Case Number: ITA 2350/DEL/2022
Appellant: Elsevier Inc, New York
Respondent: ACIT, Circle International Taxation 1(2)(2), Delhi
Assessment Year: 2018-19
Case Filed on: 2022-09-23
Order Type: Final Tribunal Order
Date of Order: 2023-04-27
Pronounced on: 2023-04-27
Elsevier Inc, a New York-based company, appealed against the final assessment order which treated the subscription fees received from Indian customers for accessing their extensive scientific database as royalty or Fee for Technical Services (FTS), thereby making it taxable in India under the India-USA Double Taxation Avoidance Agreement (DTAA).
The core issue was whether the subscription fees should be treated as royalty or FTS under the domestic tax law and the DTAA between India and the USA. The Assessing Officer had classified the revenue from subscription fees as royalty/FTS, which was upheld by the Dispute Resolution Panel (DRP).
Elsevier argued that the fees were for business income from a non-resident entity without a Permanent Establishment (PE) in India, and thus not taxable under the DTAA. They relied on various tribunal decisions which supported their claim that providing access to a database does not constitute royalty or FTS as it does not involve the right to use intellectual property.
The Tribunal noted similar decisions from other cases involving Elsevier and related entities, emphasizing that access to online databases should be treated as business income, not royalty or FTS, especially when no PE exists in India. The decision cited by the Departmental Representative from the Karnataka High Court was set aside by the Supreme Court, and the matters were sent back for fresh adjudication, supporting Elsevier’s stance.
Ultimately, the Tribunal allowed Elsevier’s appeal, stating that the subscription fees received are not in the nature of royalty/FTS/FIS under the India-USA DTAA, confirming that such fees are business profits and not taxable in the absence of a PE in India.
Conclusion: The appeal was allowed, setting an important precedent regarding the taxation of subscription fees for digital databases provided by non-resident companies without a PE in India.
Order pronounced in the open court on April 27, 2023.
Tax Appeal of Elsevier Inc for AY 2018-19 – ITA 2350/DEL/2022
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