The Income Tax Appellate Tribunal (ITAT), Delhi bench has held that customized research advisory services are not taxable under the head Royalty under the relevant treaty and the Income Tax Act, 1961.
The assessee contended thatthe custom research is advisory service rendered by assessee in relation to Outsourcing Industry. It was claime that the Assessee does not allow right to use any data base which is happened only in case of published reports.
On the first appeal, the CIT(A) upheld the view of the department and confirmed the taxation under the head “Royalty”.
The Tribunal bench comprising Shri G.S. Pannu, ITAT President and Shri C.N. Prasad, Judicial Member has held that by allowing access to database what assessee grants to customers is only a right to use a copyrighted material (i.e. published report). The assessee does not grant the right to use the copyright. Hence, consideration (subscription fee) received by the assesee is not taxable as royalty under the provisions of Article 12(3) of the India-USA DTAA.
“Similarly in customized research advisory services the assessee is providing only advisory services through emails or presentations. The output of custom research advisory is not provided through subscription mode or data base access mode and, therefore, the question of access to data base does not arise at all. Further there is no transfer of any copy right to the customers. Thus, the considerations received by the assessee towards customized researchadvisory services are not taxable under the head Royalty. This ground of appeal is allowed,” the Tribunal said.
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