ITAT NEW DELHI BENCH ‘E’
ONGC Videsh Ltd.
Income-tax Officer, International Taxation, TDS, Ward 2(1), New Delhi
IT Appeal NOS. 3179 to 3182 (Delhi) OF 2009
& 3394 (Delhi) of 2011
[ASSESSMENT YEARS 2007-08 TO 2009-10]
Date of pronouncement: 16.11.2012
Joginder Singh, Judicial Member
This bunch of five appeals is by the assessee for assessment years 2007-08 to 2009-10 on the ground that on the facts and in the circumstances of the case, ld. first appellate authority erred in law and in fact in upholding the assessment order under section 195/197 of the Act ignoring the agreement, definition of royalty, and further erred in holding that in the agreement entered into between the assessee and Wood Mackenzie, the assessee got a licence to use/access to scientific work without appreciating the nature of information received by the assessee on payment of access fee.
2. During hearing of these appeals, we have heard Shri Pawan Kumar along with Shri Ravi Sharma, ld. counsels for the assessee and Shri Jasdeep Singh, ld. Senior DR. The assessee has also filed synopsis. The crux of argument is that the subscription fees paid by the assessee to Wood Mackenzie (in short hereinafter, WM) is not in the nature of royalty for information conforming industrial, commercial or scientific experience because WM is not importing any information, knowledge or skill from its experience acquired over a period of time. It was submitted that the industrial experience, that from the other parties from whom information has been obtained, is simply put on website, therefore, it cannot be termed as royalty because it is merely general information concerning commercial aspect of upstream sector of various countries rather than the commercial experience of WM. Therefore, the subscription fees paid for supply of such information, electronically, cannot be treated as royalty. The ld. counsel relied upon the decisions in Factset Research Systems Inc., In re  182 Taxman 268 (AAR – New Delhi), Wipro Ltd. v. ITO  94 ITD 9 (Bang.), Dun & Bradstreet Espana S.A., In re  272 ITR 99) and the decision from Hon’ble Madhya Pradesh High Court in CIT v. HEG Ltd.  130 Taxman 72. Our attention was also invited to the decision in Gartner Ireland Ltd. v. Dy. DIT (International Taxation)  42 SOT 21 (Mum.) (URO) along with the decision in Infosys Technologies Ltd. v. Dy. CIT  45 SOT 157 The ld. counsel further contended that the clauses in Research Agreement dated 14.06.2006 does not make any substantial difference to the payment made by OVL because in every such agreement/such contract it contains disclosure clause regarding non-use/non-sharing of information so downloaded. On the other hand, the ld. Senior DR strongly defended the conclusion drawn in the assessment order and impugned order by stating that the nature of the payment has to be seen and even the assessee was also not sure about the nature of such payment. Ld. Senior DR invited our attention to page 34 of paperbook-1 by submitting that it is payment for technical consultancy, therefore, TDS has to be deducted. It was emphatically argued that oil and natural gas is a specialized sector, therefore, it cannot be termed as a general information. More specifically, the assessee engaged WM as an expert adviser and it was a research agreement. The plea was also raised that specialized training along with password are required for such use and access to the system is very specialized. Our attention was invited to page 23 of the paper-book to the effect that even the passwords were provided by WM. Further attention was drawn to page 27 of the paper book containing paras 1.5 and 1.6. The crux of the argument is that it is pure technical information, so TDS was required to be deducted.
3. We have considered the rival submissions and perused the material available on record. In the captioned appeals, since the issues are identical, therefore, these appeals were heard together, consequently can be disposed off by this common and consolidated order for the sake of brevity. The facts, in brief, are that the assessee is engaged in the business of exploration and development of hydro carbon to augment the oil security of the country. During the course of its activities, the assessee acquired participating interest in oil and gas projects outside India and participated in oil exploration, production and development and the activities of its project. For the purposes of their overseas business, ONGC Videsh Limited (in short, OVL) needed information in relation to economic conditions along with other aspects, specially overview of oil and gas industry in different countries. Accordingly, OVL subscribed a website of a company, WM, which is a global energy and mining research unit by way of a research agreement dated 14.06.2006. WM collects and compiles various informations in the field of oil and gas exploration and products thereof and such informations are put on the website. Such informations can be obtained on payment of certain fees by entering into an agreement. Under the agreement, the assessee paid charges/subscription fees to WM for obtaining such informations. In turn, WM granted non-transferable licence to the assessee for downloading such information from its websites and such downloaded information was to be used only by the assessee for its purposes. Further, the agreement does not grant any right or sub-licensing etc. and also not to deviate from the terms and conditions of the agreement unless expressly provided in the agreement (agreement is available on pages 21 to 31 of the paper-book). To determine the taxability of the subscription fee paid by the assessee to WM, an application was filed before the DDIT (International Taxation) (pages 32 to 35 of the paper book). The Assessing Officer was of the view that such payment is in the nature of royalty under section 19(1)(iv) of the Act as well as Article 13 (3) of the India UK Tax Treaty, therefore, the Assessing Officer rejected the claim of the assessee.
4. Aggrieved assessee filed appeal before the ld. CIT (A) who also rejected the claim of the assessee on the ground that since the assessee is accessing to a scientific work which is in the nature of intellectual property and the information compiled on the websites is for the purposes of persons of oil and exploration/production, the information downloaded by the assessee is having no right to sub-licence, therefore, it is covered under the definition of royalty under domestic law under section 19(1)(vi) as well as Article 13(3) of DTAA with UK. Consequently, the stand of the Assessing Officer was affirmed.
5. Now, the question to be adjudicated by us is whether the subscription fees paid by the assessee to WM constitute royalty for information concerning industrial, commercial or scientific experience and same is taxable under section 19(1)(vi) and Article 13(3) of the DTAA with UK? The stand of the assessee is that it is merely a subscription fees and can be used by any person after going to the website of WM and it is merely a general information whereas the stand of the revenue is that it is a royalty paid for getting such information for which password are supplied by WM, specialized skill is required for accessing and that too through an agreement. Still for better appreciation, we are reproducing hereunder section 9(1)(vi) of the Act regarding royalties :-
“(vi) income by way of royalty payable by-
(a) the Government ; or
(b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government:
[Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India.]Online GST Certification Course by TaxGuru & MSME- Click here to Join
Explanation 1.-For the purposes of the [first] proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the [Assessing] Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as an agreement made before the 1st day of April, 1976.
Explanation 2.-For the purposes of this clause, “royalty” means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for-
(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
[(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;]
(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and] (v).
[Explanation 3.-For the purposes of this clause, “computer software” means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data.]
[Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred.
Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not-
(a) the possession or control of such right, property or information is with the payer;
(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.
Explanation 6.-For the removal of doubts, it is hereby clarified that the expression “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;]
(vii) income by way of fees for technical services payable by-
(a) the Government ; or
(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or
(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :
[Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.]
[Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.]
Explanation .-For the purposes of this clause, “fees for technical services” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”.]
If the aforesaid section is analyzed, it speaks about income by way of royalty payable by Government, a person resident and a person non-resident. Explanation 2 speaks about royalty means a consideration for transfer of all or any right (including granting of a licence) whereas sub-clause (iv) clearly speaks about imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill. The aforesaid provision of the Act is to be read by keeping the agreement between the parties in juxtaposition. The term “royalties” as used in Article 12.3 of the DTAA means payment of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films, or work on films, tape or other means of reproduction for use in connection with radio, television, broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productive use or disposition thereof, and payment of any kind as consideration for the use of, or the right to use any industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in para 2(c) of Article 8. If this provision of the Act is analyzed with respect to research agreement with OVL dated 14.06.2006 (available at pages 21 to 31 of the paper book) firstly, as is evident from the nomenclature itself, research agreement and pursuant to the agreement, the WM has granted certain rights regarding its proprietary information and its services subject to certain terms and conditions as attached in Appendix Z. WM agreed to provide the services as per terms and this agreement accessible for further period as per terms set further. In Appendix Y, there was a list of research and other products to which the assessee subscribed. The website is available to the limited officials of the assessee. The fee has also been specified for each product which will be treated as access fee and the fees for upstream services in 2006 was amounting to £ 9,56,250 (Nine hundred fifty-six thousand two hundred and fifty pounds sterling) and 3% average increase in fees for the product for the second and third year of the term. Thus, the overall fee, as per the agreement, was £ 1,025,662 (One million and twenty five thousand six hundred and sixty two pounds sterling). Certain corporate incentives were also offered (page 22 of the paper book). It is pertinent to mention herein that WM agreed to provide two days training programme per annum on upstream services during the period of contract (first year) for 20 individuals. For getting such services for the research, the telephone and e.mail access to the industry analyzed was also required. A specific fee (page 25 of the agreement) has been mentioned as access fee subject to the liabilities/terms and conditions. We are usefully reproducing hereunder the restrictive clause (page 27 of the paper book) :-
“1.5 The user names and passwords provided to you constitute trade secrets and proprietary and confidential information of Wood Mackenzie, and you and your officials shall protect each such user name and password as a trade secret. Wood Mackenzie shall have the right to audit your use of its user names and passwords to verify your compliance with the provisions of this Agreement, and you will maintain such records regarding the use of user names and passwords, including, except in the case of a global licence, logs of the user names and passwords and of the individuals to whom they are assigned from time to time, as may be appropriate to enable such audit to be made. You may not permit user names and passwords to be disclosed to unauthorized persons or used so as to allow unauthorized persons to gain access to the Web Site or any Product. You may not copy or distribute any user name or password except in accordance with this Agreement.
1.6 Each Product provided to you is proprietary and confidential to Wood Mackenzie, and you and your officials shall protect each Product as a trade secret. Wood Mackenzie shall have the right to audit your use of any Product to verify your compliance with the provisions of this Agreement. You may not permit any Product or any information or data contained in or derived form any Product to be disclosed to unauthorized persons or allow unauthorized persons to gain access to any Product or any of such information or data. You may not copy or distribute all or any portion of a Product except in accordance with the Agreement.”
If the aforesaid restrictive clause is analyzed, user names and passwords were provided to the assessee which were considered as trade secrets and proprietary and confidential information of WM. The use of such password or information was of restrictive use of the assessee. The assessee was specifically denied of disclosing to unauthorized person and even the assessee is not authorized to copy the same or to distribute to the unauthorized persons as per the terms of the agreement. Even access of the same to the unauthorized persons has been specifically denied meaning thereby the use of the information is confined to the assessee, therefore, it cannot be said to be general information as canvassed by the ld. counsel for the assessee. So far as the jurisdiction of the agreement is concerned it is government by the laws of England. If the totality of the facts are analyzed along with terms and conditions of the agreement, we are convinced that the information contained in the agreement is not for the public at large, rather such information, knowledge or skill can be used in terms of the agreement only. It is not the case that any person from the public can access this facility without an agreement or without making any payment. Therefore, nature of the payment has to be seen. In our considered view, certainly the payment is in the nature of technical consultancy. Oil and natural gas and its exploration are a field of specialized technical knowledge and not for the use of public at large. A specific training is required in the field. The information obtained by the assessee are also of technical nature. Therefore, the contention of the assessee that it contains general information is without any justification.
6. So far as the reliance upon the decision of Wipro Ltd. (supra) and other cases are concerned, in the case of Dun & Bradstreet Espana S.A. (supra) is concerned, the information provided in Business Information Reports (BIRs) was publicly available and it was only being compiled by D & B Associates. However, in the present case, what is being assessed by the assessee was a scientific work which has a character of intellectual property compiled on the website for the purposes of the persons in the field of oil and gas exploration and production thereof. It is a segmented information and the product is in respect of particular country or region. At the same time, as mentioned earlier, the assessee has been specifically denied to sub-licence, rent or loan of any product, nor the assessee is authorized to create a derivative work based upon any project except as otherwise expressly provided in the agreement. WM has granted a non-transferable and non-inclusive licence to use the confidential name and passwords, if any, subject to the condition to enter the restricted portion of the website for the sale purpose of downloaded to a permitted computer and reproducing in storage media of a permitted computer copies. The terms of the agreement shall end at 00.01 GM on the last of the then current terms unless such terms are extended or terminated. If the totality of the facts are analyzed the information/knowledge available to the assessee was made through a licence, consequently it is covered under the definition of royalty under the domestic law u/s 19(1)(iv) and (vi) along with Article 13(3) of the DTAA with UK, therefore, the cases relied upon by the assessee are not of much help, being on different facts. So far as the exact nature of permanent establishment is concerned, it has not been examined by the Assessing Officer in the case of the recipients. Even otherwise, this is not an issue before us. In view of these facts, we find no infirmity with the order of the ld. CIT (A), consequently affirmed.
7. Finally, whole of the appeals of the assessee are dismissed.