Subscription To Legal Database Can't Be Construed Transfer Of Copyright, Subscription Fee Is Not Royalty: Delhi High Court

The Delhi High Court has held that subscription to legal databases cannot be construed as a transfer of copyright.

The bench of Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav has observed that the subscription fees of the legal database LexisNex piad by an Indian subscriber neither comprise a transfer of copyright nor do they include a transfer of a right to apply technology and other related aspects, which are spoken of in Article 12(4)(b) of the DTAA.

The assessee filed a Return of Income, declaring “nil" income and thus asserting that no part of it is taxable under the Income Tax Act. The case was picked up for scrutiny assessment, and the issue was resolved upon the subscription fee of Rs. 18,65,00,000, which was received by the assessee from Indian subscribers for the use of its legal database.

The database in question is titled “Lexis Nexis” and enables Indian subscribers to access judgments, articles, legislation, and other research material relevant to the legal field. The assessee is stated to have asserted that the income earned from the subscription fee is in the nature of “business income,” and in the absence of a PE in India, it would not be subject to tax as per Article 7 of the DTAA.

The assessee explained that the income would also not fall within the ambit of Article 12(4)(b) of the DTAA, since the access accorded to the Indian consumer was neither a transfer of copyright nor would it satisfy the requirement of “included service,” which comprises an element where technical knowledge, experience, skill, know-how, or processes were made available.

The assessee contended that the subscription fee would neither be “royalty” nor can it be validly viewed as fees for technical services and consequently would not form the subject matter of either Section 9(1)(vii) or fall within Article 12 of the DTAA.

The Department, by virtue of Section 144C, proceeded to hold that the income was in the nature of technical consultancy and would thus fall within the ambit of Article 12(4), which deals with “fees for included services." Aggrieved by the Draft Assessment Order so framed, the assessee approached the Dispute Resolution Panel, which rejected the objections via its order and confirmed the proposed assessment as framed by the Assessing Officer. A final assessment order was passed on June 22, 2022. The order came to be impugned before the Tribunal.

The Tribunal has proceeded to allow the appeal of the assessee, observing that the payment received by the assessee is in the nature of business profit, which cannot be brought to tax in India in the absence of PE. Accordingly, both the appeals of the assessee are allowed.

The department contended that the income generated from the subscription fee under Article 12 and Section 9(1)(vii) of the Income Tax Act.

The court noted that if the Department were to describe the subscription fee as "royalty," they would necessarily have to establish that the payments so received by the assessee were consideration for the use of or the right to use any copyright or a literary, artistic, or scientific work as defined by Article 12(3) of the DTAA. Granting access to the database would clearly not amount to a transfer of a right to use a copyright.

“We must bear in mind the clear distinction that must be recognized to exist between the transfer of a copyright and the mere grant of the right to use and take advantage of copyrighted material. Neither the subscription agreement nor the advantages accorded to a subscriber can possibly be considered in law to be a transfer of a copyright. In fact, it was the categorical assertion of the assessee that the copyright remains with it at all times,” the court noted.

When the court examines the nature of the transaction between an Indian subscriber and the assessee, it becomes manifest and apparent that it neither comprises a transfer of copyright nor does it include a transfer of a right to apply technology and other related aspects, which are spoken of in Article 12(4)(b) of the DTAA.

Counsel For Petitioner: Ruchir Bhatia

Counsel For Respondent: Ajay Vohra

Case Title: The Commissioner Of Income Tax - International Taxation -3 Versus Relx Inc

Citation: 2024 LiveLaw (Del) 217

Case No.: ITA 630/2023

Click Here To Read The Order