, we delete the additions made by the Assessing Officer in both the assessmment years under dispute. 6 | P a g e
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7. In view of our decision above, the other grounds raised by the assessee on the existence of PE, applicable tax rates etc., having become infructuous are dismissed.
8. In the result, appeals are allowed, as indicated above. Order pronounced in the open court on 29th September, 2022 Sd/- Sd/-
(N.K. BILLAIYA) (SAKTIJIT DEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 29th September, 2022. RK/-
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar, ITAT, New Delhi 7 | P a g e
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