10 June 2024


Income Tax Appellate Tribunal

Dow Jones & Company Inc. Vs. The A.C.I.T., International Taxation Circle-1(2)(3)



Direct Taxation

Payments made for acquiring right to use product itself, without allowing any right to use the copyright in the product are not covered with the scope of 'Royalty'

The Appellant Company is a business corporation incorporated in USA and engaged in the business of providing information products and services containing global business and financial news to organizations worldwide. It offers information via newspapers, newswires, websites, applications, newsletters, magazines, proprietary databases, conferences and radio.

The Appellant Company appointed Dow Jones Consulting India Pvt. Ltd. [DJCIPL] on a principal to principal basis for distributing its products in the Indian market. Accordingly, the Appellant company receives purchase price from DJCIPL at an arm's length price.

During the course of scrutiny assessment proceedings, the Assessing Officer was of the firm belief that the receipts from DJCIPL should be taxed in India as 'Royalty Income" under the provisions of the Act as well as India-USA DTAA. Referring to the definition 'Royalty' given in Section 9(1)(vi) of the Income Tax Act, 1961 the Assessing Officer treated the Indian receipts as taxable as 'Royalty'. The Assessing Officer further examined the relevant Article of India-USA DTAA and again formed a belief that Indian receipts are also taxable under the India-USA DTAA and concluded the proceedings by taxing the same. The assessee stated that the assessee has received consideration for providing use of database by which it has allowed DJCIPL to used its copy right and has not given any coy of right, therefore, the impugned receipts cannot be taxed as 'Royalty' in the hands of the assessee.

Article 12 of the Tax Treaty, 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. 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'. 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.

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.

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 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'.

In the present case, the Appellant is only granting access to its database to DJCIPL. 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. The findings of the Assessing Officer are set aside and the Assessing Officer is directed to delete the impugned addition.

Tags : Assessment Addition Legality

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