DCIT Vs Head Digital Works Private Limited (ITAT Hyderabad)
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2018-19, challenging the deletion of demand raised under Sections 201(1) and 201(1A) of the Income-tax Act. The dispute concerned whether payments made by the assessee to Google India Private Limited under the Google AdWords programme constituted payments for advertising covered by Section 194C or fees for technical services (FTS) liable to tax deduction under Section 194J.
The assessee, engaged in operating an online gaming website, used Google AdWords to display digital advertisements and deducted tax at source (TDS) at 2% under Section 194C, treating the arrangement as an advertising contract. During a survey under Section 133A, the Assessing Officer (AO) concluded that Google AdWords involved sophisticated algorithms, real-time bidding mechanisms, data analytics, and technical processes. According to the AO, these features amounted to managerial, technical or consultancy services, requiring deduction of TDS at 10% under Section 194J. The AO therefore treated the assessee as an assessee in default, raised a demand for short deduction of TDS, and levied interest under Section 201(1A).
Before the CIT(A), the assessee argued that Google AdWords was a computerized and automated advertising platform without human intervention and that it merely enabled the display of advertisements based on user-selected parameters. It contended that there was no transfer of technology or technical knowledge and that the arrangement was an advertising contract falling squarely under Section 194C. The CIT(A), relying on CBDT Circular No. 715 dated 8 August 1995 and an earlier decision of the ITAT Bangalore Bench, held that the payments were made only for advertising. Since there was no transfer or use of technology by the assessee, the payments did not constitute fees for technical services under Section 194J. Accordingly, the CIT(A) deleted the demand and interest.
