Income From Reselling Of Subscription Based Product Is Royalty: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the income from the reselling of subscription-based products is royalty.The bench of Kavitha Rajagopal (Judicial Member) and Om Prakash Kant (Accountant Member) has observed that the assessee has sold not only the digital product but also all copyrights therein, which squarely falls under the definition of 'royalty' both under Article 12 of the Double Taxation Avoidance Treaty (DTAA) between India and Ireland and provisions of the Income Tax Act.The appellant/assessee, Gartner Ireland Ltd. (GIL), is a company incorporated in the Republic of Ireland and is a resident of Ireland for tax purposes in terms of Article 4 of the Double Taxation Avoidance Agreement (DTAA) entered into between India and Ireland. The GIL is in the business of selling subscription-based products and related services, i.e., periodicals, reports, and publications that highlight industry developments and review new products and technologies that provide independent research and insight on all aspects of a company's business. There is a slight change in the process of accessing subscription products by customers as compared to earlier years. Otherwise, there is no change in the product category. The assessee has introduced its subsidiary, i.e., Gartner India Research and Advisory Services Pvt. Ltd., as an intermediary for subscribing to the 'GIL' product, and now Indian customers are required to buy the research product from 'Gartner India' rather than 'GIL' directly. The assessee has entered into a 'reseller agreement' with Gartner India.The assessee filed return of income electronically declaring total income of Rs.13,660 along with claim for refund. The return of income filed by the assessee was selected for scrutiny and statutory notices under the Income-tax Act, 1961 were issued and complied with. The Assessing Officer issued a draft assessment order wherein he proposed that the revenue generated from sale of online subscription was in the nature of 'royalty' income in the hands of the assessee as against claim of the assessee that same was in the nature of business income and not taxable in India, in absence of any permanent establishment (PE).The assessee appealed against the order in relation to income from the sale of online subscription-based products, which has been held by the lower authorities as 'royalty' as against the claim of the assessee of the same as 'business income', not taxable in India in the absence of any permanent establishment (PE) in India. The issue raised was whether the income received by the assessee from Gartner India is assessable in the hands of the assessee as business income or royalty.The assessee submitted that the 'GIL' sells products to 'Gartner India' and 'Gartner India' merely resells such products in India, and thus the transaction was a pure sale or purchase of the products and, in the nature of the business income, not taxable in the absence of PE in India as per the beneficial provisions of the India-Ireland Tax Treaty.The department contended that, as per the definition of royalty under Article 12 of the India-Ireland Tax Treaty, 'use' or 'right to use' of copyright underlying copyrighted digital products amounts to royalty. The word 'information' concerning industrial, commercial, or scientific experience also covers the case of the assessee because, in the case of the assessee, information has been collected based on past experience in the field of industrial, commercial, or scientific fields; therefore, the case of the assessee squarely falls under the definition of royalty.The tribunal stated that if the sale of the 'digital products' of the assessee is compared with 'physical products' i.e., a magazine or a book in the market, then it may be like that the assessee had sold one copy of different physical magazines to 'Gartner India', and then 'Gartner India' got copies of those printed and sold the same multiple times to its customers. It hardly matters whether the user ID and password for downloading the report have been issued by the assessee, because the same has been done on behalf of 'Gartner India' only.The tribunal held that the income received by the assessee from Gartner India is assessable in the hands of the assessee as 'royalty'.Counsel For Appellant: Farooq IraniCounsel For Respondent: A.K. AmbasthaCase Title: Gartner Ireland Ltd. Versus DCITCase No.: ITA No. 2460/MUM/2022Click Here To Read The Order

Income From Reselling Of Subscription Based Product Is Royalty: ITAT

Mariya Paliwala

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