Delhi High Court: The Division Bench of Rajiv Shakdher* and Girish Kathpalia, JJ., opined that the subscription amount could not be treated as a royalty as there was nothing on record to show that the respondent had been granted the right in respect of copyright to the concerned subscribers of the e-journals and all that the respondent did was to sell the copyrighted publication to the concerned entities, without conferring any copyright in the said material. The Court held that it was not inclined to interfere with the Tribunal’s decision concerning the deletion of the addition made amounting to Rs. 22,89,835, on account of commission received by the respondent. Further, the Court held the Commissioner of Income Tax (Appeals) (‘CIT(A)’s’) decision that the said amount received by the respondent had attributes of fee for technical services (‘FTS’) was erroneous.
The respondent had filed its return of income (‘ROI’) for Assessment Year (‘AY’) 2013-14 and via the said ROI, the respondent had declared its income as ‘nil’, which was initially processed under Section 143(1) of the Income Tax Act, 1961 (‘Act’). The ROI was, however, scrutinized and accordingly, notice issued under Section 143(2) of the Act, was served on the respondent. The Assessing Officer (‘AO’), via order passed under Section 143(3) read with Section 144C(3)(a) of the Act, made three additions to the income of the respondent. The first addition was of Rs. 24,84,114 paid to the respondent by an Indian entity, Springer India (P) Ltd. (‘SIPL’), against a Commissionaire Agreement, which consisted of two components. The first component constituted a commission fee of Rs. 22,89,835, which had been classified as “production and editorial charges”. The second component was of Rs. 1,94,279, which was categorized as “service charges” for the sale of “Indian journals in printed form”. The second addition was of Rs. 16,67,83,110, which represented the subscription fees received by the respondent against e-journals from two Indian entities, namely, Informatics Publishing (P) Ltd. and ZS Associates. The third addition was of Rs. 2,62,85,504, which was collected by the respondent from third-party customers located in India, against the sale of online journals and/or books, on behalf of SIPL. The said amount had been categorized as “gross proceeds from sale by Associate Enterprise (‘AE’) of Indian journal in printed form”.
The AO treated the afore-mentioned three additions as royalty, and thus, invoked the provisions of Section 9(1)(vi) of the Act and Article 12 of the India-Germany Double Taxation Avoidance Agreement (‘DTAA’). The respondent preferred an appeal with CIT(A) against the additions made. CIT(A) partly allowed the appeal and deleted the second component of the first addition, which had been categorized as “service charges” for the sale of “Indian journals in printed form”. Further, CIT(A) categorized the first component of the first addition, i.e., Rs. 22,89,835, as a fee for technical services (‘FTS’), instead of a royalty. CIT(A) confirmed the second and third additions to be treated as a royalty. The respondent preferred an appeal with the Tribunal against this decision of CIT(A). The Tribunal deleted the first component of the first addition, which was confirmed by CIT(A) and allowed the objection raised by the respondent regarding the second addition, that the subscription fee could not be treated as a royalty. Thus, the appellant had preferred an instant appeal before this Court.
Analysis, Law, and Decision
The Court noted that the appellant was aggrieved by the two additions deleted by the Tribunal via the impugned order. The Court relied on Section 9(1)(vii)(b) read with explanation 2 of the Act and Article 12(4) of the DTAA and opined that for the consideration received by the respondent against services rendered as per the Commissionaire Agreement to be construed as FTS, the services would have to fall under one or more categories mentioned above, i.e., managerial, technical or consultancy services.
The Court observed that there was nothing in the Commissionaire Agreement which was suggestive of the fact that the respondent was required to discover, develop, or define/evaluate the goals that SIPL had to reach, or even frame policies that led to these goals, or supervise or execute or change policies that were already adopted. The respondent was not performing, as it were executive or supervisory functions. The respondent was only obliged to render support to business operations. The Court opined that there was no reference to any special skill or knowledge that the respondent personnel brought to bear in rendering the services encapsulated in the Commissionaire Agreement. Promotion, sale, or distribution of SIPL’s publications, or rendering support services of the nature referred to in Article 3 of the Commissionaire Agreement, although involving human intervention, do not fall in the category of technical and/or consultancy services.
The Court observed that there were no special skills or knowledge that the respondent was required to possess to render the services that were contemplated under the Commissionaire Agreement and the respondent also did not render any professional advice, or service concerning a specialized field. The Court further opined that for a service to be categorized as a technical service, it had to be concerned with applied science, i.e., using scientific knowledge for practical applications, or industrial science concerning, relating to, or derived from industry.
Thus, the Court held that it was not inclined to interfere with the Tribunal’s decision concerning the deletion of the addition made amounting to Rs. 22,89,835, on account of commission received by the respondent. Further, the Court held that CIT(A)’s decision that the said amount received by the respondent had attributes of FTS was erroneous.
The Court further opined that the subscription amount could not be treated as a royalty as there was nothing on record to show that the respondent had been granted the right in respect of copyright to the concerned subscribers of the e-journals and all that the respondent did was to sell the copyrighted publication to the concerned entities, without conferring any copyright in the said material.
[CIT v. Springer Nature Customer Services Centre GMBH, 2023 SCC OnLine Del 4037, decided on 12-7-2023]
*Judgment authored by: Justice Rajiv Shakdher
Advocates who appeared in this case :
For the Appellant: Ruchir Bhatia, Senior Standing Counsel;
For the Respondent: Himanshu Sinha, Bhuwan Dhoopar, Advocates.