Google Ireland Ltd. C/o. PricewaterhouseCoopers Pvt. Ltd. Vs DCIT (IT) (ITAT Bangalore)
ITAT Bangalore held that that the payment made by GIPL (Google India Pvt. Ltd.) to GIL (Google Ireland Limited) is not in the nature of Royalty or FTS under the Act. Accordingly, TDS under section 195 of the Income Tax Act not deductible.
Facts- The assessee, Google Ireland Limited (GIL) is a foreign company having its registered office at Ireland. The assessee is involved in the business of sale of online advertisement space to Google India Pvt. Ltd. (GIPL) under distribution agreement dated 12.12.2005. Further the assessee also sells advertisement spaces to other customers in India. The assessee derives more than 97% of its total revenue from advertisement services through its AdWords program worldwide. The AdWords program is used by various business houses to promote their products and services via targeted advertising.
AO on verification of financial statement of GIPL noticed that it had credited an amount of Rs.42,57,53,347/- to the account of the assessee during the relevant assessment year without deducting tax at source u/s. 195 of the Act. Further it was noticed by the AO that GIL has also not obtained NIL deduction certificate on the sum received/payable to it. The AO in the hands of GIPL (Payer) had held that the payments made to the assessee are covered u/s. 9 of the Act and also under the provisions of DTAA. The AO in the case of GIPL (Payer) passed orders under Sections 201 & 201(1A) of the Act in respect of payments made to the assessee to the tune of Rs.42,51,53,437/-.
In draft assessment order, AO considered the amount received/receivable by the assessee towards sale of advertisement space amounting to Rs.42,57,53,347/- from GIPL and also a sum of Rs.51,08,74,532/- from other Indian customers as ‘royalty’ under the Act and the DTAA. Being aggrieved, the assessee filed objections before the Dispute Resolution Panel (DRP) which were rejected. Being aggrieved, the present appeal is filed.
Conclusion- As regards assessment years 2009-10 to 2012-13 in IT(TP)A 1513 to 1516/Bang/2013 the issue was decided in favour of GIPL by the Tribunal by holding that the impugned payment made by it to GIL cannot be characterised as royalty under Act or DTAA. In view of order of Tribunal, where it is stated that the payment made by GIPL to GIL is not in the nature of Royalty or FTS under the Act and DTAA, a different treatment cannot taken in the hands of the payee, i.e. the assessee in the instant case. Therefore, we hold that a sum of Rs.42,57,53,347/- cannot be brought to tax in the hands of the assessee.
We hold that the payment on online advertisement is not liable to be taxed as Royalty in view of the judicial pronouncements.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This appeal at the instance of the assessee is directed against the final assessment order dated 30.10.2017 passed under Section 143(3) r.w.s. 147 & 144C(5) of the Income Tax Act, 1961 (the Act). The relevant assessment year is 2007-08.
2. The brief facts of the case are that the assessee, Google Ireland Limited (herein after referred as the assessee or GIL) is a foreign company having its registered office at Ireland. The assessee is involved in the business of sale of online advertisement space to Google India Pvt. Ltd. (GIPL) under distribution agreement dated 12.12.2005. Further the assessee also sells advertisement spaces to other customers in India. The assessee derives more than 97% of its total revenue from advertisement services through its AdWords program worldwide. The AdWords program is used by various business houses to promote their products and services via targeted advertising. The AO on verification of financial statement of GIPL noticed that it had credited an amount of Rs.42,57,53,347/- to the account of the assessee during the relevant assessment year without deducting tax at source under Section 195 of the Act. Further it was noticed by the AO that GIL has also not obtained NIL deduction certificate on the sum received/payable to it. The AO in the hands of GIPL (Payer) had held that the payments made to the assessee are covered under Section 9 of the Act and also under the provisions of DTAA. The AO in the case of GIPL (Payer) passed orders under Sections 201 & 201(1A) of the Act in respect of payments made to the assessee to the tune of Rs.42,51,53,437/-.
3. Based on the orders passed under Section 201 & 201(1A) of the Act in case of GIPL (Payer) notice under Section 148 of the Act was issued to the assessee on 29.03.2014. The assessee filed Nil return of income on 14.08.2014 pursuant to the notice issued under Section 148 of the Act and sought for the reasons recorded for reopening of the assessment under Section 148 of the Act. In response to the said letter the AO provided reasons recorded for reopening of the assessment for AY 2007-08 vide letter dated 25.07.2015. On receipt of the reasons recorded for reopening the assessment, the assessee raised its objections on 16.09.2015. The objections were rejected by the AO vide his letter dated 04.01.2016. During the course of assessment proceedings the matter was referred to the Transfer Pricing Officer (TPO) and the TPO after considering the submissions passed an order dated 20.10.2016 determining the transactions between GIL and GIPL to be at arm’s length. Thereafter the AO issued a draft assessment order proposing to assess the total income of the assessee at Rs.93,66,27,879/-. The AO considered the amount received/receivable by the assessee towards sale of advertisement space amounting to Rs.42,57,53,347/- from GIPL and also a sum of Rs.51,08,74,532/- from other Indian customers as ‘royalty’ under the Act and the DTAA.
4. Aggrieved by the draft assessment order the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide its directions dated 27.09.2017 rejected all the objections of the assessee. Pursuant to the DPR directions, the impugned final assessment order dated 30.10.2017 was passed. The computation of income and tax thereon as per the final assessment order are as under: –
