Subscription Fees for Database Access & Administration Fees are Not Royalty; ITAT Allows Appeal

Subscription Fees for Database Access & Administration Fees are Not Royalty; ITAT Allows Appeal

Issue

1. Whether “Administration Fees” received by the US-based assessee from its Indian Reporting Body (MSAI) for maintaining the IMEI database constitute “Royalty” under Section 9(1)(vi) of the Act and Article 12(3) of the India-USA DTAA.

2. Whether “Subscription Fees” received for granting non-exclusive, limited access to a copyrighted database (without transferring rights) constitute “Royalty” or “Fees for Technical Services (FTS)”.

Facts

• Assessee: A US tax resident, appointed by the mobile industry as the Global Decimal Administrator (GDA) to allocate IMEI numbers.

• Issue 1 (Administration Fee):

  • The assessee appointed an Indian entity, MSAI, as a Reporting Body to allocate IMEI numbers to manufacturers.

  • MSAI paid 70% of its service fee to the assessee as “Administration Fee.”

  • The AO/DRP treated this as Royalty, alleging transfer of rights/scientific experience.

• Issue 2 (Subscription Fee):

  • The assessee received fees from Indian companies (Comviva, Plintron) for providing limited access to its data (Global Subscriber, Network Data, etc.).

  • The agreement granted a non-exclusive, non-transferable license to access the data for internal use only. The client had no right to copy, sell, or reverse-engineer the content.

  • The AO treated this subscription fee as Royalty.

• Delay: The appeal was filed with a delay of 1076 days (due to COVID-19 and change in consultants), which the Tribunal condoned.

Decision

• The Income Tax Appellate Tribunal (ITAT) allowed the appeal in favor of the assessee on both grounds.

• On Administration Fee:

  • Following its own order for AY 2013-14 and 2015-16, the Tribunal held that the fee was for providing access to a database of numbers, not for transferring any copyright, patent, or technical know-how.

  • MSAI only facilitated allocation; it obtained no intellectual property rights. Hence, it was not Royalty.

• On Subscription Fee:

  • The Tribunal relied on the Supreme Court judgment in Engineering Analysis Centre of Excellence Pvt. Ltd. and the Delhi High Court ruling in CIT vs. Relx Inc.

  • It held that granting access to a database is merely the use of a copyrighted article, not the transfer of the copyright itself.

  • Since the subscriber acquired no proprietary interest or right to exploit the copyright, the payment cannot be taxed as Royalty.

  • It also held that the service did not involve “making available” technical knowledge, so it was not FTS either.

Key Takeaways

• Copyright vs. Copyrighted Article: The distinction is critical. Paying for the use of a product (like software or a database) is business income (not taxable without a PE), whereas paying for the rights to the product (to copy/sell) is Royalty.

• Limited License: Agreements that restrict the user from copying, selling, or modifying the content strongly indicate that no copyright has been transferred.

• Consistency: Tribunals are bound to follow their own precedents in the assessee’s case unless there is a change in facts or law.

• Delay Condonation: The Supreme Court’s suo motu order on limitation during COVID-19 (15.03.2020 to 28.02.2022) applies to all judicial/quasi-judicial proceedings, aiding in condoning delays for that period.

THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH “D”, DELHI
GSMA Ltd.,
1000 Abernathy Road, Suite 450, Atalanta,
Untied State of America
Vs.
Assistant Commissioner of Income-Tax,
International Taxation 1(3)(1), Civic Centre,
Minto Road, New Delhi 110002
ITA No.2446/DEL/2024
Date of pronouncement : 04/11/2025