Dun & Bradstreet Espana, S.A., In Re v.

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The Tax Publishers2005 TaxPub(DT) 0805 (AAR) : (2005) 003 (II) ITCL 0537 : (2005) 272 ITR 0099 : (2005) 193 CTR 0009 : (2005) 142 TAXMAN 0284 In re Dun & Bradstreet Espana S. A. () INCOME TAX --Tax deduction at source----PAYMENT TO NON-RESIDENTNon taxability of business profits--The applicant non-resident company was having receipt from Indian company as business profits but same was not liable to be taxed in India subject to Indian tax due to non-existence of a permanent establishment. Held: In such circumstances, Indian company was not liable to deduct tax at source from the payment(s) made to non-resident Spanish company. Income Tax Act, 1961 s.195 INCOME TAX --Royalties or fee for technical services----CHARGEABILITYAmount paid for down loading business information from foreign company by Indian company-- Held: The amount paid by the Indian company to the applicant for purchase of Business Information Reports (BIRs) were not royalty or fees for technical services within the meaning of Article 13(3) of the DTAA between India and Spain. Income Tax Act, 1961 s.44DA Income Tax Act, 1961 s.115A DTAA Article 13(3) INCOME TAX --Advance ruling----BUSINESS PROFITNo permanent establishment in India--D&B of USA had, a Spanish non-resident subsidiary company. D&B of USA was leading seller of Business Information Reports (BIRs). The applicant was providing BIRs to an Indian company, which was former s associate company. The Indian company was downloading information regarding business in Spain for Indian customers on their request. The applicant approached the AAR to know about taxability of the receipts from Indian company. Held: The amount received by the applicant from Indian company is nothing but business profits and as applicant is not having agent in India and as well as permanent establishment in India, same was not taxable in India. Income Tax Act, 1961 s.245N; Income Tax Act, 1961, s.115A; Income Tax Act, 1961 s.195; In re.Dun & Bradstreet Espana S. A. Before the Authority For Advance Rulings Syed Shah Mohammed Quadri J. & K. D. Singh A. A. R. No. 615 of 2003 October 20, 2004. Counsel : Salil Gupta, Addl. DIT and Saad Kidwai, CDDIT for the Revenue Nishith Desai, for the Assessee. RULING Syed Shah Mohammed Quadri J. This application under section 245Q(1) of the Income Tax Act, 1961 (for short 'the Act'), is by a non-resident company-Dun and Bradstreet, Espana, SAwhich was incorporated in Spain. The applicant is an associate of the Dun and Bradstreet group (referred to as 'D&B') which has the largest and the most comprehensive database available, with information on 79 million business entities worldwide for making credit, marketing and purchasing decisions. D & B provides various products to various businesses worldwide. Among these products are Business Information Reports (BIRs). A BIR is similar to a book which is available, both in electronic form as well as in hardcopy which used to be delivered physically till the advent of the e-commerce revolution which made e-delivery possible. A BIR provides information in respect of a company on various aspects, e.g., its existence, operations, financial condition, management's experience, line of business, facilities and location of the prospect and also information about any suits, liens, judgments, etc. 2. After filing of this application the D&B group has undergone a change in shareholding pattern and the group companies as a result of restructuring with effect from March 1, 2004. The applicant was permitted to bring on record the changes in shareholding of associates and to amend annexures to the application. We shall refer to the position of D & B and its associates companies after the restructuring. Dun and Bradstreet Espana, S.A. Spain (the applicant), continues to be a subsidiary of Dun and Bradstreet International Limited, USA (D&B US), an American company, and Dun and Bradstreet Information Service India (P) Limited (DBIS), an Indian company has now become a 100 per cent subsidiary company of Dun and Bradstreet SAME Limited ('DB SAME'), a company incorporated in the Cayrnan Islands instead of D & B US which was the holding company earlier but now it holds 10 per cent. equity shares of DB SAME and the balance of 90 per cent equity shares are held by the employees DB SAME, DBIS and other investors. 3. DB US is the leading seller of BIRs enabling business-to-business commerce for about 160 years. The operating subsidiaries and associates of D&B US in each country are engaged in compilation and selling BIRs in their local markets and to other associates companies worldwide as their core business. Each associate company of D&B compiles the information in respect of companies functioning in its country in the standardized D&B format which is electronically uploaded on the server of the associate companies and is copied (mirrored) on the central data base server situated in US. DBIS is also engaged in a similar business of compilation and selling BIRs in respect of business entities, either incorporated in their respective countries or doing business in their country. The US server farm is owned and operated by D&B US and it contains mirror servers of all the D&B associate companies. The modus operandi of the business of DBIS is that whenever an Indian customer places an order for a BIR in respect of a company situated in Spain, DBIS would access the master server of D&B US. Thereupon, the master server would identify DBIS and would allow access to connect to the mirror server of the applicant which is situated in the US server farm. It was then DBIS would request the applicant for a BIR of the company for which the Indian customer has placed an order. On locating the required BIR, DBIS would download, print and deliver a copy thereof to the customer. DBIS is under an obligation not to take additional copies or reproduce the BIR in any manner or sell it to any customer other than the Indian customer on whose requisition the BIR is ordered because the BIR is copyright protected with the copyright vested in the applicant who prepares the BIR. There is further obligation on the Indian customer to use the BIR for its own purpose, the copyright in the BIR would neither be licensed nor assigned to either the DBIS or the Indian customer. In regard to the pricing of a BIR, DBIS is free to determine the price on principal-to-principal basis and in that the applicant has no say. The price at which the BIR is sold by the applicant to the DBIS would be the applicant's average domestic price at which it is sold to local customers in Spain. It is specifically averred that the applicant does not have any subsidiary, branch or office or place of business in India. It is also stated that it does not have any employee, advisor or agent in India nor is any employee deputed to India. 4. The applicant being a tax resident of Spain is entitled to the benefit of the Double Taxation Avoidance Agreement entered into between the Government of the Republic of India and the Kingdom of Spain effective from 12-1-1995 vide Notification dated 21-4-19951 (hereinafter referred to as 'the treaty'). As per section 90(2) of the Act, the provisions of the Act would apply to the extent they are more beneficial to the applicant. Article 7 of the treaty deals with taxability of the business profits. Therefore payments made by DBIS for the electronic purchase of BIRs to the applicant would be its business income and taxable in India only if the applicant has a Permanent Establishment (PE) in India within the meaning of the article 5 of the treaty and it is asserted that it does not have a PE in India. 5. On these facts the applicant sought rulings of the Authority on the following questions : 1. Whether, on the facts and in the circumstances of the case, Dun and Bradstreet, Espana (hereinafter referred to as the 'applicant') will be entitled to the benefits of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains, dated January 12, 1995, entered into between the Government of the Republic of India and the Kingdom of Spain (hereinafter referred to as the 'treaty') ? 2. Whether, on the facts and in the circumstances of the case, the payments made by Dun and Bradstreet Information Services India Private Limited (hereinafter referred to as 'DBIS') for the electronic purchase of Business Information Reports (hereinafter referred to as the 'BIRs') to the applicant will be treated as part of the applicant's business profits and hence be covered within the provisions of article 7 of the treaty ? 3. Whether, on the facts and in the circumstances of the case, the applicant will be held as having a permanent establishment (hereinafter referred to as a 'PE') in India under the provisions of article 5 of the treaty ? 4. Whether, on the facts and in the circumstances of the case, and based on the provisions of article 7 (read with article 5) of the treaty, the applicant will be taxable in India in respect of the business profits ? 5. Whether, on the facts and in the circumstances of the case, if the applicant is not taxable in India, DBIS will be required to withhold any tax under section 195 of the Income Tax Act. 1961 (hereinafter referred to as ITA') while making remittances to the applicant for the BIRs ? 6. Whether, on the facts and in the circumstances of the case, the applicant will be absolved from filing a tax return in India, under the provisions of section 139 of the ITA if its entire income is subject to tax only in Spain ? 7. Whether, on the facts and in the circumstances of the case, any penal provisions of the ITA would be invoked due to non-filing of tax returns by the applicant under section 139 of the ITA ? It may be mentioned at the outset that questions Nos. 1, 6 and 7 are not pressed by Mr. Desai. 5. The Commissioner offered the following comments. It is not disputed that the Government of the Republic of India and the Kingdom of Spain have entered into treaty which was notified on 21-4-1995. The provisions of section 90(2) of the Act will be applicable if the applicant's claim of being a tax resident of Spain is established. The payments made by DBIS to the applicant for electronic purchases of business information reports, are part of the applicant's revenue receipts so the taxability will have to be considered under article 7 read with article 5 of the treaty. On the facts and circumstances of the case, the applicant would be held as having a permanent establishment in India under article 5 of the treaty. Many appellate authorities held that the server located in India would constitute a permanent establishment of the firm or company. The appellant categorically stated that DBIS purchases BIRs on the server of the applicant. In the case of Ericsson Telephone Corporation India AB, Sweden (1997) 224 ITR 203 (AAR), the Authority held that the character of royalty or fees for technical services would not change even if these were to be considered under article 7 of the treaty and that would mean section 44D read with section 115A of the Act would apply to the case of the applicant. Therefore, DBIS would have to withhold tax in India after calculating the tax liability under the Act. As BIRs are copyright protected and the end-users are required to use BIRs for their own purpose, this would give rise to 'royalty' and 'fees for technical services' under article 13 of the treaty. The analysis of raw data provided in the BIRs would be similar of that of technical and consultancy services, therefore, based on the provisions of article 7 read with article 5 and article 13 of the treaty the applicant will be taxable in India. 6. The applicant filed the rejoinder and reiterated its stand in the application. 7. It is a common ground that the Government of the Republic of India and the Kingdom of Spain entered into a treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income and on capital on January 12, 1995, which was notified on 21-4-1995. It is also not in dispute that the payments made by DBIS to the applicant for electronic purchases of BIRs are its business income covered by article 7 of the treaty. Indeed the applicant itself in annexure III of the application says, 'Further, the income generated by the applicant from the preparation and sale of such BIRs is taxed in Spain as business income. Accordingly, the sale of BIRs to DBIS, or any other D & B associate is an activity forming part of the business activity of the applicant, and hence any income generated from such activity would be regarded as business income in the hands of the applicant'. It is on this premise the applicant refers to article 7(1) of the treaty to contend that the business income of the applicant would be chargeable to tax in India only if the applicant has a permanent establishment in India and categorically denies that it has any permanent establishment in India as it does not have any subsidiary, branch, office or place of business in India and that it does not have any advisor or agent or any employee deputed by it to India. The Commissioner's plea on the other hand is that the applicant would be having a permanent establishment in India within the meaning of article 5 of the treaty. 8. The germane issue is whether the applicant has a permanent establishment in India within the meaning of article 5 of the treaty. 9. Article 5 of the treaty is in the following terms (1995) 214 ITR (St) 197, 200) : 'Article 5 (Permanent establishment) 1. For the purposes of this Convention, the term 'permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term 'permanent establishment' includes especially (a) a place of management (b) branch; (c) an office (d) to (h) ....... (i) a premises used as a sales outlet (j) to (k) ...... 3. Notwithstanding the preceding provisions of this article, the term 'permanent establishment' shall be deemed not to include : (a) The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise; (b) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) The maintenance of stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) The maintenance of a fixed place of business solely for the purpose of purchasing goods and merchandise, or of collecting infprmation for the enterprise (e) The maintenance of a fixed place of business solely for the purpose of advertising, for supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise. 4. Notwithstanding the provisions of paragraphs 1 and 2, where a person-other than an agent of an independent status to whom paragraph 5 applies is acting in a Contracting State on behalf of an enterprise of the other Contracting State that enterprise shall be deemed to have a permanent establishment in the first mentioned State, if,- (a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; (b) he has no such authority, but habitually maintains in the first mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise. 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph. 6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.' 10. A combined reading of paras. 1 to 6 of article 5 brings out the import of the expression 'permanent establishment'. Whereas para. 1 defines the expression to mean a fixed place of business through which a business of an enterprise is wholly or partly carried on, para. 2 enumerates eleven places specified in clauses (a) to (k) to include them within the scope of the expression and para. 3 which commences with a non obstante clause contains a deemed exclusionary clause to exclude the use of facilities noted in 11. Clause (a), maintenance of stock of goods mentioned in clauses (b) and (c) and maintenance of a fixed place of business for the purposes indicated in clauses (d) and (e) from the scope of the expression despite the provisions of paras. 1 and 2. However, para. 4 contains a deemed inclusion clause. It also commences with a non obstante clause and says that notwithstanding the provisions of paras. 1 and 2, a person acting in a Contracting State on behalf of an enterprise shall be deemed to have a permanent establishment in the first mentioned State, if any one of clauses (a) or (b) thereofapplies. Clause (a) deals with a person who has and habitually exercises authority to conclude contracts on behalf of the enterprise in the first mentioned State unless the activities are limited to the purchase of goods or merchandise for the enterprise; and clause (b) deals with a person who acts without authority, but habitually maintains a stock of goods or merchandise in the first mentioned State from which he regularly delivers them on behalf of the enterprise. Para. 5 incorporates a deemed exclusion clause and says that an enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business in the other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of business. None the less when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same control, as that enterprise, he shall not be considered as an agent of an independent status within the meaning of the paragraph. 12. In support of the contention of the Commissioner that the applicant has a permanent establishment in India, the following grounds are urged : (i) The first ground is that DBIS is a branch or a sales outlet of the applicant within the meaning of clauses (b) and (i) respectively of para. 2 of article 5. It is stated that the various operating subsidiaries of D & B constitute co-branches and the nomenclature used to describe the entities and their corporate structure is not determinative of their real relationship. There can be no denial of the fact that in determining the real relationship between two entities the nomenclature used to describe them, is not decisive. What has to be looked into is the substance of the relationship in the surrounding circumstances. In the Lexicon the word 'branch'. is defined thus : 'A division; a sub-division; department; a component portion of an organisation or system. A sales outlet of an entity has also the same attributes. In our view the terms 'branch' and 'sales outlet' are projections of an entity depicting management and control of the entity over them. Apart from the fact that, DBIS is a separate legal entity there is nothing on record to suggest that it is a part of or under the management of or under the control of the applicant. It is not an unusual feature of some foreign groups of companies that they are well connected, perhaps with a view to control the worldwide business or minimise tax liability as a measure of tax planning. Whatever may be the reason, without anything more, per se one associate company of a group of companies cannot be branded as a branch or sales outlet of another. To hold one associate company as the branch or sales outlet of another, there must be some material indicative of the characteristic of 'branch' or 'sales outlet'. On the facts of the case it is difficult to uphold the contention of the Commissioner that DBIS is a branch or a sales outlet of the applicant. (ii) The second ground is based on paragraph 4 of article 5 which is extracted above. It has been noticed that para. 4 contains a deeming provision to include within the meaning of the expression 'permanent establishment' a person who acts on behalf of the enterprise in a Contracting State if one of the two conditions mentioned in clauses (a) and (b) thereof, is satisfied. It is nobody's case that DBIS has and habitually exercises in India an authority to conclude contracts on behalf of the applicant. Therefore, clause (a) does not apply. The case of the Commissioner is that DBIS habitually maintains a stock of goods and delivers them on behalf of the enterprise, as DBIS has a password protected access to the website of the applicant to access the BIRs of the applicant's server farm which amounts to maintaining of stock of goods or merchandise on behalf of the applicant and that receiving payment and allowing access to the BIRs from the website of the applicant amounts to delegation of sale function by the applicant to DBIS. Though there can be no difficulty in accepting that in the case of e-commerce, it is not necessary to maintain a physical stock and inventory and that a line access to inventory would be sufficient to equate it with maintenance of stock, yet it is not possible to accept the contentions of the Commissioner. It is necessary to remember that in this case to have access to the server farm of the applicant, each time DBIS entertains a customer for a BIR, it has to approach the applicant and it is only after knowing the particulars of the BIRs required by DBIS, that the applicant grants access to its server farm by DBIS. This is akin to sale rather than delegation of sale function to DBIS by the applicant. It is a clear case of the applicant permitting DBIS to take a BIR from the stock maintained by the applicant and not maintaining stock of BIRs by DBIS itself. (iii) The last ground is based on para. 5 of article 5. As per para. 5 of article 5, noted above, an enterprise shall not be deemed to have a permanent establishment in India merely because it carries on business in India through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise itself or on its behalf and other enterprises controlling, controlled by, or subject to the same common control, as the enterprise, then he will not be considered an agent of an independent status within the meaning of this paragraph. To apply this paragraph it has to be shown that the applicant is carrying on business through an agent whose activities as agent are devoted wholly or almost wholly on behalf of the applicant. The word 'agent' is defined in the Concise Oxford English Dictionary, inter alia as under : '1. a person that provides a particular service, typically one working transactions between two other parties. A person who manages financial or contractual matters for an actor, performer, or writer, 2. a person who works in secret to obtain information for a Government. 3. a person or thing that takes an active role or produces a specified effect. Grammar-the doer of an action, 4. Computing-an independently operating internet programme, typically one set up to locate information on a specified subject and deliver it on a regular basis.' The meaning of the term 'agent' is given in Black's Law Dictionary, inter alia as follows : 'The etymology of the word agent or agency tells us much. The words are derived from the Latin verb, ago, agree; the noun agens, agentis. The agent denotes one who acts a doer, force or power that accomplishes things.' And, section 182 of the Indian Contract Act defines 'agency' as a person employed to do any act for another or to represent another in dealing with third parties. 13. A close reading of the above extracts brings out the essence of the term 'agent'. 'An agent' works for another in accordance with his authority while dealing with third parties. The record in this case does not justify the conclusion that DBIS is an agent of the applicant. DBIS is carrying on in its own business and is an independent entity. It is not under the control and instructions of the applicant in carrying on its business. Further, in regard to purchase of BIRs it acts on its own, settles its own price depending upon the market conditions (which is not controlled by the applicant) and pays the purchase price to the applicant for the BIRs, as fixed by the applicant, which is the average market rate of the BIR in Spain. There is no material before us to conclude that DBIS itself is an agent of the applicant. The role of DBIS vis-a-vis the applicant is that it purchases BIRs from the applicant. As and when a customer for BIRs approaches DBIS it contacts the applicant for purchasing the required BIRs from the applicant. It would not also be a case of DBIS wholly devoting itself to the applicant. In view of this position, it is unnecessary to delve into any further aspects. In the light of the above discussions, DBIS cannot be said to be the permanent establishment of the applicant. 14. The last contention of the Commissioner is that the payments made by DBIS to the applicant fall within the meaning of royalty under article 13 of the treaty. If payments made by DBIS to the applicant are found to be royalties, they would be taxable in India even if the applicant has no permanent establishment in India. The term royalties is defined in para. 3 of article 13 of the treaty in the following terms : 'Article 13 : Royalties and fees for technical services (see (1995) 214 ITR (St) 197, 208) 1. and 2 ..... 3. The term 'royalties' as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematographic films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.' It is evident that the term 'royalties' is defined in very wide terms to mean payments of any kind received as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work ... or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience. 15. It will be useful to refer to the ruling of the Authority in In re P. No. 30 of 1999, dated 28-4-1999 ((1999) 238 ITR 296). There, an American company was the applicant. It was an associated company of a group of companies which operated in the worldwide credit card and travel business. The applicant was maintaining a centralised computer in the USA (referred to as 'CPU') to keep track of the expenses incurred on a travellers' credit card or purchase and encashment of travellers cheques. The CPU was accessed and used by various group entities located worldwide through a consolidated data network maintained in Hong Kong. An Indian company located in Delhi was also collecting information about the use of credit card and travellers' cheques by travellers all over the country and was serving 13 group companies in Asia and the Pacific. The information was being passed on to the Hong Kong computer centre of the applicant by leasing lines from VSNL. For the use of computer set up in Hong Kong and in USA, the American company was charging fees to the Indian company. The question posed by the applicant for seeking advance ruling of the Authority was : whether payment due to the applicant under the transaction with the Indian company was liable to tax in India under article 12(3)(a) or 12(3)(b) of the treaty between India and the USA. It was ruled by the Authority that the transmission of the information through encryption as the data relating to clients by maintaining strict confidentiality and it was for downloading of the software that the royalty was paid. According to the agreement between the applicant and the Indian company, the facilities were to be accessed only by the Indian company and the consideration was payable for the specific programme through which the Indian company was to cater to the needs of the group of companies located in Japan, Asia, Pacific, etc. The transaction would, therefore, relate to a ,scientific work' and would partake of the character of intellectual property. The software was customerised and secret. The use of CPU and the consolidated data network of the applicant by the Indian company was not merely use of or right to use in industrial, commercial or scientific experience as envisaged in article 12(3)(b) of the treaty, but the use of modem technological designs or models involving customerised communication and computation with application of sophisticated infon-national technology requiring constant upkeep and updating so as to meet the challenge of the advance technology in this area which would clearly fall within the ambit of article 12(3)(a) of the treaty. The payments received in such transactions are for the use of intellectual property and partake of the character of royalty. 16. In the instant case it is not a case of paying consideration for the use of or right to use any copyright of literary, artistic or scientific work or any patent trade mark or for information of commercial experience. The Cornmissioner sought to bring the payments under royalty/fees for technical service for the reason that the BIRs are copyright protected and end, users are required to use for their own purpose and the analysis of raw data provided in the BIRs would be similar to that of providing a technical or consultancy services. We have already mentioned above that a BIR is a standardised product of D&B, it provides factual information on the existence, operation, financial condition, management and experience line of business, facility and location of a company; it also provides special events like any suit, lien, judgment or previous or pending bankruptcy. Further, banking relationship and accountants, information like whether it is a patent company or authority concerned, has any branches, etc. It also gives a rating of the company. The information that is provided in a BIR is said to be publicly available; it is collected and compiled by D&B associates. A BIR is accessible by any subscriber on payment of requisite price with regular internet access for which no particular software or hardware is required. The applicant states that access to the data base of the applicant is available to the public at large at a price as in the case of buying a book and it is not a pre-requisite, that the BIR must be downloaded by DBIS only and in fact some clients, such as Export Credit Guarantee Corporation, in fact, access the server themselves to download BIR. The applicant does not have any server in India for the use of DBIS. Indeed the applicant has specifically averred that the copyright in the BIR would neither be licensed nor assigned to either DBIS or the Indian customer. From these aspects it is clear that the aforementioned ruling of the Authority is distinguishable on facts. If a group of companies collects information about the historical places and places of interest for tourists in each country and all informations are maintained on a central computer which is accessible to each constituent of the group in each country, can a supply of such information electronically on payment of price be treated as royalty or fee for technical services ? We think not. 32. The next case relied upon by the CIT is also a ruling of the Authority in Ericsson Telephone Corporation India, AB (1997) 224 ITR 203. In that case the applicant was a company incorporated in Sweden. It provided inter alia services within radio and telecommunication. It entered into contracts with three Indian companies for the introduction of the cellular system of telecommunication in India and opened branch offices in India at New Delhi. Bombay and Madras. The Indian company informed the applicant that while making payments under the agreement they would withhold income-tax at 55 per cent. as provided in the Finance Act, 1995. According to the applicant tax deduction could not have exceeded 5.5 per cent. of the gross payments, as the net profit on the contract would not be more than 10 per cent. It was, therefore, not a case of whether the amount paid could be termed as fee for technical services. It was admittedly a case of payment of fee for technical services. 33. For the abovementioned reasons, payments made by DBIS to the applicant for purchases of BIRs, do not answer the description of 'royalties' within the meaning of para. 3 of article 13 of the treaty. So payments made by DBIS to the applicant cannot be regarded as royalty payment. In our view, the applicant has rightly equated the transaction of sale of BIRs to sale of a book, which does not involve any transfer of intellectual property or a book. 34. For the aforementioned reasons, we rule on 1. question No. 1 that this question is not pressed, therefore, no ruling is pronounced on this question ; 2. question No. 2, that on the facts and circumstances of the case, the payments made by Dun Bradstreet Information Service India (P) Limited (referred to as DBIS), for the electronic purchases of Business Information Reports (referred to as BIRs) to the applicant will be treated as part of the applicant's business profits and hence covered within the provision of article 7 of the treaty ; 3. question No. 3, that on the facts and circumstances of the case, the applicant will be held as not having a permanent establishment (hereinafter referred to as 'PE') in India under the provision of article 5 of the treaty ; 4. question No. 4, that this is a consequential question and in view of our ruling on question No. 3, on the facts and circumstances of the case and based on the provisions of article 7 (read with article 5) of the treaty the applicant will not be taxable in India in respect of the business profits ; 5. question No. 5, that on the facts and circumstances of the case as the applicant is held not taxable in India, DBIS will not be required to withhold any tax under section 195 of the Income Tax Act while making remittances to the applicant for the BIRs. 6. questions Nos. 6 and 7, that inasmuch as these questions are not pressed by the applicant, no rulings are pronounced on them. 35. Pronounced by the Authority in the presence of the parties on this 20th day of October, 2004. OPEN SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2005 TaxPub(DT) 0805 (AAR) : (2005) 003 (II) ITCL 0537 : (2005) 272 ITR 0099 : (2005) 193 CTR 0009 : (2005) 142 TAXMAN 0284

In re Dun & Bradstreet Espana S. A. ()

INCOME TAX

--Tax deduction at source----PAYMENT TO NON-RESIDENTNon taxability of business profits--The applicant non-resident company was having receipt from Indian company as business profits but same was not liable to be taxed in India subject to Indian tax due to non-existence of a permanent establishment. Held: In such circumstances, Indian company was not liable to deduct tax at source from the payment(s) made to non-resident Spanish company.

Income Tax Act, 1961 s.195

INCOME TAX

--Royalties or fee for technical services----CHARGEABILITYAmount paid for down loading business information from foreign company by Indian company-- Held: The amount paid by the Indian company to the applicant for purchase of Business Information Reports (BIRs) were not royalty or fees for technical services within the meaning of Article 13(3) of the DTAA between India and Spain.

Income Tax Act, 1961 s.44DA

Income Tax Act, 1961 s.115A

DTAA Article 13(3)

INCOME TAX

--Advance ruling----BUSINESS PROFITNo permanent establishment in India--D&B of USA had, a Spanish non-resident subsidiary company. D&B of USA was leading seller of Business Information Reports (BIRs). The applicant was providing BIRs to an Indian company, which was former s associate company. The Indian company was downloading information regarding business in Spain for Indian customers on their request. The applicant approached the AAR to know about taxability of the receipts from Indian company. Held: The amount received by the applicant from Indian company is nothing but business profits and as applicant is not having agent in India and as well as permanent establishment in India, same was not taxable in India.

Income Tax Act, 1961 s.245N;

Income Tax Act, 1961, s.115A;

Income Tax Act, 1961 s.195;

In re.Dun & Bradstreet Espana S. A.

Before the Authority For Advance Rulings Syed Shah Mohammed Quadri J. & K. D. Singh

A. A. R. No. 615 of 2003 October 20, 2004.

Counsel : Salil Gupta, Addl. DIT and Saad Kidwai, CDDIT for the Revenue Nishith Desai, for the Assessee.

RULING

Syed Shah Mohammed Quadri J.

This application under section 245Q(1) of the Income Tax Act, 1961 (for short 'the Act'), is by a non-resident company-Dun and Bradstreet, Espana, SAwhich was incorporated in Spain. The applicant is an associate of the Dun and Bradstreet group (referred to as 'D&B') which has the largest and the most comprehensive database available, with information on 79 million business entities worldwide for making credit, marketing and purchasing decisions. D & B provides various products to various businesses worldwide. Among these products are Business Information Reports (BIRs). A BIR is similar to a book which is available, both in electronic form as well as in hardcopy which used to be delivered physically till the advent of the e-commerce revolution which made e-delivery possible. A BIR provides information in respect of a company on various aspects, e.g., its existence, operations, financial condition, management's experience, line of business, facilities and location of the prospect and also information about any suits, liens, judgments, etc.

2. After filing of this application the D&B group has undergone a change in shareholding pattern and the group companies as a result of restructuring with effect from March 1, 2004. The applicant was permitted to bring on record the changes in shareholding of associates and to amend annexures to the application. We shall refer to the position of D & B and its associates companies after the restructuring. Dun and Bradstreet Espana, S.A. Spain (the applicant), continues to be a subsidiary of Dun and Bradstreet International Limited, USA (D&B US), an American company, and Dun and Bradstreet Information Service India (P) Limited (DBIS), an Indian company has now become a 100 per cent subsidiary company of Dun and Bradstreet SAME Limited ('DB SAME'), a company incorporated in the Cayrnan Islands instead of D & B US which was the holding company earlier but now it holds 10 per cent. equity shares of DB SAME and the balance of 90 per cent equity shares are held by the employees DB SAME, DBIS and other investors.

3. DB US is the leading seller of BIRs enabling business-to-business commerce for about 160 years. The operating subsidiaries and associates of D&B US in each country are engaged in compilation and selling BIRs in their local markets and to other associates companies worldwide as their core business. Each associate company of D&B compiles the information in respect of companies functioning in its country in the standardized D&B format which is electronically uploaded on the server of the associate companies and is copied (mirrored) on the central data base server situated in US. DBIS is also engaged in a similar business of compilation and selling BIRs in respect of business entities, either incorporated in their respective countries or doing business in their country. The US server farm is owned and operated by D&B US and it contains mirror servers of all the D&B associate companies. The modus operandi of the business of DBIS is that whenever an Indian customer places an order for a BIR in respect of a company situated in Spain, DBIS would access the master server of D&B US. Thereupon, the master server would identify DBIS and would allow access to connect to the mirror server of the applicant which is situated in the US server farm. It was then DBIS would request the applicant for a BIR of the company for which the Indian customer has placed an order. On locating the required BIR, DBIS would download, print and deliver a copy thereof to the customer. DBIS is under an obligation not to take additional copies or reproduce the BIR in any manner or sell it to any customer other than the Indian customer on whose requisition the BIR is ordered because the BIR is copyright protected with the copyright vested in the applicant who prepares the BIR. There is further obligation on the Indian customer to use the BIR for its own purpose, the copyright in the BIR would neither be licensed nor assigned to either the DBIS or the Indian customer. In regard to the pricing of a BIR, DBIS is free to determine the price on principal-to-principal basis and in that the applicant has no say. The price at which the BIR is sold by the applicant to the DBIS would be the applicant's average domestic price at which it is sold to local customers in Spain. It is specifically averred that the applicant does not have any subsidiary, branch or office or place of business in India. It is also stated that it does not have any employee, advisor or agent in India nor is any employee deputed to India.

4. The applicant being a tax resident of Spain is entitled to the benefit of the Double Taxation Avoidance Agreement entered into between the Government of the Republic of India and the Kingdom of Spain effective from 12-1-1995 vide Notification dated 21-4-19951 (hereinafter referred to as 'the treaty'). As per section 90(2) of the Act, the provisions of the Act would apply to the extent they are more beneficial to the applicant. Article 7 of the treaty deals with taxability of the business profits. Therefore payments made by DBIS for the electronic purchase of BIRs to the applicant would be its business income and taxable in India only if the applicant has a Permanent Establishment (PE) in India within the meaning of the article 5 of the treaty and it is asserted that it does not have a PE in India.

5. On these facts the applicant sought rulings of the Authority on the following questions :

1. Whether, on the facts and in the circumstances of the case, Dun and Bradstreet, Espana (hereinafter referred to as the 'applicant') will be entitled to the benefits of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains, dated January 12, 1995, entered into between the Government of the Republic of India and the Kingdom of Spain (hereinafter referred to as the 'treaty') ?

2. Whether, on the facts and in the circumstances of the case, the payments made by Dun and Bradstreet Information Services India Private Limited (hereinafter referred to as 'DBIS') for the electronic purchase of Business Information Reports (hereinafter referred to as the 'BIRs') to the applicant will be treated as part of the applicant's business profits and hence be covered within the provisions of article 7 of the treaty ?

3. Whether, on the facts and in the circumstances of the case, the applicant will be held as having a permanent establishment (hereinafter referred to as a 'PE') in India under the provisions of article 5 of the treaty ?

4. Whether, on the facts and in the circumstances of the case, and based on the provisions of article 7 (read with article 5) of the treaty, the applicant will be taxable in India in respect of the business profits ?

5. Whether, on the facts and in the circumstances of the case, if the applicant is not taxable in India, DBIS will be required to withhold any tax under section 195 of the Income Tax Act. 1961 (hereinafter referred to as ITA') while making remittances to the applicant for the BIRs ?

6. Whether, on the facts and in the circumstances of the case, the applicant will be absolved from filing a tax return in India, under the provisions of section 139 of the ITA if its entire income is subject to tax only in Spain ?

7. Whether, on the facts and in the circumstances of the case, any penal provisions of the ITA would be invoked due to non-filing of tax returns by the applicant under section 139 of the ITA ?

It may be mentioned at the outset that questions Nos. 1, 6 and 7 are not pressed by Mr. Desai.

5. The Commissioner offered the following comments. It is not disputed that the Government of the Republic of India and the Kingdom of Spain have entered into treaty which was notified on 21-4-1995. The provisions of section 90(2) of the Act will be applicable if the applicant's claim of being a tax resident of Spain is established. The payments made by DBIS to the applicant for electronic purchases of business information reports, are part of the applicant's revenue receipts so the taxability will have to be considered under article 7 read with article 5 of the treaty. On the facts and circumstances of the case, the applicant would be held as having a permanent establishment in India under article 5 of the treaty. Many appellate authorities held that the server located in India would constitute a permanent establishment of the firm or company. The appellant categorically stated that DBIS purchases BIRs on the server of the applicant. In the case of Ericsson Telephone Corporation India AB, Sweden (1997) 224 ITR 203 (AAR), the Authority held that the character of royalty or fees for technical services would not change even if these were to be considered under article 7 of the treaty and that would mean section 44D read with section 115A of the Act would apply to the case of the applicant. Therefore, DBIS would have to withhold tax in India after calculating the tax liability under the Act. As BIRs are copyright protected and the end-users are required to use BIRs for their own purpose, this would give rise to 'royalty' and 'fees for technical services' under article 13 of the treaty. The analysis of raw data provided in the BIRs would be similar of that of technical and consultancy services, therefore, based on the provisions of article 7 read with article 5 and article 13 of the treaty the applicant will be taxable in India.

6. The applicant filed the rejoinder and reiterated its stand in the application.

7. It is a common ground that the Government of the Republic of India and the Kingdom of Spain entered into a treaty for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income and on capital on January 12, 1995, which was notified on 21-4-1995. It is also not in dispute that the payments made by DBIS to the applicant for electronic purchases of BIRs are its business income covered by article 7 of the treaty. Indeed the applicant itself in annexure III of the application says, 'Further, the income generated by the applicant from the preparation and sale of such BIRs is taxed in Spain as business income. Accordingly, the sale of BIRs to DBIS, or any other D & B associate is an activity forming part of the business activity of the applicant, and hence any income generated from such activity would be regarded as business income in the hands of the applicant'. It is on this premise the applicant refers to article 7(1) of the treaty to contend that the business income of the applicant would be chargeable to tax in India only if the applicant has a permanent establishment in India and categorically denies that it has any permanent establishment in India as it does not have any subsidiary, branch, office or place of business in India and that it does not have any advisor or agent or any employee deputed by it to India. The Commissioner's plea on the other hand is that the applicant would be having a permanent establishment in India within the meaning of article 5 of the treaty.

8. The germane issue is whether the applicant has a permanent establishment in India within the meaning of article 5 of the treaty.

9. Article 5 of the treaty is in the following terms (1995) 214 ITR (St) 197, 200) :

'Article 5 (Permanent establishment)

1. For the purposes of this Convention, the term 'permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

2. The term 'permanent establishment' includes especially

(a) a place of management

(b) branch;

(d) to (h) .......

(i) a premises used as a sales outlet

(j) to (k) ......

3. Notwithstanding the preceding provisions of this article, the term 'permanent establishment' shall be deemed not to include :

(a) The use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;

(b) The maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;

(c) The maintenance of stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d) The maintenance of a fixed place of business solely for the purpose of purchasing goods and merchandise, or of collecting infprmation for the enterprise

(e) The maintenance of a fixed place of business solely for the purpose of advertising, for supply of information, for scientific research or for similar activities which have a preparatory or auxiliary character, for the enterprise.

4. Notwithstanding the provisions of paragraphs 1 and 2, where a person-other than an agent of an independent status to whom paragraph 5 applies is acting in a Contracting State on behalf of an enterprise of the other Contracting State that enterprise shall be deemed to have a permanent establishment in the first mentioned State, if,-

(a) he has and habitually exercises in that State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise;

(b) he has no such authority, but habitually maintains in the first mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise.

5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.

6. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.'

10. A combined reading of paras. 1 to 6 of article 5 brings out the import of the expression 'permanent establishment'. Whereas para. 1 defines the expression to mean a fixed place of business through which a business of an enterprise is wholly or partly carried on, para. 2 enumerates eleven places specified in clauses (a) to (k) to include them within the scope of the expression and para. 3 which commences with a non obstante clause contains a deemed exclusionary clause to exclude the use of facilities noted in

11. Clause (a), maintenance of stock of goods mentioned in clauses (b) and (c) and maintenance of a fixed place of business for the purposes indicated in clauses (d) and (e) from the scope of the expression despite the provisions of paras. 1 and 2. However, para. 4 contains a deemed inclusion clause. It also commences with a non obstante clause and says that notwithstanding the provisions of paras. 1 and 2, a person acting in a Contracting State on behalf of an enterprise shall be deemed to have a permanent establishment in the first mentioned State, if any one of clauses (a) or (b) thereofapplies. Clause (a) deals with a person who has and habitually exercises authority to conclude contracts on behalf of the enterprise in the first mentioned State unless the activities are limited to the purchase of goods or merchandise for the enterprise; and clause (b) deals with a person who acts without authority, but habitually maintains a stock of goods or merchandise in the first mentioned State from which he regularly delivers them on behalf of the enterprise. Para. 5 incorporates a deemed exclusion clause and says that an enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business in the other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of business. None the less when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise itself or on behalf of that enterprise and other enterprises controlling, controlled by, or subject to the same control, as that enterprise, he shall not be considered as an agent of an independent status within the meaning of the paragraph.

12. In support of the contention of the Commissioner that the applicant has a permanent establishment in India, the following grounds are urged :

(i) The first ground is that DBIS is a branch or a sales outlet of the applicant within the meaning of clauses (b) and (i) respectively of para. 2 of article 5. It is stated that the various operating subsidiaries of D & B constitute co-branches and the nomenclature used to describe the entities and their corporate structure is not determinative of their real relationship. There can be no denial of the fact that in determining the real relationship between two entities the nomenclature used to describe them, is not decisive. What has to be looked into is the substance of the relationship in the surrounding circumstances. In the Lexicon the word 'branch'. is defined thus : 'A division; a sub-division; department; a component portion of an organisation or system. A sales outlet of an entity has also the same attributes. In our view the terms 'branch' and 'sales outlet' are projections of an entity depicting management and control of the entity over them. Apart from the fact that, DBIS is a separate legal entity there is nothing on record to suggest that it is a part of or under the management of or under the control of the applicant. It is not an unusual feature of some foreign groups of companies that they are well connected, perhaps with a view to control the worldwide business or minimise tax liability as a measure of tax planning. Whatever may be the reason, without anything more, per se one associate company of a group of companies cannot be branded as a branch or sales outlet of another. To hold one associate company as the branch or sales outlet of another, there must be some material indicative of the characteristic of 'branch' or 'sales outlet'. On the facts of the case it is difficult to uphold the contention of the Commissioner that DBIS is a branch or a sales outlet of the applicant.

(ii) The second ground is based on paragraph 4 of article 5 which is extracted above. It has been noticed that para. 4 contains a deeming provision to include within the meaning of the expression 'permanent establishment' a person who acts on behalf of the enterprise in a Contracting State if one of the two conditions mentioned in clauses (a) and (b) thereof, is satisfied. It is nobody's case that DBIS has and habitually exercises in India an authority to conclude contracts on behalf of the applicant. Therefore, clause (a) does not apply. The case of the Commissioner is that DBIS habitually maintains a stock of goods and delivers them on behalf of the enterprise, as DBIS has a password protected access to the website of the applicant to access the BIRs of the applicant's server farm which amounts to maintaining of stock of goods or merchandise on behalf of the applicant and that receiving payment and allowing access to the BIRs from the website of the applicant amounts to delegation of sale function by the applicant to DBIS. Though there can be no difficulty in accepting that in the case of e-commerce, it is not necessary to maintain a physical stock and inventory and that a line access to inventory would be sufficient to equate it with maintenance of stock, yet it is not possible to accept the contentions of the Commissioner. It is necessary to remember that in this case to have access to the server farm of the applicant, each time DBIS entertains a customer for a BIR, it has to approach the applicant and it is only after knowing the particulars of the BIRs required by DBIS, that the applicant grants access to its server farm by DBIS. This is akin to sale rather than delegation of sale function to DBIS by the applicant. It is a clear case of the applicant permitting DBIS to take a BIR from the stock maintained by the applicant and not maintaining stock of BIRs by DBIS itself.

(iii) The last ground is based on para. 5 of article 5. As per para. 5 of article 5, noted above, an enterprise shall not be deemed to have a permanent establishment in India merely because it carries on business in India through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise itself or on its behalf and other enterprises controlling, controlled by, or subject to the same common control, as the enterprise, then he will not be considered an agent of an independent status within the meaning of this paragraph. To apply this paragraph it has to be shown that the applicant is carrying on business through an agent whose activities as agent are devoted wholly or almost wholly on behalf of the applicant.

The word 'agent' is defined in the Concise Oxford English Dictionary, inter alia as under :

'1. a person that provides a particular service, typically one working transactions between two other parties. A person who manages financial or contractual matters for an actor, performer, or writer, 2. a person who works in secret to obtain information for a Government. 3. a person or thing that takes an active role or produces a specified effect. Grammar-the doer of an action, 4. Computing-an independently operating internet programme, typically one set up to locate information on a specified subject and deliver it on a regular basis.'

The meaning of the term 'agent' is given in Black's Law Dictionary, inter alia as follows :

'The etymology of the word agent or agency tells us much. The words are derived from the Latin verb, ago, agree; the noun agens, agentis. The agent denotes one who acts a doer, force or power that accomplishes things.'

And, section 182 of the Indian Contract Act defines 'agency' as a person employed to do any act for another or to represent another in dealing with third parties.

13. A close reading of the above extracts brings out the essence of the term 'agent'. 'An agent' works for another in accordance with his authority while dealing with third parties. The record in this case does not justify the conclusion that DBIS is an agent of the applicant. DBIS is carrying on in its own business and is an independent entity. It is not under the control and instructions of the applicant in carrying on its business. Further, in regard to purchase of BIRs it acts on its own, settles its own price depending upon the market conditions (which is not controlled by the applicant) and pays the purchase price to the applicant for the BIRs, as fixed by the applicant, which is the average market rate of the BIR in Spain. There is no material before us to conclude that DBIS itself is an agent of the applicant. The role of DBIS vis-a-vis the applicant is that it purchases BIRs from the applicant. As and when a customer for BIRs approaches DBIS it contacts the applicant for purchasing the required BIRs from the applicant. It would not also be a case of DBIS wholly devoting itself to the applicant. In view of this position, it is unnecessary to delve into any further aspects. In the light of the above discussions, DBIS cannot be said to be the permanent establishment of the applicant.

14. The last contention of the Commissioner is that the payments made by DBIS to the applicant fall within the meaning of royalty under article 13 of the treaty. If payments made by DBIS to the applicant are found to be royalties, they would be taxable in India even if the applicant has no permanent establishment in India. The term royalties is defined in para. 3 of article 13 of the treaty in the following terms :

'Article 13 : Royalties and fees for technical services (see (1995) 214 ITR (St) 197, 208)

1. and 2 .....

3. The term 'royalties' as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematographic films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.'

It is evident that the term 'royalties' is defined in very wide terms to mean payments of any kind received as consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work ... or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience.

15. It will be useful to refer to the ruling of the Authority in In re P. No. 30 of 1999, dated 28-4-1999 ((1999) 238 ITR 296). There, an American company was the applicant. It was an associated company of a group of companies which operated in the worldwide credit card and travel business. The applicant was maintaining a centralised computer in the USA (referred to as 'CPU') to keep track of the expenses incurred on a travellers' credit card or purchase and encashment of travellers cheques. The CPU was accessed and used by various group entities located worldwide through a consolidated data network maintained in Hong Kong. An Indian company located in Delhi was also collecting information about the use of credit card and travellers' cheques by travellers all over the country and was serving 13 group companies in Asia and the Pacific. The information was being passed on to the Hong Kong computer centre of the applicant by leasing lines from VSNL. For the use of computer set up in Hong Kong and in USA, the American company was charging fees to the Indian company. The question posed by the applicant for seeking advance ruling of the Authority was : whether payment due to the applicant under the transaction with the Indian company was liable to tax in India under article 12(3)(a) or 12(3)(b) of the treaty between India and the USA. It was ruled by the Authority that the transmission of the information through encryption as the data relating to clients by maintaining strict confidentiality and it was for downloading of the software that the royalty was paid. According to the agreement between the applicant and the Indian company, the facilities were to be accessed only by the Indian company and the consideration was payable for the specific programme through which the Indian company was to cater to the needs of the group of companies located in Japan, Asia, Pacific, etc. The transaction would, therefore, relate to a ,scientific work' and would partake of the character of intellectual property. The software was customerised and secret. The use of CPU and the consolidated data network of the applicant by the Indian company was not merely use of or right to use in industrial, commercial or scientific experience as envisaged in article 12(3)(b) of the treaty, but the use of modem technological designs or models involving customerised communication and computation with application of sophisticated infon-national technology requiring constant upkeep and updating so as to meet the challenge of the advance technology in this area which would clearly fall within the ambit of article 12(3)(a) of the treaty. The payments received in such transactions are for the use of intellectual property and partake of the character of royalty.

16. In the instant case it is not a case of paying consideration for the use of or right to use any copyright of literary, artistic or scientific work or any patent trade mark or for information of commercial experience. The Cornmissioner sought to bring the payments under royalty/fees for technical service for the reason that the BIRs are copyright protected and end, users are required to use for their own purpose and the analysis of raw data provided in the BIRs would be similar to that of providing a technical or consultancy services. We have already mentioned above that a BIR is a standardised product of D&B, it provides factual information on the existence, operation, financial condition, management and experience line of business, facility and location of a company; it also provides special events like any suit, lien, judgment or previous or pending bankruptcy. Further, banking relationship and accountants, information like whether it is a patent company or authority concerned, has any branches, etc. It also gives a rating of the company. The information that is provided in a BIR is said to be publicly available; it is collected and compiled by D&B associates. A BIR is accessible by any subscriber on payment of requisite price with regular internet access for which no particular software or hardware is required. The applicant states that access to the data base of the applicant is available to the public at large at a price as in the case of buying a book and it is not a pre-requisite, that the BIR must be downloaded by DBIS only and in fact some clients, such as Export Credit Guarantee Corporation, in fact, access the server themselves to download BIR. The applicant does not have any server in India for the use of DBIS. Indeed the applicant has specifically averred that the copyright in the BIR would neither be licensed nor assigned to either DBIS or the Indian customer. From these aspects it is clear that the aforementioned ruling of the Authority is distinguishable on facts. If a group of companies collects information about the historical places and places of interest for tourists in each country and all informations are maintained on a central computer which is accessible to each constituent of the group in each country, can a supply of such information electronically on payment of price be treated as royalty or fee for technical services ? We think not.

32. The next case relied upon by the CIT is also a ruling of the Authority in Ericsson Telephone Corporation India, AB (1997) 224 ITR 203. In that case the applicant was a company incorporated in Sweden. It provided inter alia services within radio and telecommunication. It entered into contracts with three Indian companies for the introduction of the cellular system of telecommunication in India and opened branch offices in India at New Delhi. Bombay and Madras. The Indian company informed the applicant that while making payments under the agreement they would withhold income-tax at 55 per cent. as provided in the Finance Act, 1995. According to the applicant tax deduction could not have exceeded 5.5 per cent. of the gross payments, as the net profit on the contract would not be more than 10 per cent. It was, therefore, not a case of whether the amount paid could be termed as fee for technical services. It was admittedly a case of payment of fee for technical services.

33. For the abovementioned reasons, payments made by DBIS to the applicant for purchases of BIRs, do not answer the description of 'royalties' within the meaning of para. 3 of article 13 of the treaty. So payments made by DBIS to the applicant cannot be regarded as royalty payment. In our view, the applicant has rightly equated the transaction of sale of BIRs to sale of a book, which does not involve any transfer of intellectual property or a book.

34. For the aforementioned reasons, we rule on

1. question No. 1 that this question is not pressed, therefore, no ruling is pronounced on this question ;

2. question No. 2, that on the facts and circumstances of the case, the payments made by Dun Bradstreet Information Service India (P) Limited (referred to as DBIS), for the electronic purchases of Business Information Reports (referred to as BIRs) to the applicant will be treated as part of the applicant's business profits and hence covered within the provision of article 7 of the treaty ;

3. question No. 3, that on the facts and circumstances of the case, the applicant will be held as not having a permanent establishment (hereinafter referred to as 'PE') in India under the provision of article 5 of the treaty ;

4. question No. 4, that this is a consequential question and in view of our ruling on question No. 3, on the facts and circumstances of the case and based on the provisions of article 7 (read with article 5) of the treaty the applicant will not be taxable in India in respect of the business profits ;

5. question No. 5, that on the facts and circumstances of the case as the applicant is held not taxable in India, DBIS will not be required to withhold any tax under section 195 of the Income Tax Act while making remittances to the applicant for the BIRs.

6. questions Nos. 6 and 7, that inasmuch as these questions are not pressed by the applicant, no rulings are pronounced on them.

35. Pronounced by the Authority in the presence of the parties on this 20th day of October, 2004.

OPEN