The Bangalore ITAT held that the subscription revenue received by the Assessee is not taxable as royalty under Article 12 of the India-USA DTAA.
The ITAT Rejected departmnet’s contention that Assessee’s receipts from subscription fees is taxable in India as royalty. The subscription fees received by the Assessee does not amount to payment for the ‘use of or right to use copyright’ but rather payments for access to copyrighted products, i.e., the videos on the Assessee’s database, by relying in SC ruling in Engineering Analysis and Mumbai ITAT ruling in Elsevier Information Systems.
The ITAT observed that the subscribers make the payment to the Assessee only for viewing the videos on its website and not for availing the knowledge of the Assessee’s experience regarding its business of creating/maintaining the database of videos, thus the same does not constitute payment for ‘information concerning industrial, commercial or scientific experience’, by relying on Mumbai ITAT ruling in American Chemical Society and AAR ruling in Factset Research Systems.
Further holds that the payment made to the Assessee for viewing the videos on its database cannot be termed as consideration for granting any right to use of equipment, as the Assessee is merely granting access to the database of videos and not for the use or right to use any equipment whatsoever and the subscribers have no access, right or control of any manner over the server on which the Assessee maintains the database.
The appellant/Assessee, a US-based company, is engaged in the business of uploading online videos on its website and earns subscription revenue by facilitating viewing of such online videos by individuals, government enterprises, small businesses and enterprises globally.
For AY 2016-17, Assessee received Rs.11.75 Cr subscription charges from its Indian customers and did not offer the same to tax on the ground that the same is not taxable in India under India-USA DTAA.
The department held the subscription receipts earned from Indian customers to be taxable as royalty and made the addition of Rs.11.75 Cr which was confirmed by the CIT(A); ITAT observes that Assessee aggregates pre-recorded (not live) video content from content authors all around the world which are stored on its online content library hosted on servers located in the US and other parts of the world apart from India.
The ITAT observed that the Assessee allows its customers to download certain ancillary course material such as exercise files, course slides, course index etc., but even such material cannot be shared, transferred, sold or exploited in any manner.
ITAT notes that the Revenue brought to tax the subscription fees received from Indian customers as ‘royalty’ on the grounds that: (i) subscription revenue is towards use of, or right to use any copyright, (ii) subscription revenue is for information concerning industrial, commercial or scientific experience, and (iii) subscription revenue is received by assessee for granting right to use of equipment and considers each of the ground in detail before allowing the Assessee’s appeal.
Case Name: Pluralsight LLC Vs DCIT
