Google India Pvt. Ltd Vs DCIT (ITAT Bangalore)
Held that show cause notice to initiate proceedings u/s. 201(1) is issued on 20.11.2012 which is beyond four years with respect to assessment years 2007-08 & 2008-09. Accordingly, interest levied u/s 201(1A) unsustainable.
Facts-
The assessee has entered into Google Adword Program Distribution Agreement dated 12.12.2005 with Google Ireland Ltd. (GIL). As per the agreement, the assessee is appointed as a non-exclusive authorized distributor of Adword Programs to the advertisers in India. Accordingly, the assessee is liable to pay distribution fees to GIL.
However, the payment was made without deduction of tax at according to the assessee, it was mere reseller of the advertising space made available under the Adword Program distribution agreement and the assessee is distributor of advertising space with no access or control over the infrastructure or the process that is involved in rendering the Adword Program. Therefore, the sums so paid were not chargeable to tax under the relevant Double Taxation Avoidance Agreement [DTAA]. Accordingly, there was no deduction of tax on such payments in the absence of primary charge of tax.
The AO issued notice u/s. 201(1) to the assessee to show cause why the distribution fees payable to GIL should not be regarded as ‘royalty’ under the Act and consequently proceeded for withholding of tax deduction at source u/s. 195 of the Act. However, the AO proceeded to pass an order dated 22.2.2013 u/s. 201(1) & 201(1A) of the Act. In the order, the AO held the assessee to be in default for non-deduction of tax at source u/s. 195 of the Act and raised a demand.
The assessee contended that the order passed u/s. 201(1) is barred by limitation and hence levy of interest u/s. 201(1A) is infructuous.
Conclusion-
We notice that show cause notice to initiate proceedings u/s. 201(1) is issued on 20.11.2012 which is beyond four years with respect to assessment years 2007-08 & 2008-09.
Held that in the facts of the case for the years under consideration, the period of four years from the end of the financial year in which payment is made or credit is given, expires on 31.03.2012 whereas the notice is issued by the AO on 20.11.2012. Therefore, respectfully following the decision of the coordinate Bench of the Tribunal in the case of Mphasis Ltd., we hold that the orders of the AO passed u/s. 201(1) & 201(1A) of the Act are barred by limitation and hence quashed.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals of the assessee were initially disposed of by the common order of the Tribunal dated 23.10.2017 for AYs 2007-08 to 2012-13 in ITA Nos.1511 to 1516/Bang/2013 dismissing all the appeals. On further appeal by the assessee, the Hon’ble High Court of Karnataka vide its judgment dated 17.04.2021 in ITA No. 502/2018 and connected appeals has remanded all the appeals including the connected appeals to the Tribunal for fresh adjudication.
2. The relevant observations of the Hon’ble High Court insofar as the appeals of the assessee for AYs 2007-08 & 2008-09 are as follows:-
“19. In the considered opinion of this Court, keeping in view Rule 29 of the income Tax (Appellate Tribunal) Rules, 1963 and also keeping in view the fact that the material on the basis of which the order has been passed was not furnished to the appellant at any point time, the order passed by the Tribunal is certainly violative of principles of natural justice and fair play as the appellant was not afforded an opportunity to rebut fresh evidence especially when such evidence was based on Google study.
20. Another important aspect of the case is that details of the material has also not been reflected in the order passed by the Tribunal and therefore, this Court is of the opinion that as there is a violation of principles of natural justice and fair play, the matter deserves to be remanded back to the Tribunal for hearing it afresh in accordance with law.
21. In light of the aforesaid, the questions are answered in favour of the assessee and against the revenue and the other questions are left open. Accordingly, the appeal in No.879/2017 is allowed. The order passed by the Tribunal is set aside. The matter is remanded back to the Tribunal for fresh adjudication in accordance with law.
22. The parties will appear before the Tribunal on 3.5.2021 and within a period of 15 days the appellant shall be free to file the documents/additional documents in support of his contentions and the revenue shall also be free to file documents/additional submissions in support of their contentions. In case any other material is being relied upon by the Tribunal, the same shall also be made available to the assessee/appellant as well as to the counsel for revenue before passing a final order. The Tribunal is requested to make all possible endeavour to decide the matter at an earlier date.
23. In light of the order passed in ITA.No.879/2017, the connected appeals i.e., ITA.Nos.882/2017, 883/2017, 897/2017, 898/2017 and 899/2017 are also allowed and the order passed by the Tribunal is set aside and all the matters are remanded back to the Tribunal to decide the appeals afresh in accordance with law.”
(emphasis supplied)
3. Accordingly these appeals relating to assessment years 2007-08 & 2008-09 were taken up for hearing before the Tribunal in the second round. These appeals by the assessee arise out of the common order of the CIT(Appeals)-IV, Bangalore dated 29.9.2013 for AYs 2006-07 to 2012-13, the relevant AYs under consideration now before us being AYs 2007-08 & 2008-09 only.
4. The brief facts are that the assessee is a wholly owned subsidiary of Google International LLC, US. It is engaged in the business of providing Information Technology (IT) and Information Technology enabled Services [ITeS] to its group companies. The assessee has entered into Google Adword Program Distribution Agreement dated 12.12.2005 with Google Ireland Ltd. [‘GIL’ for short]. As per the agreement, the assessee is appointed as a non-exclusive authorized distributor of Adword Programs to the advertisers in India. As per the agreement, the assessee is liable to pay distribution fees to GIL as follows:-
