Full Text
HIGH COURT OF DELHI
Date of Decision: 16.04.2025
THE COMMISSIONER OF INCOME TAX - INTERNATIONAL
TAXATION -3 .....Appellant
Through: Mr Ruchir Bhatia, SSC.
Through: Mr Himanshu S. Sinha
Jain, Mr Jainender Singh Kataria and Ms Kanika Jain, Advocates.
AND
THE COMMISSIONER OF INCOME TAX - INTERNATIONAL
TAXATION -3 .....Appellant
Through: Mr Ruchir Bhatia, SSC.
Through: Mr Himanshu S. Sinha
Jain, Mr Jainender Singh Kataria and Ms Kanika Jain, Advocates.
HON'BLE MR. JUSTICE TEJAS KARIA VIBHU BAKHRU, J.
Introduction
JUDGMENT
1. The Revenue has filed the present appeals under Section 260A of the Income Tax Act, 1961 [the Act] impugning a common order dated 05.07.2024 passed by the learned Income Tax Appellate Tribunal [ITAT] in ITA No.2420/Del/2023 in respect of assessment year [AY] 2020-21 and ITA No.3307/Del/2023 in respect of AY 2021-22. The said appeals were preferred by the respondent [the Assessee] impugning the order dated 27.06.2023 passed by the Assessing Officer [the AO] under Section 143(3) read with Section 144C(13) of the Act. The learned ITAT noted that the amount involved was different but the questions involved in the appeals were common and therefore heard the appeals together and disposed of the same by the common order.
2. The controversy involved in the present appeals pertains to the treatment of “commission income” and the amounts received by the Assessee as “subscription fee”.
3. The Assessee had filed its returns declaring ‘Nil’ income for AY 2020-21 and ₹43,75,330/- for AY 2021-22. These returns were picked up for scrutiny. The AO held that the commission income and the subscription fee received by the Assessee from entities in India were required to be construed as fees for technical services [FTS] and were chargeable to tax under the Act and passed the draft assessment orders.
4. The Assessee had filed objections to the draft assessment orders before the Dispute Resolution Panel [DRP] which were rejected by orders dated 02.03.2023 and 22.06.2023 passed in respect of AY 2020-21 and AY 2021-22 respectively. Pursuant to the directions issued by DRP, the AO passed final assessment orders dated 27.06.2023 and 27.09.2023 for AY 2020-21 and AY 2021-22 respectively.
5. The AO assessed the income chargeable to tax under the Act at ₹63,71,49,019/- and ₹69,63,30,103/- for AY 2020-21 and AY 2021-22 respectively. The AO also directed commencement of penalty proceedings.
6. The Assessee appealed the final assessment orders before the learned ITAT. The learned ITAT referred to the decision of this Court in the Assessee’s case for AY 2013-14 [Commissioner of Income-tax, International Taxation v. Springer Nature Customers Services Centre GMBH: [2023] 458 ITR 728] and set aside the assessment orders. The learned ITAT held that the question, whether the commission income of the Assessee or the subscription fee received by the Assessee was taxable under the Act and the India-Germany Double Taxation Avoidance Agreement [DTAA], stood settled in favour of the Assessee by this court and there were no material changes in the previous years relevant to AYs 2020-21 and 2021-22. Projected Questions of Law
7. In the aforesaid facts, the Revenue has projected the following common set of questions of law for consideration of this court: “2.[1] Whether the Ld. ITAT has erred in law and in facts in holding that the payments received by the assessee from its Indian customers on account of production and editorial charges did not constitute Fee for Technical service as defined under section 9(1)(vii) of the Income Tax Ac t,1961 or “Fee for technical service as defined under Article 12(4) of the India- Germany. DTAA without appreciating the fact that the Commissionaire ‘Agreement entered by the Assessee with Indian party contain the conditions that the assessee will provide contract management, debtor management, address maintenance and customer Services which indicates that the assessee was specifically managing the business of sale outside India and the role of the assessee is to manage and provide managerial services to the India entity on a global basis and therefore the above receipts are taxable as FTS under Article 12(4) of the India-Germany DTAA? 2.[2] Whether the Ld. ITAT has erred in law and in facts in deleting the additions made by the Assessing officer on account of subscription fees received by the assessee from sale of online journals by relying upon the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (2021) 432 ITR 471 without appreciating the fact that the above decision is not applicable in the case under consideration as the aforesaid decision was given in the context of software royalty income whereas in the instant case the transactions are related to right to use the copy rights in the books and Journals published by the assessee?” Factual Context
8. The Assessee is a company incorporated under the German laws and is a tax resident of Germany. The Assessee is a part of Springer Nature Group which is a publisher of books, journals and content relating to science and technology. It is stated that Springer Nature Group has a leading global scientific, technical and medical portfolio.
9. The Assessee has entered into a Commissionaire Agreement dated 01.01.2014 with Springer Nature India Pvt. Ltd. [SNIPL] – which is also one of the entities of the Springer Nature Group–by virtue of which the Assessee was appointed as a non-exclusive sales representative to promote, sell and distribute printed products (books and journals) and e-products (online books, journals and their archives). The Assessee earned commission income amounting to ₹5,31,86,587/- during financial year [FY] 2019-20 and ₹6,05,11,416/- during FY 2020-21. The Assessee also collected subscription fees amounting to ₹58,39,62,432/- and ₹63,14,43,357/- during FYs 2019-20 and 2020-21 respectively.
10. The AO treated the said receipts as FTS chargeable to tax under the Act as well as DTAA.
11. In terms of the Commissionaire Agreement, the Assessee was not only required to promote sale and distribute books and journals, but was also required to undertake the following services: i) Global sales and marketing services ii) Customer services iii) Order-handling iv) Address maintenance v) Stock keeping and inventory management vi) Invoicing vii) Delivery (physical as well as online) viii) Debtor management services ix) Subscription management x) Return copies processing
12. The Assessee received commission on account of the said services at an ad-valorem rate on the net revenue. As noted above, besides the aforesaid commission income, the Assessee had also collected subscription fees from various customers for subscribing to the journals and books. Reasons and Conclusion
13. The question whether the commission income earned by the Assessee can be treated as FTS is concededly covered in favour of the Assessee by the decision of this court in Commissioner of Income-tax, International Taxation v. Springer Nature Customers Services Centre GMBH (supra).
14. Insofar as the taxability of subscription fees is concerned, Mr. Ruchir Bhatia, the learned counsel appearing for the Revenue earnestly contended that the learned ITAT erred in allowing the Assessee’s appeal on the ground that it was covered by the decision of this Court in Commissioner of Income-tax, International Taxation v. Springer Nature Customers Services Centre GMBH (supra). He contended that the said decision was rendered in respect of the assessment made in respect of AY 2013-14 whereby the subscription fees was taxed as royalty. He submitted that this court had referred to the decision of the Supreme Court in Engineering Analysis Center of Excellence (P.) Ltd. v CIT: [2021] 432 ITR 471 (SC) and had rejected the contention that the subscription fees was chargeable to tax under the Act as royalty. However, for the previous years in question, relevant to AYs 2020-21 and 2021-22, the AO had held that the subscription fee was chargeable as FTS and not royalty. This was also urged as an alternate contention before this court in the Assessee’s case for AY 2013-14 but this court had not permitted the Revenue to urge the same. He referred to the following passages from the said judgment [Commissioner of Income-tax, International Taxation v. Springer Nature Customers Services Centre GMBH (supra)] in support of his contentions:
submissions, for the first time, contrary to the submission, an argument has been advanced that the subscription fee should be treated as FTS, and in the alternative, as royalty. 25.[1] We are of the opinion, the submission that subscription fee should be treated as FTS cannot be accepted, as this was not the stand of the appellant/revenue before the Tribunal. This is a flipflop which the respondent/assessee would do well to abjure.
15. Mr. Himanshu S. Sinha, the learned counsel appearing for the Assessee contested the aforesaid contentions. He submitted that the learned ITAT had rightly followed the decision in the Assessee’s own case for AY 2013-14 [Commissioner of Income-tax, International Taxation v. Springer Nature Customers Services Centre GMBH (supra)]. He contended that although the court had made observations to the effect that the Revenue should refrain from altering its stand, but also examined the question as to what would constitute FTS as contemplated under Article 12(4) of the DTAA. Additionally, he submitted that the subscription fees received by the Assessee towards subscription of various journals and content could not be construed as FTS.
16. The first and foremost question to be considered is whether the subscription fee could be construed as FTS for the purpose of Section 9(1)(vii) of the Act. Explanation 2 to Section 9(1)(vii) of the Act explains the meaning of expression “FTS” as under: “Explanation 2.—For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries";
17. In Skycell Communications Ltd. v. Deputy Commissioner of Income-Tax: (2001) 251 ITR 53, the Hon’ble Madras High Court had examined the scope of the expression “fees for technical services” with reference to Explanation 2 to Section 9(1)(vii) of the Act and had observed as under:
to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service.
11. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue.
12. Satellite television has become ubiquitous, and is spreading its area and coverage, and covers millions of homes. When a person receives such transmission of television signals through the cable provided by the cable operator, it cannot be said that the home owner who has such a cable connection is receiving a technical service for which he is required to deduct tax at source on the payments made to the cable operator.
13. Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee.
14. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as “technical service” for the purpose of section 194J of the Act.
15. The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subscribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing Of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider.
16. At the time the Income-tax Act was enacted in the year 1961, as also at the time when Explanation 2 to section 9(1)(vii) was introduced by the Finance (No. 2) Act, with effect from April 1, 1977, the products of technology had not been in such wide use as they are today. Any construction of the provisions of the Act must be in the background of the realities of day-to-day life in which the products of technology play an important role in making life smoother and more convenient. Section 194J, as also Explanation 2 in section 9(1)(vii) of the Act were not intended to cover the charges paid by the average house-holder or consumer for utilising the products of modem technology, such as, use of the telephone fixed or mobile, the cable T.V., the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc. Such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and companies. The facility remains the same whoever the subscriber may be—individual, firm or company. “Technical service” referred in section 9(1)(vii) contemplates rendering of a “service” to the payer of the fee. Mere collection of a “fee” for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services.”
18. In Commissioner of Income-Tax v. Bharti Cellular Ltd.: (2009) 319 ITR 139, this court had concurred with the view of the Madras High Court in Skycell Communications Ltd. v. Deputy Commissioner of Income-Tax (supra) and held as under:
16. The word “manager” has been defined, inter alia, as: “a person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization, etc., a person controlling the activities of a person or team in sports, entertainment, etc.”
17. It is, therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression “manager” and consequently “managerial service” has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.
18. Similarly, the word “consultancy” has been defined in the said Dictionary as the work or position of a consultant; a department of consultants. “Consultant” itself has been defined, inter alia, “as a person who gives professional advice or services in a specialized field”. It is obvious that the word “consultant” is a derivative of the word “consult” which entails deliberations, consideration, conferring with someone, conferring about or upon a matter. Consult has also been defined in the said Dictionary as “ ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action”. It is obvious that the service of consultancy also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant.
19. From the above discussion, it is apparent that both the words “managerial” and “consultancy” involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a sociis, the word “technical” as appearing in Explanation 2 to section 9(1)(vii) would also have to be construed as involving a human element. But, the facility provided by MTNL/ other companies for interconnection/port access is one which is provided automatically by machines.
20. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Explanation 2 to section 9(1)(vii) of the said Act. This is so because the expression “technical services” takes colour from the expressions “managerial services” and “consultancy services” which necessarily involve a human element or, what is now a days fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as “technical services” as contemplated under section 194J of the said Act. *** *** ***
26. Before concluding we would also like to point out that the interconnect/ port access facility is only a facility to use the gateway and the network of MTNL/other companies. MTNL or other companies do not provide any assistance or aid or help to the respondents/assessees in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/other companies is “technical” in the sense that it involves sophisticated technology. The facility may even be construed as a “service” in the broader sense such as a “communication service”. But, when we are required to interpret the expression “technical service”, the individual meaning of the words “technical” and “service” have to be shed. And, only the meaning of the whole expression “technical services” has to be seen. Moreover, the expression “technical service” is not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions “managerial service” and “consultancy service” as appearing in Explanation 2 to section 9(1)(vii) of the said Act. Considered in this light, the expression “technical service” would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots.”
19. The aforesaid decision was carried in appeal before the Supreme Court. The Supreme Court upheld the view of the High Court that the expression “Technical Services” was required to be read in a narrow sense by applying the rule of noscitur a sociis. However, the court remanded the matter to the AO (TDS) as there was no expert evidence on record. We consider it relevant to refer to the following observations of the Supreme Court: “The question basically involved in the lead case is: whether TDS was deductible by M/s. Bharti Cellular Limited when it paid interconnect charges/access/port charges to BSNL? For that purpose, we are required to examine the meaning of the words “fees for technical services” under Section 194J read with clause (b) of the Explanation to Section 194J of the Income Tax Act, 1961, [“the Act”, for short] which, inter alia, states that “fees for technical services” shall have the same meaning as contained in Explanation 2 to clause (vii) of Section 9(1) of the Act. Right from 1979, various judgments of the High Courts and Tribunals have taken the view that the words “technical services” have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words “technical services” in section 9(1)(vii) read with Explanation 2 comes in between the words “managerial and consultancy services”.
20. In a later decision in Commissioner of Income Tax v. Kotak Securities: (2016) 383 ITR 1, the Supreme Court considered the question, whether the transaction charges paid by a member of the Bombay Stock Exchange to transact business of sale and purchase of securities on the platform operated by Bombay Stock Exchange could be considered as FTS as held by the Bombay High Court. The Supreme court referred to Explanation 2 to Section 9(1)(vii) of the Act as well as the aforementioned observations made by the Supreme Court in Commissioner of Income-Tax v. Bharti Cellular Ltd.: (2011) 330 ITR 239 and held as under:
“technical services” have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words “technical services” in section 9(1)(vii) read with Explanation 2 comes in between the words “managerial and consultancy services”.
7. “Managerial and consultancy services” and, therefore, necessarily “technical services”, would obviously involve services rendered by human efforts. This has been the consistent view taken by the courts including this Court in Bharti Cellular Ltd. (supra). However, it cannot be lost sight of that modern day scientific and technological developments may tend to blur the specific human element in an otherwise fully automated process by which such services may be provided. The search for a more effective basis, therefore, must be made.
8. A reading of the very elaborate order of the assessing officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the Stock Exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. “Technical services” like “managerial and consultancy service” would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would, therefore, stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialised, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression “technical services” appearing in Explanation 2 to Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act.”
21. A plain reading of the aforesaid observations indicate that for any income to be construed as FTS, it is necessary that fees is received for a service which is exclusive or customized and would not take into sweep standardized automated services, the access of which could be granted to all on payment of charges.
22. In Commissioner of Income-Tax, International Taxation v. Relx Inc.: [2024] 160 taxmann.com 109 (Delhi), this court considered an appeal from a decision of the learned ITAT whereby the Revenue’s contention that fees received for accessing online database pertaining to legal and law related information was not chargeable to tax as FTS. In that case, the assessee was a tax resident of United States of America and was engaged in the business of maintaining online database of information relating to law including judgments, articles, information relating to patent applications before the Patent Registry and legal authorities (Lexis Nexis). The assessee had earned income in the nature of subscription fees from subscribers in India for providing access to the database (Lexis Nexis). Additionally, the persons interested in purchasing digital versions of books, journals and articles could purchase the same on payment of a price for the said books, journals and articles.
23. In this context, the Coordinate Bench of this court observed as under:
DTAA. However, notwithstanding the above, it is apparent that the submissions addressed on this score are clearly unmerited. As is plainly evident from a reading of Explanation 2 of Section 9(1)(vii) of the Act and which defines FTS, it contemplates consideration which may be said to fall within the ambit of rendering of a managerial, technical or consultancy service. The mere access granted to a subscriber to the legal data base would clearly not fall within the ambit of Section 9(1)(vii) of the Act. All that the assessee does is provide access to the database. It has not been shown to be providing any further managerial, technical or consultancy service to a subscriber. We, in any case, find ourselves unable to countenance the contention that the access so granted could be construed as providing services of the nature spoken of in Section 9(1)(vii) of the Act.”
24. In Commissioner of Income Tax v. India Capital Markets (P) Ltd.:[2017] 79 taxmann.com 45 (Bom), the Bombay High Court rejected the Revenue’s contention that tax was required to be deducted from payments made to M/s Bloomberg (engaged in publishing e-magazines) for subscription of e-magazines. The court noted that Bloomberg’s magazines / information were backed by solid research carried out by employees, and were made available on the website and observed that the same would not result in Bloomberg rendering any consultative services. The Bombay High Court’s finding in this regard is set out below: “(d) We find that both the Commissioner of Income Tax (Appeals) as well as the Tribunal have reached a concurrent finding of fact that payments made to M/s Bloomberg was made for subscription to e-magazines and therefore, there is no occasion to deduct as the tax under the Act. Thus under Section 40(a)(ia) of the Act could not have been invoked. The submission on behalf of the revenue that Bloomberg’s magazines/information is backed by solid research carried out by its employees and made available on website would not by itself result in M/s Bloomberg rendering any consultative services. It is not the case of the revenue that specific queries raised by the respondent-assessee were answered to by M/s Bloomberg as a part of the consideration of Rs.4.34 lacs. The Information is made available to all subscribers to emagazines/journal of M/s Bloomberg. Therefore, in no way the payments made to M/s Bloomberg can be considered to be in the nature of any consultative/professional services rendered by Bloomberg to the respondents. In any view of the matter, the findings reached by both authorities cannot be said to be perverse or arbitrary. It is a possible view and consequently Question (B) as proposed does not give rise to any substantial question of law. Accordingly, not entertained.”
25. We also consider it relevant to refer to Paragraph 3 of Article 12A of the United Nations Model Double Taxation Convention – 2021 [UNMDTC- 2021] which defines the terms “fees for technical services”. The same is set out below:
26. The opening sentence of Paragraph 3 of the UNMDTC-2021 bears similarity to the definition of the expression ‘FTS’ within the meaning of Explanation 2 to Section 9(1)(vii) of the Act.
27. The following passages from the Commentary on Paragraph 3 of Article 12A of the UNMDTC-2021 are instructive: “62. Article 12A applies only to fees for technical services, and not to all payments for services. Paragraph 3 defines “fees for technical services” as payments for managerial, technical or consultancy services. Given the ordinary meanings of the terms “managerial,” “technical” and “consultancy,” the fundamental concept underlying the definition of fees for technical services is that the services must involve the application by the service provider of specialized knowledge, skill or expertise on behalf of a client or the transfer of knowledge, skill or expertise to the client, other than a transfer of information covered by the definition of "royalties" in paragraph 3 of Article 12. Services of a routine nature that do not involve the application of such specialized knowledge, skill or expertise are not within the scope of Article 12A.
63. The ordinary meaning of the term "management" involves the application of knowledge, skill or expertise in the control or admin-istration of the conduct of a commercial enterprise or organization. Thus, if the management of all or a significant part of an enterprise is contracted out to persons other than the directors, officers or employ-ees of the enterprise, payments made by the enterprise for those management services would be fees for technical services within the meaning of paragraph 3. Similarly, payments made to a consultant for advice related to the management of an enterprise (or of the business of an enterprise) would be fees for technical services.
64. The ordinary meaning of the term "technical" involves the application of specialized knowledge, skill or expertise with respect to a particular art, science, profession or occupation. Therefore, fees received for services provided by regulated professions such as law, accounting, architecture, medicine, engineering and dentistry would be fees for technical services within the meaning of paragraph 3. Thus, if an individual receives payments for professional services referred to in paragraph 2 of Article 14 from a resident of a Contracting State, those payments would be fees for technical services. If the payments arise in that Contracting State because they are made by a resident of that State or borne by a permanent establishment or fixed base in that State, the payments would be subject to tax by that State in accordance with paragraph 2 irrespective of the fact that the services are not per-formed in that State through a fixed base in that State.
65. Technical services are not limited to the professional services referred to in paragraph 2 of Article 14. Services performed by other professionals, such as pharmacists, and other occupations, such as scientists, academics, etc., may also constitute technical services if those services involve the provision of specialized knowledge skill and expertise.
90. Example 3: R Company is a resident of State R. R Company's business is the collection, organization and maintenance of various databases. R Company sells access to these databases to its clients. One of R Company's clients is Company S, a resident of State S. State R and State S have entered into a tax treaty that contains a provision identical to Article 12A of the United Nations Model Tax Convention. The payments that R Company receives from S Company for access to its databases would not be fees for technical services within the meaning of paragraph 3. Although R Company used its knowledge, skill and expertise in creating the database, the services that R Company provides to S Company-access to the database-are routine services that do not involve the application of R Company's knowledge, skill and expertise for the benefit of S Company. Accordingly, Article 12A would not apply to the payments.
91. If, however, S Company entered into a contract with R Company under which R Company created a specialized database customized for S Company's use from information supplied by S Company or collected by R Company, the payments by S Company to R Company would be “fees for technical services” under paragraph 3. In this situation, R Company would be applying its knowledge, skill and expertise for the benefit of S Company. As a result, the payments would be taxable by State S in accordance with paragraph 2. It would not matter whether R Company performed all or any part of the services of creating the database in State S.”
28. For any receipt to fall within the expression ‘fees for technical services’, it is necessary that the same be received as consideration for rendering services which are of technical nature. The expression “rendering of managerial, technical or consultancy services” must necessarily be construed in a narrow sense where such specialized services are rendered by the service provider as may be required by the service recipient. Ordinarily, the same would require human intervention. Mere access to technical database or technical literature would not constitute provision of technical services. The sale of technical texts, information or research material collated by extensive research would not constitute rendering technical services within the scope of Section 9(1)(vii) of the Act.
29. In the facts of the present case, the subscription fee collected by the Assessee from various third parties is for subscription to e-magazines and content which is standardized and not specifically collected or generated for any particular entity. Thus, clearly, the subscription fee would not partake the character of a ‘fee for technical service’ within the meaning of Explanation 2 to Section 9(1)(vii) of the Act.
30. In the aforesaid view, it is not necessary to examine the provisions of DTAA. The same would be necessary only if the subscription fee was chargeable to tax under the normal provisions of the Act.
31. In view of the above, no substantial question of law arises for consideration of this court.
32. The appeals are accordingly dismissed.
VIBHU BAKHRU, J TEJAS KARIA, J APRIL 16, 2025 ‘gsr’ Click here to check corrigendum, if any