Administration Fee and Subscription Fee are Not Royalty Under Income Tax: ITAT

The assessee company, GSMA Ltd., was incorporated in the USA and is a tax resident of the USA. The assessee company was appointed as the Global Decimal Administrator (GDA) by the Mobile Industry to allocate ‘International Mobile Equipment Identifier’ (IMEI) codes to mobile device manufacturers. The assessee appointed AB Mobile Standards Alliance India Pvt. Ltd. (MSAI) as a Regional Administrator in India through an agreement. According to the agreement between the two, MSAI was required to pay the assessee an administration fee, which was 70% of the service fee it received from mobile equipment manufacturers.

The assessing officer and the Dispute Resolution Panel (DRP) claimed that the Administration Fee received by the assessee is a royalty under Section 9(1)(vii) of the Income Tax Act, and also as per the India-USA DTAA and thus, they made an addition to the assessee’s income.

Additionally, the assessee received a subscription fee of Rs. 21,33,459 from two companies named Comviva Technologies Ltd. and Plintron Global Technology Solutions P. Ltd for providing a non-transferable, non-sub-licensable, non-exclusive, limited license to access certain data of the assessee. The assessee submitted that the TDS was deducted on the subscription fee, and the assessee also claimed a refund of the TDS deduction. However, the Ao held that the subscription fee is a royalty and is taxable under section 9(1)(vii) of the Income Tax Act and the India-US DTAA and again made an addition. The assessee challenged these additions before the Income Tax Appellate Tribunal (ITAT), Delhi.

The assessee argued that similar issues were raised in AY 2013-14 and 2015-16, and in those years, the Tribunal held that the administration fee was not royalty. Additionally, the assessee argued that the subscription fee is not a royalty because it only gave access to data, not the copyright of the article. The assessor mentioned that the ownership of data was with the company, and the subscriber cannot use or sell the data for commercial purposes.

The Tribunal observed that the issue of whether the administration Fee received by the assessee as royalty is identical to the assessee’s own case in AY 2013-14 and 2015-16. In those cases, the Tribunal had ruled that the administration fee received by the assessee was not “royalty”. Since the AO did not submit any material, the Tribunal, holding the same, directed the AO to delete the addition made for the Administration Fee, treating it as a royalty.

Regarding the Subscription fee, the Tribunal cited the decision of the Delhi High Court in the case of the Engineering Analysis Centre for Excellence, which held that if an agreement creates interest or the right to use a copyrighted article, the payments for such use do not form a royalty. Therefore, the ITAT also held the same and allowed the appeal of the assessee.