Tribunal ruling wherein it was held that the subscription fees for watching pre-recorded video courses earned by a US entity are not taxable as royalty.

Key excerpts of the ruling

• The taxpayer, being a US based education company, engaged in the business of uploading online videos on its website and earns subscription revenue. During the assessment year 2016-17, the taxpayer earned subscription fees on facilitating viewing of pre-recorded courses from its Indian customers and did not offer the same to tax on the grounds that the same is not taxable in India under the India-US tax treaty;
• The tax authorities rejected taxpayer’s contentions and held that subscription revenue is towards granting of right to use any copyright of a literary, artistic or scientific work and hence amounts to royalty;
• The Tribunal observed that the subscribers make payment only for viewing the videos on taxpayer’s website and not for availing the knowledge of the taxpayer’s experience regarding its business of creating/maintaining the database of videos, thus the same does not constitute payment for ‘information concerning industrial, commercial or scientific experience’ by relying on Tribunal’s ruling in American Chemical Society and Authority for Advance Ruling ruling in Factset Research Systems;
• The Tribunal held that the subscription fees received by the taxpayer does not amount to payment for the ‘use of or right to use copyright’ but rather payments for access to copyrighted products, relying in Supreme Court ruling in Engineering Analysis and Tribunal ruling in Elsevier Information Systems;
• The Tribunal also held that the payments to taxpayer for viewing videos on its database cannot be termed as consideration for granting any right to use of equipment, as the taxpayer is merely granting access to the database of videos and not for the use or right to use any equipment and the subscribers have no access, right or control of any manner over the server on which the taxpayer maintains the database;

This ruling should be relevant to instances wherein we pay for online course subscriptions (for e.g. for employees) and related nature of payments such as job training/ educational courses. etc, Importantly, if taxes on the same are grossed up, it could potentially help to minimize additional cash outflow via taxes.