The Income Tax Appellate Tribunal, Delhi Bench, presided over by Shri Saktijit Dey, Judicial Member, and Shri N.K. Billaiya, Accountant Member, dealt with ITA No. 121/Del/2021 for the assessment year 2017-18. This case involved Dow Jones & Company Inc., represented by PricewaterhouseCoopers Pvt. Ltd., Mumbai against the Assistant Commissioner of Income Tax (International Taxation)-1(2)(2), New Delhi. The primary issue was the taxability of amounts received from Dow Jones Consulting India Pvt. Ltd. (DJCIPL) for distributing Dow Jones’s products in the Indian market as royalty.
The appeals contested the final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961, in pursuance to the direction of the Dispute Resolution Panel (DRP) for the assessment years 2016-17 and 2017-18. The bone of contention revolved around whether the amount received by Dow Jones from DJCIPL under a distribution agreement qualifies as ‘royalty’ under both the Income-tax Act and the provisions of the India – USA Double Taxation Avoidance Agreement (DTAA).
The appellant’s advocates, Sh. Ravi Sharma and Sh. Anubhav Rastogi, argued that the transactions were on a principal-to-principal basis and should not be classified as royalty under the Treaty Provisions. The Assessing Officer, however, treated the received amounts as royalty in the draft assessment order. The DRP upheld the Assessing Officer’s decision following a precedent in the appellant’s own case for the assessment year 2015-16.
In the tribunal’s judgment, it was noted that the issue was identical to the one previously dealt with in the assessment year 2015-16. The Coordinate Bench had ruled in favour of the assessee, establishing that the payments received from DJCIPL were not in the nature of royalty under Article 12 of the India – USA DTAA. This decision was based on the interpretation that the payments were for accessing the database and did not transfer any right to use the copyright in the data, which is a key condition for a payment to be considered royalty.
The Tribunal directed the Assessing Officer to delete the impugned additions, thereby allowing the appeals. This landmark decision emphasized the nuanced understanding of the term ‘royalty’ in the context of international transactions and digital content distribution.
This judgment has significant implications for multinational corporations engaged in the distribution of digital products in India. It clarifies the scope of ‘royalty’ under the India-US DTAA, potentially affecting future tax liabilities and operational strategies for such companies.
The case of Dow Jones & Company Inc. vs. ACIT serves as a crucial reference for understanding the application of the DTAA’s provisions on royalty. It underscores the importance of clearly defining the terms of international agreements and the nature of transactions to ensure correct tax treatment.
Manage the increasing number of hearings effortlessly by leveraging the legal AI revolution We are India's Leading revolutionary AI-powered legal platform where you can get enough insights into top cases and judgements.
Research Platform