Payment for access to database abroad

FOREIGN ENTERPRISES

Some foreign companies specialise in collection of information and create a database for commercial purposes. The data collected is generally copyrighted to avoid its unintended use. Such companies charge annual subscription fees for providing access to information available in the data base.

Such data bases are increasingly being considered as a useful tool in competitive international trade.

Accordingly, Indian companies have also started using such data base. The issue for consideration is that when an Indian company makes a payment to a foreign company for using the data base of the foreign company which is invariably located abroad, what is the true nature of the payment made by the Indian company?

Can such payment be regarded as payment for "royalty" or "fee for technical services". Is the foreign company liable to pay tax in India on such payment received by it ? The aforesaid issues have recently been considered by the Bangalore Tribunal in the case of Wipro Ltd. v. ITO (278 ITR 57 AT).

Brief facts of the case are that the appellant subscribed on annual basis to avail of the business data collated, collected and maintained by an internationally renowned US specialised agency which maintains and publishes the business data pertaining to the technology/software area of business.

The data and analysis available with the US company is published periodically through the web and on subscription, in depth information collected by the company is made available to all those who are willing to pay.

The assessing officer held that payment made to the US company should be regarded as 'royalty' or 'fees for technical services', both of which are liable for tax in India under section 9 of the Income-tax Act as well as under the Double Taxation Avoidance Agreements (DTAA) between India and USA.

The department argued that the foreign company provides information concerning commercial experience. According to the department, payment for information concerning industrial, commercial or scientific experience would be taxable in India in terms of Article 12 (3) (a) of DTAA between India and the US.

The tribunal after considering the arguments from both sides observed that: "In this case, facts are not in dispute that the GG was a web-based publishing house giving access to the data base to all those who are willing to pay. These payments are towards obtaining market data and client's strategy details, etc.

These are publications and not an information or advice given individually. The information is available on subscription to anyone willing to pay. Further, it is copyrighted information and cannot be passed on to anyone else.

The Tribunal further observed : "There is no licence granted to the assessee to use in any manner or quote to anyone else. Even the access is restricted to specific individuals named by the assessee and does not extend to anyone wanting to use". Annual subscription is an access fee to Gartner database maintained outside India. Fee is payable even if no service is utilised. It is like a gate pass or entry fee. And cannot be treated as imparting information".

According to the tribunal, access to data base cannot be considered the same as passing on information concerning industrial, commercial or scientific experience.

agar@bol.net.in