Assessee was a tax resident of Singapore. The applicant sought a ruling on taxability of subscription fee received from users in India to access the online information database maintained by it. AAR was of the view that the market intelligence services provided by the applicant on online portal was taxable as Royalty as per Clause (iv) of Explanation 2 to Section 9(1) (vi) of the Income Tax Act, 1961 The same was also taxable as Royalty as per Article 12(2) of India -Singapore Double Taxation Avoidance Agreement.
AUTHORITY FOR ADVANCE RULINGS
(INCOME TAX), NEW DELHI
7th Day of May, 2012
A.A.R. No. 1036 of 2010
|Name & address of the applicant||ThoughtBuzz Pvt. Ltd.
13, International Business Park, Singapore – 609932
|Commissioner Concerned||Director of Income-tax
(International Taxation) Chennai
R U L I N G
The applicant claims to be a tax resident of Singapore. It is engaged in providing social media monitoring service for a company, brand or product. It is a platform for users to hear and engage with their customers, brand ambassadors etc. across the internet. The applicant offered service on charging a subscription. The clients who subscribed can login to its website to do a search on what is being spoken about various brands and so on. The system operated by the applicant generates a report with analytics with an inputs provided by the clients. The information for generation of report is obtained from blogs and forum, social networking sites, review sites, question and answers sites and twitter. The applicant does not depend on third party application programme Interface feeds for data collection and has its own crawlers (computer programme that gathers and categorizes information on the internet) for data extraction. The applicant also maps blog, forums, facebook posts and twitter users country wise to provide social media analytics for different markets. The applicant is wholly controlled and managed from Singapore where the company was incorporated. It was not having a permanent establishment in India. All its directors are non¬residents. The subscription received from the provision of service is taxable as business income in Singapore. The applicant argues that subscription fee received from the customers for providing social media monitoring services is not royalty within the meaning of Section 9(1)(vi) of the Income-tax Act and Article 12 of the DTAC between India and Singapore since no exclusive right or copyright is made over to the customer. What is passed on to the customer did not amount to information concening the applicant’s own knowledge, experience or skill in commercial and financial matters. The income is taxable only in Singapore in terms of Article 7 of the DTAC since the applicant has no permanent establishment in India. Secondly, there is no obligation to withhold tax on the payments made to the applicant by its Indian subscribers.
2. The Revenue not having raised any objection to the allowing of the application under section 245R(2) of the Act, the application was allowed for rendering a ruling on the following questions:
(a) Whether the amount received by offering subscription based service is taxable in India?
(b) Whether tax is required to be deducted from such amount by the subscribers who are resident in India?
3. On behalf of the Revenue, it was pleaded on merits that what was received by the applicant from the subscribers was royalty as defined in the Act and in the DTAC between India and Singapore. It is pointed out that the clients of the applicant can avail the services through the payment of a subscription fee. The basic mechanism of providing the services is tracking internet messages and feed back through a computer programme ‘Crawler’ which is owned by the applcant. The subscription fee paid to the applicant by the subscriber cannot be disassociated from the user of the computer system. Subscription enables the client to access data through this sophisticated system maintained by the applicant. Subscription fee paid is not only for the use of an equipment but it is also paid for the imparting of information concerning technical, industrial, commercial or scientific knowledge, experience or skill. Hence it was royalty as defined in the Act and in the DTAC.
4. In a further written submission made in answer to the contention of the Revenue, the applicant has submitted that there was no direct use or right to use the equipment of the applicant by its client in lieu of the subscription fee pa d by him. The applcant’s portas are used by the clients only to gather and analyse the facts and arrive at a conclusion to enable them to take meaningful decisions. There was no control of the software or sophisticated programme owned by the applicant by the subscriber. The subscribers have no posessory rights in relation to the equipments and they merely took them as a facility or as use of sophisticated equipment installed by the applicant.
5. At the hearing, in addition to reiterating what is set out in the application and the subsequent written submission, it was pointed out on behalf of the applicant that the applicant was only providing information over the web, and the applicant has no intellectual property right over it. Its role was only to gather and put the information together and give it to the subscriber.
6. On behalf of the Revenue, attention was invited to Annexure-I of the application to point out that certain proprietory processes were involved in the subscription based service. It was restricted information commercially exploitable by the subscriber and only by the subscriber of the applicant. It was a secret process. The payment received was covered by clause (iv) to Explanation 2 to Section 9(1)(vi) or in any event by clause (iv) of Section 9(1)(vi) of the Act. It is also explained that Crawler is a general term and it was really a store of data based information. Even the applicant’s tax res dency certificate shows that it was an online business and market intelligence services. No one other than the subscriber could use the information put on the web for the purpose of his business.
7. In its further written submission dated 21.4.2012 the applicant has contended that what is received by it is not equipment royalty as per clause (via) of Explanation 2 to Section 9(1)(vi) of the Act. The customer did not come face to face with the equipment and did not operate it or control its function in any manner. It has relied on a decision of the Income-tax Tribunal in support.
8. On a consideration of the relevant facts presented, it appears to me that the applicant is in the business of gathering, collating and making available or imparting information concerning industrial and commercial knowledge, experience and skill and consequently the payment received from the subscriber would be royalty in terms of clause (iv) of Explanation 2 to Section 9(1 )(vi) of the Act. If so, the subscription received is royalty liable to be taxed as such under the Act.
9. Going by the DTAC between India and Singapore, it will qualify as royalty since it is the grant of the use for consideration or right to use for consideration, the process or information concerning industrial, commercial or scientific experience and under the DTAC the subscription received from the Indian subscriber would be taxable as royalty and taxable in India in view of paragraph 2 of Article 12 of the DTAC, subject to the benefit conferred therein on the applicant on fulfilling the condition imposed by that paragraph.
10. I, therefore, rule on question (a) that the amount received from offering the particular subscription based service is taxable in India as ‘royalty’ in terms of paragraph 2 of Article 12 of the DTAC between ndia and Singapore and on question (b) that tax is required to be deducted in terms of section 195 of the Act from the payment made to it by the subscribers who are resident in India.
11. Accordingly, the ruling is pronounced on this the 7th day of May, 2012.