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Subscription to database is not royalty or professional fees and so not taxable: Delhi HC

CA Adityavikram Banka

Subscription to database is not royalty or professional fees and so not taxable: Delhi HC

THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -3 Vs RELX INC

Facts:

1. The case is pertaining to the taxation of subscription fees collected by RELX INC from Indian subscribers for its renowned legal database, “Lexis Nexis.”

2. The Income Tax Department contested that the subscription fees should be treated as business income, arguing the existence of a Permanent Establishment (PE) in India.

3. The Department also said that the fee for imparting technical training is taxable even under Article 12 (concerning royalties and fees for included services) of the India-USA DTAA, particularly sub-clause (4)(b) which concerns making available “technical knowledge, experience, skill, know-how,” etc.

4. However, RELX INC countered this assertion, maintaining that lacking a PE in India meant the income should not be taxed under the India-USA Double Taxation

5. Furthermore, RELX INC contended that the subscription fees did not qualify as royalties or fees for technical services under the Income Tax Act.

6. The matter then reached the Income Tax Appellate Tribunal (ITAT) which ruled in favour of Relx. This led to a challenge before the High Court.

Hon Delhi HC held as below:

1. A mere access of a subscriber to a legal database would not fall within the ambit of Section 9(1)(vii) of the IT Act.

2. All that the assessee [Relx] does is provide access to the database. It has not been shown to be providing any further managerial, technical or consultancy service to a subscriber.

3. If the Department were to describe subscription fee as ‘royalty‘, they would necessarily have to establish that the payments so received by the assessee was consideration for the use of or the right to use any copyright or a literary, artistic or scientific work as defined by Article 12(3) of the DTAA.

4. 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,

CA Adityavikram Banka
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