The Delhi High Court’s stance came as it dismissed the Income Tax department’s claim that the fees gathered by LexisNexis, a legal database platform, were subject to taxation as “royalties.”
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NEW DELHI: The Delhi High Court emphasized that subscribing to a legal database does not constitute a copyright transfer, as there is a distinct difference between such transfer and the granting of the right to use copyrighted material.
In a case involving the subscription fees of LexisNexis, the division bench comprising Justice Yashwant Varma and Justice Purshaindra Kumar Kaurav made this observation while addressing an appeal from the Income Tax (IT) Department.
The IT Department contended that these subscription fees could be categorized as “royalties” and thus subject to taxation under a Double Taxation Avoidance Agreement (DTAA).
However, the Court highlighted that for subscription fees to qualify as “royalty,” the IT Department must demonstrate that such payments are consideration for the use of, or the right to use, any copyright or literary, artistic, or scientific work.
Furthermore, the Court underscored that providing access to a legal database does not constitute a transfer of the right to use a copyright, as there exists a clear distinction between copyright transfer and the granting of the right to use copyrighted material.
The bench stated,
“Neither the subscription agreement nor the benefits provided to a subscriber can be legally considered as a transfer of copyright.”
Providing background, Relx Inc. (a foreign entity), the owner of LexisNexis, declared ‘nil’ income in its tax return on November 30, 2018. However, following a scrutiny assessment, the Income Tax (IT) Department determined taxable income akin to technical consultancy services.
The matter progressed to the Income Tax Appellate Tribunal (ITAT), which ruled in favor of Relx, prompting an appeal to the High Court.
The IT Department argued that the ITAT incorrectly deemed the subscription fees for LexisNexis, owned by Relx Inc., as non-taxable “business income,” citing lack of a “permanent establishment” in India.
It contended that under Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA), specifically sub-clause (4)(b), fees for providing “technical knowledge, experience, skill, know-how,” etc., are taxable. Additionally, it invoked Explanation 2 to Section 9(1)(vii) of the Income Tax Act, stating scenarios where a non-resident’s income is taxable in India.
However, the Court disagreed, stating that mere subscriber access to a legal database does not fall under Section 9(1)(vii) of the IT Act, nor does it constitute technical consultancy services.
“The assessee [Relx] solely provides database access, without additional managerial, technical, or consultancy services to subscribers,”
-the Court clarified.
Regarding Article 12 of the DTAA, the Court concluded that providing access to LexisNexis’s legal database does not imply a copyright transfer.
“If the Department were to label subscription fees as ‘royalty,’ they must demonstrate that the payments received by the assessee were for the use of or the right to use copyright or a literary, artistic, or scientific work,”
-the Court elaborated.
Thus, the Court determined that the transaction between Indian subscribers and LexisNexis did not involve copyright or technology transfer as outlined in Article 12(4)(b) of the DTAA.
Consequently, the Court upheld the ITAT’s decision, dismissing the appeal.
CASE TITLE:
The Commissioner Of Income Tax – International Taxation V. Relx Inc.
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