Facts of the Case

The Revenue filed appeals under Section 260A of the Income-tax Act challenging a common order dated 05.07.2024 passed by the Income Tax Appellate Tribunal for Assessment Years 2020-21 and 2021-22. The respondent, Springer Nature Customer Service Centre GmbH, is a company incorporated in Germany and a tax resident of Germany, forming part of the Springer Nature Group engaged in publishing books, journals and scientific content.

The assessee entered into a Commissionaire Agreement dated 01.01.2014 with Springer Nature India Pvt. Ltd., appointing it as a non-exclusive sales representative for promotion and sale of printed and electronic books and journals in India. During the relevant years, the assessee earned commission income for sales support services and also received subscription fees from Indian customers for access to journals and online content.

The Assessing Officer treated both commission income and subscription fees as fees for technical services under Section 9(1)(vii) of the Act and the India-Germany DTAA. Draft assessment orders were passed, objections before the DRP were rejected, and final assessment orders were issued making substantial additions. The ITAT allowed the assessee’s appeals by following earlier binding decisions in its own case. Aggrieved, the Revenue approached the High Court.

Issues Involved

Whether commission income received under the Commissionaire Agreement constituted fees for technical services, whether subscription fees for access to journals and online content were taxable as fees for technical services or royalty, and whether any substantial question of law arose in view of binding precedents in the assessee’s own case.

Petitioner’s Arguments

The Revenue argued that the Commissionaire Agreement showed that the assessee was providing managerial and customer management services to Indian entities on a global basis, which should be treated as fees for technical services. It was further contended that subscription fees were wrongly excluded from taxation by relying on the Supreme Court judgment in Engineering Analysis, as that decision dealt with software royalty and not copyright in journals and books.

Respondent’s Arguments

The assessee submitted that both issues were squarely covered by the Delhi High Court’s earlier judgment in its own case for AY 2013-14, where commission income and subscription fees were held not taxable as fees for technical services or royalty. It was argued that subscription fees were for standardised access to journals and content available to all subscribers, involving no specialised, customised or human-driven technical services.

Court Order / Findings

The Delhi High Court examined the statutory definition of fees for technical services under Explanation 2 to Section 9(1)(vii) and reviewed extensive jurisprudence including Skycell Communications, Bharti Cellular, Kotak Securities, Engineering Analysis, Relx Inc., and international commentary under the UN Model Tax Convention.

The Court held that for income to qualify as fees for technical services, it must arise from rendering specialised, exclusive or customised services involving application of technical expertise for the benefit of the payer, ordinarily with human intervention. Mere access to standardised databases, journals or content, even if created through extensive research and technology, does not amount to rendering technical services.

Applying these principles, the Court held that the commission income issue was already conclusively settled in favour of the assessee by its earlier judgment. With respect to subscription fees, the Court held that the receipts were for standardised subscription to e-journals and content, not customised or exclusive services, and therefore could not be treated as fees for technical services under Section 9(1)(vii).

The Court concluded that the ITAT had rightly followed binding precedents and no substantial question of law arose.

Important Clarification

The High Court clarified that use of sophisticated technology or existence of research-backed content does not by itself render a transaction taxable as fees for technical services. What is determinative is whether the payer receives specialised, customised services involving application of technical expertise for its benefit, which was absent in the case of standard subscription-based access.

Final Outcome

The appeals filed by the Revenue were dismissed. The Delhi High Court upheld the order of the ITAT and held that commission income and subscription fees received by Springer Nature Customer Service Centre GmbH for Assessment Years 2020-21 and 2021-22 were not taxable as fees for technical services. No substantial question of law was found to arise.

Link to download order https://www.mytaxexpert.co.in/uploads/1769756962_THECOMMISSIONEROFINCOMETAXINTERNATIONALTAXATION3.pdf 

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