Electronic sale of business data by foreign companies not taxable

MUMBAI: In a major ruling, the Authority for Advance Ruling (AAR) has held that electronic sale of business information by a foreign company to an Indian company is not taxable in India.

AAR made this ruling on an application made by Dun & Bradstreet Spain, which is a subsidiary of D&B US, a company engaged in compiling and selling business information reports, among other things.

The operating subsidiaries and associates of D&B, US are also engaged in the same business. Dun & Bradstreet Information Service, (DBIS) India, is an Indian company which is a 100% subsidiary of D&B Same, a company based in Cayman Islands.

Whenever an Indian customer places an order for a BIR in respect to a company in Spain, DBIS would access the master server of D&B US. The master server identifies DBIS and allow DBIS to access information following which, DBIS can download the details of the company.

The Spanish company sold BIR to an Indian company at a rate at which it sells the same in its domestic market.

The Spanish company also does not have any subsidiary, branch or office or place of business in India. Since the payment of royalty is taxable, the I-T department held a view that payment for such information downloaded through a computer could be construed as royalty and hence taxable.

According to the agreement between the Spanish company and the Indian company, the information had to be accessed only by the Indian company and the consideration was payable to the specific programme.

The transaction could therefore be construed as related to “scientific work� and hence the consideration takes the character of “royalty�, the I-T department felt.

But the AAR held that BIR is a standardised product of D&B. It provides factual information on the existence, operation, financial condition, management and experience line of business etc, along with the rating of the company.

The information in the BIR is publicly available, accessible by any subscriber. It also pointed out that the Spanish company also does not have a server in India. “Payments made by DBIS to the applicant for purchases of BIRs do not answer the description of “royalties�, the AAR held.

“The AAR decision will have a bearing on even packaged software sold by foreign companies to Indian companies,� said Mukesh Butani of BMR & Associates, a tax consulting firm.

“The AAR decision can have a major impact on all electronic transactions,� said TP Ostwal, senior tax advisor.