Delhi High Court: Subscription to Legal Database Does Not Amount to Transfer of Copyright under DTAA

Delhi High Court: Subscription to Legal Database Does Not Amount to Transfer of Copyright under DTAA

Declines to interfere with the judgment of the Income Tax Appellate Tribunal

The Delhi High Court has held that subscription to a legal database cannot be a transfer of copyright as there’s a clear distinction between such transfer and grant of right to use copyrighted material.

In the Commissioner of Income Tax - International Taxation vs Relx Inc case, the division bench of Justice Yashwant Varma and Justice Purshaindra Kumar Kaurav was deliberating on the appeal of the Income Tax Department concerning subscription fees of LexisNexis, the legal database.

The IT department argued that such subscription fees could be viewed as ‘royalties’ taxable under the Double Taxation Avoidance Agreement (DTAA).

However, the court explained that if the subscription fee was considered as ‘royalty’, the department needed to show that the payments were for the use of or the right to use any copyright or literary, artistic or scientific work.

It stated, “Neither the subscription agreement nor the advantages accorded to a subscriber can be considered in law to be a transfer of a copyright.”

On 30 November 2018, Relx Incs (a foreign company), which owns LexisNexis, had declared ‘nil’ income for tax purposes in its Income Tax Return (ITR).

However, after a scrutiny assessment, the IT department held that it had taxable income from a technical consultancy.

The matter was taken to the Income Tax Appellate Tribunal (ITAT), which ruled in favor of Relx. Thereafter, the IT department approached the high court.

The revenue authorities argued that the ITAT had erred in holding that the subscription fee of LexisNexis was not taxable as ‘business income’, as it did not have a ‘permanent establishment’ in India.

It added that the fee for technical training was taxable even under Article 12 under the India-US DTAA, particularly sub-clause (4)(b), which concerns the availability of ‘technical knowledge, experience, skill and know-how’.

The IT department contended that the income of Relx Inc was taxable in India also according to Explanation 2 to Section 9(1)(vii) of the IT Act, as the income earned by a non-resident was taxable in the country.

However, the judges ruled that mere access of a subscriber to a legal database did not fall within the ambit of Section 9(1)(vii). That’s because these were not considered technical consultancy services.

The bench clarified, “All that the assessee (Relx) does is to provide access to the database. It has not been shown to provide any managerial, technical or consultancy service to a subscriber.”

While considering Article 12 of the DTAA, it stated that granting access to the legal database of LexisNexis did not amount to a transfer of a right to use the copyright material.

The judges held, “If the department were to describe subscription fee as ‘royalty,‘ it would have to establish that the payment received by the assessee was 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.”

The bench observed that the transaction between an Indian subscriber and LexisNexis neither comprised a transfer of copyright nor included a transfer of a right to apply technology and other related aspects mentioned in Article 12(4)(b) of the DTAA.

Thus, the court held, "We find no justification to interfere with the view expressed by the tribunal. The appeal fails and shall consequently stand dismissed on the aforesaid terms.”

The Income Tax department was represented by senior standing counsel Ruchir Bhatia and advocates Deeksha Gupta and Pratyaksh Gupta.

Relx Inc was guided by senior advocate Ajay Vohra and advocate Aditya Vohra.