Legal Database Subscription not Copyright Transfer, Fee Not Royalty: Delhi HC

In a landmark judgment, the Delhi High Court has delivered a verdict in the case of CIT vs. RELX Inc, which has significant implications for the taxation of subscription fees for legal databases in India. The court has ruled that subscription fees paid for accessing legal databases cannot be construed as a transfer of copyright, thereby not qualifying as royalty under the Income Tax Act, 1961, and the India-USA Double Taxation Avoidance Agreement (DTAA). This decision provides clarity on the nature of subscription fees and their taxability, impacting numerous businesses and professionals relying on such databases for legal research.

The Income Tax Department challenged the Income Tax Appellate Tribunal’s (ITAT) decision, which favored RELX Inc., arguing that the subscription fees collected from Indian subscribers for the use of its LexisNexis database constituted business income rather than royalty. The department’s contention was based on the premise that the fees were for the use of copyrighted material, thus falling within the ambit of royalty as defined by the DTAA and the Income Tax Act.

However, the Delhi High Court sided with RELX Inc., drawing a distinction between granting access to copyrighted material and transferring copyright itself. The court referenced various precedents, including the Supreme Court’s judgments, emphasizing that the right to use a copyrighted article does not equate to the transfer of copyright. The subscription merely allows users to access the database without providing any proprietary rights over the copyrighted content.