Subscription fee collected for e-magazine Content does not fall under 'Fee for Technical Service': Delhi HC [Read Order]

The Delhi High Court in its recent judgement held that the subscription fee collected for e-magazine Content does not fall under 'Fee for Technical Service’ under Section  9(1)(vii) of the Income Tax Act, 1961.

A division bench of  Justice Vibhu Bakhru and Justice Tejas Karia observed that “the subscription fee collected by the Assessee from various third parties is for subscription to e-magazines and content which is standardized and not specifically collected or generated for any particular entity. Thus, clearly, the subscription fee would not partake the character of a ‘fee for technical service’ within the meaning of Explanation 2 to Section 9(1)(vii) of the Act. “

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The Revenue has filed the present appeals under Section 260A of the  Income Tax Act, 1961 [the Act] impugning a common order passed by the Income Tax Appellate Tribunal [ITAT] in ITA No.2420/Del/2023 in respect of assessment year [AY] 2020-21 and ITA No.3307/Del/2023 in respect of AY 2021-22.

The Assessee , Springer Nature Customer Service Centre had filed its returns declaring ‘Nil’ income for AY 2020-21 and ₹43,75,330/- for AY 2021-22.  These returns were picked up for scrutiny.  The AO held that the commission income and the subscription fee received by the Assessee from entities in India were required to be construed as fees for technical services [FTS] and were chargeable to tax under the Act and passed the draft assessment orders. 

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The Assessee had filed objections to the draft assessment orders before the Dispute Resolution Panel [DRP] which were rejected by orders dated 02.03.2023 and 22.06.2023 passed in respect of AY 2020-21 and AY 2021-22 respectively.  Pursuant to the directions issued by DRP, the AO passed final assessment orders dated 27.06.2023 and 27.09.2023 for AY 2020-21 and AY 2021-22 respectively.  The AO assessed the income chargeable to tax under the Act and also directed commencement of penalty proceedings. 

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On appeal, the TAT held that the question, whether the commission income of the Assessee or the subscription fee received by the Assessee was taxable under the Act and the India-Germany Double Taxation Avoidance Agreement [DTAA], stood settled in favour of the Assessee by this court and there were no material changes in the previous years relevant to AYs 2020-21 and 2021-22. 

The Assessee has entered into a Commissionaire Agreement dated 01.01.2014 with Springer Nature India Pvt. Ltd. [SNIPL] – which is also one of the entities of the Springer Nature Group–by virtue of which the Assessee was appointed as a non-exclusive sales representative to promote, sell and distribute printed products (books and journals) and e-products (online books, journals and their archives). The Assessee also collected subscription fees amounting to ₹58,39,62,432/- and ₹63,14,43,357/- during FYs 2019-20 and 2020-21 respectively.  The AO treated the said receipts as FTS chargeable to tax under the Act as well as DTAA.  

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The court observed that for any receipt to fall within the expression ‘fees for technical services’, it is necessary that the same be received as consideration for rendering services which are of technical nature.  The expression “rendering of managerial, technical or consultancy services” must necessarily be construed in a narrow sense where such specialized services are rendered by the service provider as may be required by the service recipient. 

Further viewed that mere access to technical database or technical literature would not constitute provision of technical services. The sale of technical texts, information or research material collated by extensive research would not constitute rendering technical services within the scope of Section 9(1)(vii) of the Act. 

To Read the full text of the Order CLICK HERE

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