Income from granting access to the database is not Royalty- US India DTAA

Brief Facts:

• The appeal is made by an entity incorporated under the laws of the USA. The assessee is allowing access to data/information on payment of a fee. Data is available in the public domain and the appellant makes some value additions like analysis, indexing, description, and appending notes for facilitating easy access.
• The appellant is allowing this centralized data available to the customer/ licensee for consideration. The A.O. believes that the assessee has been granted a license to access an online database that falls within the definition of ‘Royalty’.
• The assessee submits that there is no transfer of legal title in the copyrighted article as the same rests with the assessee. The user has no authority to reproduce the data in any material form to make any translation in the data or to make adaptions in the data.
• The end-user cannot be said to have acquired copyright or the right to use the copyright in the data. In determining whether or not a payment is for the use of copyright, it is important to distinguish between payment for the right to use the copyright in a programme and the right to use the programme itself.

Observations & Ruling:

• The revenue derived by the assessee from granting limited access to its database is akin to the sale of the book, wherein the purchaser does not acquire any right to exploit the underlying copyright. When the purchaser reads the book, he only enjoys the content.
• Similarly, the user of the database does not receive the right to exploit the copyright in the database only enjoys the product in the normal course. Facts on the record show that the appellant is granting access to its database. Transaction under consideration is for provisions of accessing the database of the assessee. Hence, the same cannot be considered as royalty under Article 12 of the India USA DTAA.
• Reference was made to the decision of the Hon’ble Supreme Court in the case of Engineering Analysis Center of Excellence Pvt. Ltd. [2021] 432 ITR.

Disclaimer: The above article is based on the ruling of the Hon'ble ITAT Delhi and is meant for educational purposes only. Readers are requested to act diligently and under consultation with any professional before applying the information contained in this article.