|
| Consideration for use of copyright is not royalty |
| HP Agarwal / New Delhi Dec 14, 2009, 00:49 IST |
|
In many cases foreign companies grant access to Indian companies for using their data base and other copyr-ighted material. The question for consideration is whether the amount received by the foreign company for permitting use of such copyrighted material constitutes consideration which could be treated as royalty under the provisions of the tax laws.
In the above context the recent case 'Facet Research System Inc. CIT (2009) 317 ITR 169(AAR), needs to be looked into.
In the above case, an American company maintains a database, which is located outside India and which contains the financial and economic information relating to large number of companies world over. Although, the data is available in the public domain, but it is presented by the US company in the form of statements, charts, after analysis, indexing, description and appending notes for facilitating easy access. These value additions are outside the public domain and the copyright in them is owned by the American company.
The US company entered into a master client licence agreement with an Indian customer under which it granted a limited, non-exclusive, non transferable rights to use its databases, software tools, etc.
The American company claimed that the amount paid by the Indian client is the normal business receipt in its hands. Since it does not carry on any business operations in India and it has no agents for concluding any business in India, such business receipts are not taxable in India. The US company also contended that the amount received from the Indian customers does not constitute "royalty" or "Fees for technical services” either under the Provisions of Income- tax Act or the Tax Treaty between India and USA.
It was argued by the Revenue that the consideration paid by Indian client could be regarded as “royalty" because as per explanation 2 to Sec 9(1)(vi) any consideration paid for "the transfer of all or any right (including the granting of a licence) is to be considered as royalty". Further, as per article 12 of tax treaty with USA the consideration falls in the category of royalty received as "consideration for the use of, or the right to use, any copyright".
The question to be decided was therefore, whether the amount received by the US company constitute consideration for the transfer of any rights in respect of the copyright or for the use of or right to use any copyright. If yes, then the consideration will be treated as royalty.
It was argued at length that, since the term "copyright" is not defined in the Income- tax Act, the term must be understood in accordance with the law governing copyright in India, viz., the Copyright Act 1957. According to section 14 of Copyright Act, broadly speaking, the term copyright means the exclusive rights for commercial exploitation of the copyright. Therefore unless the user of the copyright gets commercial exploitation rights, he cannot be said to have acquired any copyrights.
It was ruled by the Hon'ble AAR that in the instant case what the Indian customer got is access to the database. He has not got any copyright rights. By making such data available to the customer, it cannot be said that any copyright in database are being imparted in favour of the customer. The grant of the license to the Indian customer is only to authorise him to access to the copyrighted database rather than grant of any rights in or over the copyright as such. Therefore, consideration cannot be treated as royalty.
It appears that any consideration paid for transfer of cop-yright or for the use of copyright can fall in the category of "royalty" only if anyone or more of the exclusive rights which the owner of copyrights has in the copyrighted material are transferred to the other party. A mere right to use the copyrighted article cannot amount to "royalty".
The author is a senior partner in S S Kothari Mehta & Co
E-mail: hp.agrawal@sskmin.com
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
