The Mumbai ITAT has recently held that the subscription fee charged by the assessee-Company to access an online database must be treated as business income and not as royalty or Fee for Technical Services (FTS) under the Income Tax Act.
The assessee, Elsevier Information Systems GmbH, is a German- based who maintains an online database named “Reaxys” pertaining to chemical information including articles on chemistry topic, substance data and inputs on preparation and reaction methods which have been experimentally validated. The Taxpayer provides access to this database to its customers globally and earns a subscription fee in return.
The company claimed that the subscription fee received by it from its Indian customers should be considered as business income and hence, should not be taxed in India in the absence of a Permanent Establishment in India as per the definition contained in Article 5 of the India Germany Double Taxation Avoidance Agreement.
However, the AO rejected the claim and held that the subscription fees charged by the Taxpayer should be considered as royalty or Fees for Technical Services, and hence, should be taxable in India.
The Tribunal noted that the assessee has collated data from various journals and articles and put them in a structured manner in the database to make it more user friendly and beneficial to the users/customers who want to access the database.
“The assessee has neither employed any technical/skilled person to provide any managerial or technical service nor there is any direct interaction between the customer/user of the database and the employees of the assessee. The customer/user is allowed access to the online database through various search engines provided through internet connection. There is no material on record to demonstrate that while providing access to the database there is any human intervention,” the Tribunal said.
“The assessee even does not alter or modify in any manner the articles collated and stored in the database. In the aforesaid view of the matter, the subscription fee received cannot be considered as a fee for technical services as well. By way of illustration we may further observe, online databases are provided by Taxman, CTR online, etc. which are accessible on subscription not only to professionals but also any person who may be having interest in the subject of law. When a subscriber accesses the online database maintained by Taxman/CTR online etc. he only gets access to a copyrighted article or judgment and not the copyright. Similar is the case with the assessee. Therefore, in the facts of the present case, the subscription fee received by the assessee cannot be treated as royalty under Artile–12(3) of India–Germany Tax Treaty,” the Tribunal added.
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