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India Income Tax Appellate Tribunal Holds Payments for Database Access Not Taxable Royalties Under Tax Treaty with U.S. — Orbitax Tax News & Alerts

The Delhi Income Tax Appellate Tribunal (ITAT) recently issued an order regarding the tax treatment of payments for database access under the 1989 tax treaty with the United States. The case involved U.S.-based Dow Jones & Company Inc. (Dow Jones), which engaged with Dow Jones Consulting India Private Limited (DJCIPL) on a principal-to-principal basis for distributing Dow Jones products in the Indian market. This includes providing information products and services containing global business and financial news to various organizations. As the distributor in India, DJCIPL remitted payments to Dow Jones as consideration for the provision of database access for the relevant information products and services. In reviewing the transactions, the Indian tax authority held that these payments amounted to royalties, on which tax should be withheld. This was appealed.

In its decision, the Delhi ITAT found that the payment could not be considered royalties according to the definition provided in the India-U.S. tax treaty. In particular, the ITAT noted that the definition of royalties includes payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work. In the case of database access, consideration is paid for the right to use the information product, but not the copyright in the product. Further, there is no transfer of the copyright, which remains with Dow Jones. Considering this, the payments cannot be taxed as royalties.