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Bangalore Tribunal rules that subscription received by a taxpayer for merely giving access to database for viewing does not amount to royalty
Pluralsight LLC [1] (Taxpayer), a foreign entity, was engaged in the business of providing an online technology learning platform on its website. It earned subscription fees by facilitating viewing of online videos by customers who made such subscriptions for their employees or affiliates’ employees. The customers can only view the videos using the provided login credentials and are not allowed to download, store, transmit or edit such videos. Furthermore, the customers do not get any right on the content or the infrastructure facilities but are allowed to download certain ancillary course material which cannot be shared, transferred, sold or exploited in any manner.
During the relevant tax year, the Taxpayer received subscription fee from the subscribers in India, which were not offered to tax in India. However, the tax authority contended that such a fee was in the nature of royalty under the Indian Tax Laws (ITL) and also under India-US Double Taxation Avoidance Agreement (DTAA).
On appeal, the Tribunal held that the subscription fees received by the Taxpayer are not taxable as royalty due to following reasons:
- The subscription fees received by the Taxpayer do not amount to payment for the “use of or right to use copyright” but rather payments for access to copyrighted products, i.e., the videos on the Taxpayer’s database. Reliance was placed on the principle laid down by the Supreme Court’s decision in the case of Engineering Analysis[2] and Mumbai Tribunal’s decision in the case of Elsevier Information Systems GmbH[3] .
- The subscription fees cannot be said to be for imparting of any information concerning industrial, commercial or scientific experience of the Taxpayer as it receives subscription fees merely to grant access to the database of videos and is not for imparting any information concerning the Taxpayer’s own knowledge or experience of creating or maintaining the database. In this regard, reliance was placed on the Mumbai Tribunal ruling in the case of the American Chemical Society[4] and AAR ruling in the case of Factset Research Systems Inc[5].
- The Taxpayer has merely granted the access to the database of videos and the same does not amount to the use or right to use any equipment whatsoever. The subscribers have no access, right or control of any manner over the server on which the Taxpayer maintains the database.