The Delhi High Court, presided over by Justice Yashwant Varma and Justice Purushaindra Kumar Kaurav, has ruled that subscribing to legal databases such as LexisNexis does not constitute a transfer of copyright. The court noted that the subscription fees paid by an Indian subscriber to LexisNexis do not involve the transfer of copyright or the granting of rights related to the application of technology and other associated aspects, as outlined in Article 12(4)(b) of the Double Taxation Avoidance Agreement (DTAA).

The assessee submitted a Return of Income stating "nil" income, thereby asserting that none of it is subject to taxation under the Income Tax Act. However, the case underwent scrutiny assessment, and the matter was resolved concerning the subscription fee of Rs. 18,65,00,000 received by the assessee from Indian subscribers for the utilization of its legal database.

The database in question, known as "Lexis Nexis," provides Indian subscribers with access to judgments, articles, legislation, and other pertinent research material within the legal domain. The assessee has claimed that the income derived from the subscription fee falls under the category of "business income." Furthermore, the assessee argued that in the absence of a Permanent Establishment (PE) in India, this income would not be liable to taxation in accordance with Article 7 of the Double Taxation Avoidance Agreement (DTAA).

The assessee clarified that the income generated would not be covered under Article 12(4)(b) of the DTAA. According to the assessee, the access provided to Indian consumers did not constitute a transfer of copyright nor did it fulfill the criteria of an "included service," which typically involves the provision of technical knowledge, experience, skill, know-how, or processes.

The assessee argued that the subscription fee cannot be categorized as "royalty" or deemed as fees for technical services. Therefore, according to the assessee, it would not fall under the purview of Section 9(1)(vii) or Article 12 of the Double Taxation Avoidance Agreement (DTAA).

The Department, utilizing the authority vested in it by Section 144C, determined that the income was akin to technical consultancy and therefore should be categorized under Article 12(4), which pertains to "fees for included services." Discontented with the Draft Assessment Order issued on this basis, the assessee sought recourse through the Dispute Resolution Panel, which dismissed the objections and upheld the assessment outlined by the Assessing Officer. Subsequently, a final assessment order was issued on June 22, 2022. This order was challenged before the Tribunal by the assessee.

The Tribunal has upheld the appeal of the assessee, asserting that the payment received by the assessee is classified as business profit, which, in the absence of a Permanent Establishment (PE), cannot be subjected to taxation in India. Consequently, both appeals filed by the assessee have been granted.

The department argued that the income derived from the subscription fee falls under the purview of both Article 12 of the Double Taxation Avoidance Agreement and Section 9(1)(vii) of the Income Tax Act.

The court emphasized that if the Department were to characterize the subscription fee as "royalty," they would need to demonstrate that the payments received by the assessee constituted consideration for the utilization or the right to utilize any copyright or a literary, artistic, or scientific work, as defined by Article 12(3) of the Double Taxation Avoidance Agreement. However, providing access to the database would not constitute a transfer of the right to use a copyright.

Upon examination of the transaction between an Indian subscriber and the assessee, the court determined that it does not involve a transfer of copyright nor does it encompass a transfer of the right to apply technology and other related aspects, as outlined in Article 12(4)(b) of the Double Taxation Avoidance Agreement.

In the case, Counsel for the petitioner is Ruchir Bhatia, while Counsel for the respondent is Ajay Vohra.

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

Case No.: ITA 630/2023