Case Law Details
Court: Mumbai bench of the Income tax Appellate Tribunal
Citation: M/s Dun & Bradstreet Information Services India Pvt. Ltd. Vs. ADIT [2010-TII-59- ITAT-MUM-INTL]
Brief :ITAT held that the consideration paid by the taxpayer to foreign affiliates for purchase of Business Information Report (BIR) was not ‘royalty’ within the meaning of explanation 2(iv) to section 9(1 )(vi) of the Income-tax Act, 1961 (the Act). Further, no withholding of tax is required when payment is made to foreign affiliates for purchase of Business Information Report.
Facts of the case
• The taxpayer was a wholly owned subsidiary of Dun & Bradstreet, USA (D&B). D&B had several operating subsidiary companies in major countries of the world. The operating subsidiaries and associates of D&B in each country were engaged in compiling and selling BIRs at predetermined price in their local markets and also to other associated companies worldwide.
• The operating subsidiary of D&B which compiles the information and prepares the BIR retains the copyright in it. The revenues generated by sale of BIRs are taxed as business income in the respective countries. BIRs prepared by each of the operating subsidiaries are uploaded and retained in a database on a server in the USA. The central database of D&B which is hosted in a server situated in the USA, is accessed by the operating subsidiaries through the regional server. For Asia-Pacific region, the regional server was located at Singapore.
• Any subsidiary of D&B which accesses the database to purchase and download a BIR, is debited with inter-company price of the BIR it purchases, and such debits are settled amongst various subsidiaries of the D&B on a monthly basis.
• The taxpayer purchased BIR from the operating subsidiaries of D&B and before remitting software licence fees made an application under section 195(2) of the Act to the Assessing Officer (AO) and contended that tax withholding was not required on the following grounds:
-BIR was a book and therefore it classifies as sale of goods;
-The taxpayer has no Permanent Establishment in India;
-The Authority for Advanced Ruling (AAR) in the case of one of the associates of D&B i.e. Dun and Bradstreet Espana S.A., In re [2005] 272 ITR 99 (AAR) had, on similar facts, held that since no income of the associate was taxable in India, tax withholding was not required.
• However, the AO, based on his earlier order in taxpayer’s own case, passed an order under section 195(2) of the Act directing the taxpayer to withhold taxes at the appropriate rate of royalties having regard to the provisions of the concerned tax treaty read with the Act. The CIT(A) upheld the order of AO.
Tribunal’s ruling
• The Tribunal observed that the order, on which the AO and CIT(A) relied, was subsequently cancelled by the Tribunal in 2008. The Tribunal had relied on its own ruling in taxpayer’s own case where it was held that:
-The AAR in cases of Dun and Bradstreet Espana S.A., In re [2005] 272 ITR 99 (AAR), Dun and Bradstreet Europe Limited (AAR No. 657 of 2005 dated 27 October 2005) and Dun and Bradstreet Limited (AAR No. 656 of 2005 dated 27 October 2005) had already held that payments under consideration was not taxable in India and therefore, there was no obligation to withhold tax under section 195 of the Act;
-The consideration paid by the taxpayer to foreign affiliates for purchase of BIR was not ‘royalty’ under the Act or under the tax treaty.
• As the payments under consideration had identical facts to its own case discussed above, the Tribunal held that payment made by the taxpayer to foreign affiliates for purchase of BIR was not royalty within the meaning of explanation 2 to section 9(1)(vi) of the Act and hence, no withholding of tax was required from payments made to foreign affiliates.
Our Comments
This is a welcome ruling by the Mumbai Tribunal which, after relying on its own decision in taxpayer’s own case and some other cases of AAR in taxpayer’s associates’ cases, held that payment made by the taxpayer to foreign affiliates for purchase of BIR was not royalty within the meaning of explanation 2 to section 9(1)(vi) of the Act and hence, no withholding of tax was required for payments made to foreign affiliates.
It is pertinent note that though the Tribunal relied on its own ruling in the taxpayer’s own case, such earlier Tribunal ruling was unreported. Further, since the ruling of the AAR is binding only on the applicant, the present ruling by a Tribunal would hold importance for taxpayers who are facing similar litigation.
