The Bangalore bench  of  Income Tax Appellate Tribunal ( ITAT ) recently held that receipts from sale of online videos to Indian clients is not taxable as royalty under India – USA DTAA. The assessee Pluralsight LLC, USA, a foreign Company and non-resident filed its return of income for the asst. year 2020-21 on 12th Feb, 2021 declaring Nil income and claiming revenue of Rs.3,27,74,010/- from the TDS made by an Indian company . Subsequently the AO concluded teh assessment and held that received from various customers from India as royalty under the Income-tax Act as well as India-USA DTAA. Aggrieved,the assessee field appeal before the DRP against the draft assessment order passed.

The ld.DRP further considered the entire submissions and they upheld that the amount received from the Indian entities shall be treated as a royalty within the meaning of sec. 9(1)(vi) of the Act and rejected the contention of the assessee. Aggrieved from the above order, the assessee filed an appeal before the Income Tax Appellate Tribunal. Assesee representative ,  Aliasgar Rampurwala argued that  in the business of uploading online videos on its website he earns subscription revenue by facilitating viewing of such online videos by individuals, government enterprises, small businesses and enterprises globally.

The assessee sells subscription plans to customers in India and prices are agreed between the assessee and the customers Thus he does not transfer any copyright or the right to use any copyright of any nature to any of the subscribers Praveen Karanth, the Department representative argued that there can also be brought within the purview of equipment royalty i.e., “use” or “right to use” any industrial, commercial or scientific equipment. It was observed by the tribunal that payment made for viewing the videos on the database cannot be termed as consideration for use or right to use any industrial, commercial or scientific equipment. After observing the submissions of both parties the two-member bench Of Laxmi Prasad Sahu, ( Accountant member ) and  Beena Pillai, ( Judicial Member ) held that subscription revenue received by the assessee is not taxable as ‘Royalty’ in the hands of the assessee under Article 12 of the India-USA DTAA