Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Online)(ITAT) 23165

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
Vikas Awasth, Judicial Member, Brajesh Kumar Singh, Accountant Member
GSMA Ltd. – Appellant
Versus
Assistant Commissioner of Income-Tax – Respondent
ITA No.2446/DEL/2024

Advocates:
For the Appellants/Petitioners:P.P Singh, Advocate
For the Respondents: M.S Nethrapal, CIT-DR

Payment for granting limited access to a database or copyrighted article does not constitute 'royalty' or 'fees for technical services' if there is no transfer of the underlying copyright or proprietary interest, and the recipient is not enabled to independently deploy the technology.

Headnote:(A) Income Tax Act, 1961 - Section 9(1)(vi) - India-USA DTAA - Article 12(3) and 12(4) - Taxability of Administration Fee and Subscription Fee as Royalty or Fee for Technical Services - Whether fees received for access to a database of unique classification numbers or research data constitutes royalty or fee for technical services - Held, database access for internal use does not transfer copyright or right to use intellectual property - Mere access to copyrighted articles is distinct from transfer of copyright - Payments for such access, absent transfer of proprietary interests, do not constitute royalty or fees for included services - (Paras 8, 11, 12, 13, 15, 17)

Facts of the case:
The assessee, a non-resident, was engaged in allocating unique identification numbers for industrial equipment and providing access to research databases via subscription agreements. The revenue authorities characterized both the administration fees and subscription fees received from domestic entities as royalty under domestic law and the applicable tax treaty. The assessee contested these additions, arguing such payments were business income and that no permanent establishment existed in the taxing jurisdiction.

Findings of Court:
The court observed that for a payment to be termed 'royalty', there must be a transfer of a right to use a copyright. Granting limited, non-transferable access to a database or copyrighted articles for internal use does not amount to a transfer of intellectual property rights or the right to exploit such property commercially. Relying on settled judicial precedents, the court held that such payments are not royalty and, further, do not meet the 'make available' test required to qualify as fees for technical services.

Issues: The main issues were whether administration fees and subscription fees received by the non-resident assessee for database access and number allocation qualify as 'royalty' or 'fees for technical services' under the relevant tax treaty and domestic law.

Ratio Decidendi: Access to copyrighted material or a database without the transfer of rights inherent in the copyright does not constitute a royalty. The distinction between a 'copyrighted article' and a 'copyright' is fundamental, and absent the ability to commercially exploit or independently use the underlying intellectual property, the receipts are business income, not royalty.

Result: Appeal allowed.

Table of Content
1. condonation of delay based on covid-19 pandemic guidelines and bonafide reasons. (Para 2 , 3)
2. administration fees for database access are not taxable as royalty. (Para 4 , 5 , 8 , 9)
3. subscription fees for access to copyrighted articles are not royalty. (Para 6 , 10 , 11 , 12 , 13)

आदशे /ORDER

PER VIKAS AWASTHY, JM:

This appeal by the assessee is directed against the Assessment Order dated 06.04.2021 passed u/s. 143(3) r.w.s 144C(13) of the Income Tax Act,1961(hereinafter referred to as ‘the Act’), for Assessment Year 2017-18.

2. The Registry has issued defect memo stating that the appeal is time barred by 1076 days. The assessee has filed an application supported by an affidavit citing reasons for delay in filing of appeal.

3. Shri P.P Singh, appearing on behalf of the assessee submitted that the appeal against the assessment order dated 06.04.2021 was filed online on the portal of the Tribunal on 07.03.2022, during Covid period. However, the physical copy of appeal inadvertently remained to be filed. The assessee filed physical copy of Form No. 36 along with grounds of appeal on 16.05.2024. Though, the appeal was filed in time there was delay in filing of appeal (Form No.36 and grounds of appeal) physically. He submitted that the delay in filing of physical copy of appeal was for the reason that there were change in the authorized signatory and thereafter there was change in tax consultants who were originally looking after tax matters of the assessee in India. Since, the assessee has no physical office in India, the assessee was constrained to coordinate/handle Income Tax matters remotely from the USA.

3.1. We have heard the submissions made by ld. Counsel for the assessee and have examined the application of condonation of delay. The impugned order was passed during Covid period on 06.04.2021. The Hon’ble Apex Court suo moto after taking cognizance of the hardship cause of the pandemic to the litigants extended the limitation for filing of any suite/appeal/application. [RE: Cognizance for extension of Limitation, In re:, 134 taxmann.com 307 (SC)]. The Hon’ble Supreme Court of India directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purpose of limitation as may be prescribed under any general of special laws in respect of all judicial or quasi judicial proceedings. It was further directed that limitation shall start from 01.03.2022. A perusal of Form No. 36 shows that the same was generated on 07.03.2022, ostensibly on the same date it was filed online on the official website of the Tribunal. The assessee was also required to file physical copy of Form No. 36, however, the same was filed on 16.05.2024. We are satisfied that the delay in the filing of the physical copy of Form No.36 was for the reasons stated in the affidavit supporting the application for delay in condonaiton of appeal and the reasons appears to be bonafide. We, therefore, condone the delay and admit the appeal for adjudication.

4. The facts of the case in brief as emanating from records are: The assessee company was incorporated in the United State of America (USA) and is a tax resident of USA. The assessee has been appointed by Mobile Industry as a sole Global Decimal Administrator (GDA) and is responsible to coordinate allocation of ‘International Mobile Equipment Identifier’ (IMEI) to device manufactures in accordance with the specification developed by the Third Generation Partnership Project for mobile telecommunications (3GPP). In discharge of its GDA responsibilities, the assessee appointed AB Mobile Standards Alliance India Pvt. Ltd. (in short ‘MSAI’) as Regional Administrator also known as Reporting Body (RB). An agreement between the assessee and MSAI was executed for this purpose. As per the agreement MSAI was required to pay administration fee to the assessee @70% of the service fee received by MSAI from the third party i.e. Mobile Equipment Manufactures. The Assessing Officer (AO) and the

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2025 Supreme(Online)(ITAT) 23165

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)Vikas Awasth, Judicial Member, Brajesh Kumar Singh, Accountant MemberGSMA Ltd. – AppellantVersusAssistant Commissioner of Income-Tax – RespondentITA No.2446/DEL/2024

Payment for granting limited access to a database or copyrighted article does not constitute 'royalty' or 'fees for technical services' if there is no transfer of the underlying copyright or proprietary interest, and the recipient is not enabled to independently deploy the technology.

INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
Vikas Awasth, Judicial Member, Brajesh Kumar Singh, Accountant Member
GSMA Ltd. – Appellant
Versus
Assistant Commissioner of Income-Tax – Respondent
ITA No.2446/DEL/2024