Subscription Amount Received From Subscribers Of E-Journals Cannot Be Treated As Royalty: Delhi High Court

The Delhi High Court has held that the subscription amount received from subscribers of e-journals cannot be treated as royalty.

The bench of Justice Rajiv Shakdher and Justice Girish Kathpalia has observed that the subscription amount cannot be treated as royalty, having regard to the fact that there is nothing on record to suggest that the respondent or assessee has granted the right in respect of copyright to the concerned subscribers of the e-journals. All that the respondent or assessee did was sell the copyrighted publication to the concerned entities without conferring any copyright in the said material.

The respondent/assessee, which is a German company, was part of Springer Science + Business Media Group. The Springer Group was engaged in the business of publishing books and academic journals in the fields of natural sciences, technology, and medicine.

As part of the Springer Group's business model, the respondent/assessee functioned as a non-exclusive sales representative globally, except in the Americas, of the Springer Group's affiliated publisher entities, which included SIPL. The Commissionaire Agreement executed between the respondent/assessee and SIPL captured the functions performed by the respondent/assessee as part of the Springer Group.

The assessee had filed its return of income. The AO made the addition equivalent to Rs. 16,67,83,110. The amount represented the subscription fees received by the respondent/assessee against e-journals from two Indian entities, namely, Informatics Publishing Private Ltd. and ZS Associates.

The assessee appealed against the order of the AO before the ITAT and contended that the subscription fee could not be treated as royalty. The Tribunal allowed the appeal of the assessee.

The department contended that services such as promotion, sale, and distribution of products globally could be categorised as consulting services. Likewise, services such as order handling, inventory management, debtor management, and subscription management could be classified as managerial services.

The assessee contended that merely providing support for business operations involving sales, audit, or finance cannot be treated as managerial services.

"We are of the opinion that the submission that subscription fees should be treated as FTS cannot be accepted, as this was not the stand of the appellant or revenue before the Tribunal. This is a flip-flop, which the respondent or assessee would do well to abjure," the court said while deleting the addition.

Case Title: The Commissioner Of Income Tax Versus Springer Nature Customer Services Centre GMBH

Citation: 2023 LiveLaw (Del) 597

Date: 12.07.2023

Counsel For Appellant: Ruchir Bhatia

Counsel For Respondent: Himanshu Sinha

Click Here To Read The Order