Where no special skills or knowledge were required to possessto render services that were contemplated under an agreement,said services cannot be treated as FTS

Facts of the Case:

• Springer Nature Customer Services Centre GMBH (hereinafter referred to as “the Assessee”) is a Germany based company, filed its nil return of income for AY 2013-14. The return was selected for scrutiny assessment and subsequently order was passed against the Assessee by the Assessing Officer (“AO”) and following additions were made to the returned income while passing the order:

1. Commission fee received by the Assessee from Springer India Pvt. Ltd. (“SIPL”).
2. Service charges received for sale of Indian journals in printed form.
3. Subscription fees received against e-journals from two Indian entities, namely, Informatics Publishing Private Ltd. and ZS Associates.
4. The amount collected by the Assessee from third party customers against the sale of online e journals and/or books, on behalf of SIPL.
   AO treated the aforementioned additions as Royalty by invoking the of provisions of Section 9(1)(vi) of the Income Tax Act 1961 (hereinafter referred to as “the Act”) and Article 12 of the India-Germany DTAA.

• Impugned order was challenged by the Assessee before CIT(A) however, CIT(A) deleted only the additions made on account of services charges received by the Assessee. Further, CIT(A) categorized the commission fee received as fee for technical service and confirmed the other additions made by the AO.
• The Assessee challenged the impugned order of CIT(A) before ITAT, wherein ITAT deleted the commission fee received by the Assessee from SIPL by relying on the decision of coordinate bench in case of Springer Verlag GMBH v DCIT for AY 2014-15 and AY 2015-16. Further, ITAT had held that the subscription fees could not be treated as royalty by relying on the decision of Hon’ble Supreme Court in case of Engineering Analysis Center of Excellence (P.) Ltd. v CIT, [2021] 432 ITR 471 (SC) however, ITAT had confirmed the additions for the amount collected by the Assessee from third party customers against the sale of online e journals and/or books, on behalf of SIPL.
• AO preferred an appeal before Hon’ble Delhi High Court against order passed by ITAT challenging the deletions made by the ITAT in the order of CIT(A).

Observation And Conclusion:

Hon’ble High Court held that:

• Amount received for the services rendered will construe as fee for technical service, if services rendered fall under any of the following categories i.e., managerial, technical or consultancy services. As per the agreement between the Assessee and SIPL, the Assessee was paid a commission on the net revenue amount of sales commissioned through the Assessee.
• Technical services are generally connected with applied and industrial sciences or craftsmanship, involving special skills or knowledge, excluding fields such as art, or human sciences. Likewise, consultancy services involve rendering professional advice or service in a specialized field. There is no reference to any special skill or knowledge that the Assessee brought in rendering the services although involving human intervention do not construe the services to fall in the category of technical and/or consultancy services. Reliance was also placed on the decision of coordinate bench of Delhi High Court in case of DIT v. Panalfa Autoelektrik Ltd.
• Further, in respect to subscription fees received against e-journals from two Indian entities, such fees cannot be treated as royalty as the Assessee had not granted any right in respect of copyright to the concerned subscriber of the e-journals. The ITAT rightly deleted the additions made by the AO by relying on the decision of Supreme Court in the case Engineering Analysis Center of Excellence (P.) Ltd. v CIT.

High Court of Delhi
Commissioner of Income-tax (IT)-3
v.
Springer Nature Customer Services Centre GMBH

Lakshay Prakash Jonwal, Direct Tax Associate, SW India