In a recent verdict, the Delhi High Court held that subscribing to a legal database should not be construed as a transfer of copyright,
The Division Bench, comprising Justice Yashwant Varma and Justice Purshaindra Kumar Kaurav, made this observation while addressing an appeal by the Income Tax Department related to the subscription fees of LexisNexis, a legal database.
The Income Tax Department argued that the subscription fees could be treated as “royalties” and taxed under a Double Taxation Avoidance Agreement ( DTAA ). However, the court emphasized that for such fees to be considered “royalty,” the department must demonstrate that they are payments for the use of copyright or literary, artistic, or scientific works.
The bench stated that providing access to a legal database does not constitute a transfer of copyright. The court highlighted the importance of recognizing the distinction between transferring copyright and granting the right to use copyrighted material. According to the court, neither the subscription agreement nor the benefits offered to subscribers can be legally considered as a copyright transfer.
In the background of the case, Relx Inc., the foreign company that owns LexisNexis, declared ‘nil’ income for tax purposes in 2018. The IT Department, after a scrutiny assessment, claimed taxable income related to technical consultancy. The Income Tax Appellate Tribunal ruled in favor of Relx, leading to the current challenge in the High Court.
The IT Department argued that the subscription fee should be taxed as “business income” under Article 12 of the India-USA DTAA, focusing on the provision related to technical knowledge and expertise. Additionally, they contended that Relx Inc.’s income should be taxable in India under Section 9(1)(vii) of the Income Tax Act.
The Delhi High Court disagreed, stating that mere access to a legal database by a subscriber does not fall under Section 9(1)(vii) of the IT Act. Furthermore, the court clarified that the services provided by Relx do not qualify as technical consultancy services.
Regarding Article 12 of the DTAA, the court concluded that providing access to LexisNexis’ legal database does not amount to a transfer of the right to use copyright material. The court emphasized that to label the subscription fee as ‘royalty,’ the department would need to establish that the payments are consideration for the use of copyright or literary, artistic, or scientific works.
It was observed that, “As we examine the nature of the transaction between an Indian subscriber and the assessee, it becomes manifest and apparent that it neither comprises of a transfer of copyright nor does it include a transfer of a right to apply technology and other related aspects which are spoken of in Article 12(4)(b) of the DTAA.”
It was thus held that, “We thus find no justification to interfere with the view as expressed by the Tribunal. The appeal fails and shall consequently stand dismissed on the aforesaid terms.”
Senior Standing Counsel Ruchir Bhatia and Advocates Deeksha Gupta and Pratyaksh Gupta represented the IT Department, while Senior Advocate Ajay Vohra with Advocate Aditya Vohra represented Relx Inc.
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