Case Law Details
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.
Before the Tribunal, the Revenue argued that Google AdWords involved sophisticated technology, algorithms, data analysis and human intervention in developing and managing the advertising platform. It contended that the service extended beyond the mere display of advertisements and therefore constituted technical services. The Revenue also relied on the Supreme Court decisions in Bharti Cellular Ltd. and Kotak Securities Ltd. to contend that services involving technology and human intervention fall within the scope of fees for technical services.
The assessee maintained that Google AdWords was a standard automated advertising programme that allowed advertisers to purchase advertising space without any transfer of technical knowledge or access to Google’s technology. It argued that the programme functioned without human intervention in rendering services to customers and that advertising contracts are specifically covered under Section 194C. The assessee also referred to CBDT Circular No. 715 and submitted that payments to advertising agencies are governed by Section 194C. Additionally, it argued that the Finance Act, 2020 reduced the TDS rate under Section 194J for fees for technical services from 10% to 2% to reduce litigation, supporting its position that no prejudice had been caused to the Revenue.
The Tribunal held that for a payment to qualify as fees for technical services under Section 194J, the services must be managerial, technical or consultancy in nature and ordinarily involve human skills or direct human intervention. It observed that Google AdWords is a standard automated self-service platform where advertisers independently select keywords, budgets and advertisement content, while keyword matching, ad ranking and publication are carried out automatically through Google’s algorithms. The Tribunal held that the use of sophisticated automated technology does not, by itself, amount to the rendering of technical services. It also found that the Revenue had not established, through evidence, that the services rendered to the assessee involved human intervention. Accordingly, reliance on Bharti Cellular Ltd. was held to be misplaced.
The Tribunal further held that advertising contracts are specifically covered under Section 194C and that a specific statutory provision overrides a general provision. Referring to CBDT Circular No. 714, it observed that payments for advertising in print or electronic media fall under Section 194C, whereas Section 194J applies to payments made by advertising agencies for professional services. It also noted that the Finance Act, 2020 reduced the TDS rate under Section 194J for fees for technical services to 2% with the stated objective of reducing litigation over classification disputes.
Holding that the payments made under the Google AdWords programme represented advertising contracts covered by Section 194C, the Tribunal concluded that the assessee had correctly deducted TDS at 2%. It upheld the order of the CIT(A), rejected the Revenue’s challenge, and dismissed the appeal.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
This appeal filed by the Revenue is directed against the order of the learned Addl/Joint Commissioner of Income Tax (Appeals) – 3, Bengaluru [in short “Ld. CIT(A)”], dated 24.12.2024, pertaining to the assessment year 2018-19.
2. The brief facts of the case are that, the assessee is a company engaged in the business of running an online gaming website by the name ace2three.com, offering the opportunity to play the card game of Rummy for online users. During the relevant previous year, the assessee availed itself of online advertising space under the “Google AdWords” Program through M/s. Google India Private Limited to display sponsored links and digital advertisements for its business. The assessee has deducted TDS @ 2% under the provisions of Section 194C of the Act, treating the transaction as a contract for work (advertising). A survey under Section 133A of the Income-tax Act, 1961, was conducted in the business premises of the assessee on 27.11.2018 to verify compliance of the provisions of Chapter XVII-B of the Income-tax Act, 1961. During the course of survey, it was found that, the assessee had deducted TDS @ 2% on payment made to M/s. Google India Private Limited as against the applicable provisions of Section 194J of the Act, calling for TDS @ 10% on payments. The A.O. passed order under Section 201(1) and 201(1A) of the Act, and treated the assessee as an “assessee in default” in respect of payments made to M/s. Google India Private Limited in respect of advertising expenditure incurred for making payment to M/s. Google India Private Limited. The A.O. observed that, `Google AdWords’ platform involves highly sophisticated, automated algorithmic structures, real-time bidding mechanisms, and data analytics, interfaces and therefore, the services provided by M/s. Google India Private Limited is in the nature of fees for technical services (“FTS”), as defined under Section 194J, read with Explanation 2 to Section 9(1)(vii) of the Act. Therefore, the A.O. concluded that, the agreement was not a simple contract for standard advertising space, but instead constituted the rendering of managerial, technical or consultancy services to the assessee, which fall under the definition of “FTS” and thus, the assessee ought to have deducted TDS @ 10% under the provisions of Section 194J of the Act. The A.O. had discussed the issue at length in light of services provided by M/s. Google India Private Limited to the assessee in light of certain judicial precedents and held that, the services provided by M/s. Google India Private Limited is highly technical-oriented and involves human intervention and therefore, in view of the decision of Hon’ble Supreme Court in the case of CIT Vs. Bharti Cellular Ltd., reported in (2011) 30 ITR 239 (SC), the services received by the assessee are in the nature of FTS and therefore, the assessee ought to have deducted the TDS @ 10%. Therefore, the A.O. rejected the explanation of the assessee and computed TDS @ 10% on payment made to M/s. Google India Private Limited by applying provisions of Section 194J of the Act, and computed short deduction of TDS under Section 201(1) of the Act, at Rs.2,55,90,804/- and interest under section 201(1A) for Rs. 57,75,297/-.
3. Aggrieved by the order of A.O., the assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee had submitted that Google AdWords program is a computerized advertising program developed by Google LLC, USA for displaying advertisements on Google’s search engine based on keywords typed by users with the abbreviation “Ad” and further, it is a tailor-made project developed by Google without any human intervention and therefore, the same cannot be characterized as “FTS” for the purpose of TDS on payment made to M/s. Google India Private Limited. The assessee further submitted that, it is a simple advertisement contract as defined under Section 194C of the Act, and therefore, reclassification of services rendered by M/s. Google India Private Limited to the assessee cannot be equated with rendering services, as defined under Section 194J read with Explanation 2 to Section 9(1)(vii) of the Act, without any transfer of technology or make available technology to the assessee.
4. The Ld. CIT(A), after considering the relevant submissions of the assessee and also taking note of Circular issued by the CBDT, No. 715 dated 08.08.1995 and also by following the decision of ITAT, Bangalore Bench in the case of M/s. Google India Private Limited Vs. DCIT reported in (2022) 143 taxmann.com 302, deleted the addition made by the A.O. towards short deduction of TDS and the consequent interest under Section 201(1) and 201(1A) by holding that the assessee has only used the AdWords program of Google for the purpose of advertisement. There is no transfer of technology from M/s. Google India Private Limited to the assessee nor is there any use of technology held by M/s. Google India Private Limited by the assessee. All the patents along with the requisite technology with respect to the AdWords Program is held by Google Ireland Ltd., Therefore, the Ld. CIT(A) observed that, the payment made by the assessee company to M/s. Google India Private Limited is for the purpose of advertising, as defined under Section 194C of the Act, which attracts TDS @ 2%, as rightly deducted by the assessee, but not payment for managerial, technical, or consultancy services, as defined under Section 194J read with Explanation 2 to Section 9(1)(vii) of the Act. Thus, the Ld. CIT(A) held that, the assessee has rightly deducted TDS under Section 194C instead of Section 194J of the Income-tax Act, 1961.
5. Aggrieved by the order of Ld. CIT(A), the Revenue is now in appeal before the Tribunal.
6. The learned Senior Standing Counsel for the Revenue, Shri Raja Shekar Rao Salvaji, assisted by Ms. C. Rohini Smitha, Advocate, submitted that, the Ld. CIT(A) had erred in holding that, the assessee has rightly deducted the TDS under Section 194C, instead of 194J without appreciating the fact that payment made to M/s. Google India Private Limited, is “Fee for Technical Services” as it involves the use of technology and fall under the ambit of Section 194J of the Act. The learned Senior Standing Counsel for the Revenue further submitted that, the services provided by M/s. Google India Private Limited go beyond merely displaying advertisements and are in fact technical services that involve sophisticated algorithms and data analysis to target specific users. The process of selecting and displaying the ads, use of keywords and the platform itself, are all technical in nature and require human intervention in their development. For each click, Google does not display the same Ad and the Ads are dynamically adjusted based on factors such as the user’s age, gender and browsing history, which establishes the fact that online advertising provided by Google is distinct from regular advertising as it uses advanced tools, data analysis and technology. Therefore, the Ld. CIT(A) erred in holding that, it is a simple contract for advertisement as provided under Section 194C of the Act, but not “FTS” as per Section 194J of the Act.
7. The learned Senior Standing Counsel for the Revenue, further referring to the services provided by M/s. Google India Private Limited to the assessee, submitted that, during the course of survey under Section 133A of the Act, the A.O. has examined and found that, Google employees are highly technically skilled or qualified for managing the Google AdWords program and also explained the method of segregation of ads, which involves human intervention and from the above, it is very clear that, it is not a tailor-made program, but a customer-specific service which has been done by Google by human intervention. Therefore, the argument of the assessee that it is a simple advertisement contract falls under Section 194C of the Act, is incorrect. The learned Senior Standing Counsel for the Revenue, further referring to the order of the Ld. CIT(A), submitted that the Ld. CIT(A) completely erred in allowing relief to the assessee by considering the decision of the ITAT, Bangalore Bench in the case of M/s. Google India Pvt. Ltd. Vs. DCIT (supra), because the issue before the ITAT, Bangalore was whether payment made by M/s. Google India Pvt. Ltd. to its parent company, Google LLC, is a ‘Royalty’ or not in light of the DTAA between India and USA. In the present case, the issue is altogether different and the issue before the Tribunal is whether services provided by M/s. Google India Pvt. Ltd. are technical services falling under the definition of FTS or an advertisement contract, as provided under Section 194C of the Act. Therefore, allowing relief by following the decision in the case of M/s. Google India Pvt. Ltd. Vs. DCIT (supra) is totally incorrect.
8. The learned Senior Standing Counsel for the Revenue further submitted that, the Hon’ble Supreme Court in the case of CIT Vs. Bharti Cellular Ltd., (supra) has clearly held that, if the services provided by any service provider require human intervention, then the same fall within the ambit of “Fee for Technical Services”. However, going by the facts of the above case, the issue has been remanded to the file of the A.O. to ascertain if there is any human intervention in the services provided by Bharti Cellular Limited to BSNL. Therefore, the issue is now settled by the decision of the Hon’ble Supreme Court in the case of CIT Vs. Bharti Cellular Limited (supra), which is subsequently followed in the case of CIT Vs. Kotak Securities Ltd., reported in (2016) 383 ITR 1 (SC), where it has been clearly held that, if any service involves technology and human intervention, then the same falls under the category of FTS. In the present case, going by the nature of services availed by the assessee from M/s. Google India Private Limited, it requires technical services with human intervention and thus, falls within the ambit of Section 194J of the Act. The Ld. CIT(A) without appreciating the relevant facts, simply held that, the services rendered by M/s. Google India Private Limited fall under Section 194C of the Act. Therefore, he submitted that, the order of the Ld. CIT(A) should be set aside, and the order of the A.O. should be upheld.
9. The learned counsel for the assessee, Shri Pawan Chakrapani, C.A., on the other hand, supporting the order of the Ld. CIT(A), submitted that, the services provided by M/s. Google India Private Limited in respect of advertisement in Google AdWords is an Ad Program hosted by Google in electronic media and it is a tailor-made program and anybody can choose depending upon their requirement. The assessee, which is in the business of running an online gaming website, has posted its advertisement in Google AdWords for which the assessee has entered into agreement with M/s. Google India Private Limited and the Google charges to the assessee on the basis of number of clicks by the customers. Therefore, it is submitted that, it is a simple advertisement agreement and falls under Section 194C of the Act, and the assessee has rightly deducted TDS under Section 194C of the Act. The learned counsel for the assessee further submitted that, M/s. Google India Private Limited has not rendered any technical services to the assessee. The term “Fee for Technical Services” within the meaning of Explanation 2 to Section 9(1)(vii) contemplates making available technology or technical knowledge to the recipient of services and it does not cover an instance of mere usage of technical knowledge. M/s. Google India Private Limited does not provide any right of access to the server or the program, nor is any technical knowledge transferred to the assessee. Therefore, the application of the provisions of Section 194J of the Act is incorrect. The learned counsel for the assessee further submitted that, for rendering technical services, human intervention is required, but in the present case, going by the Google AdWords program, it is fully automated without any human intervention and therefore, payment made by the assessee to M/s. Google India Private Limited clearly falls under Section 194C of the Act, and the assessee has rightly deducted TDS @ 2%.
10. The learned counsel for the assessee further submitted that there is no failure on the part of the assessee to deduct TDS. The assessee has deducted TDS as per Section 194C. Section 194C specifically covers works contracts which include advertising contracts. Once a specific provision has been provided for TDS, then going for general provisions is incorrect. The CBDT has clarified by Circular No. 715 dated 08.08.1995 that the payment made by an assessee to advertising agencies falls under the category of ‘works contract’ as defined under Section 194C of the Act. It is only the payment made by advertising agencies to professionals that falls under Section 194J of the Act. Therefore, invoking provisions of Section 194J to the payments made by the assessee to M/s. Google India Private Limited, is incorrect. The learned counsel for the assessee further referring to the amendment to Section 194J of the Act by the Finance Act, 2020 submitted that, the rate of TDS has been reduced to 2% from 10% against any payments covered under FTS, except payments in the nature of professional charges. Although the amendment came into effect from A.Y. 2020-21, but going by the memorandum explaining the provisions of Finance Act, 2020, it is very clear that, it is for the purpose of reducing the litigation and therefore, the said provisions are applicable retrospectively and thus, even if the payments made by the assessee are considered as FTS, still there is no loss of revenue to the Department and the assessee has deducted TDS @ 2% and therefore, on this count also, the order passed by the A.O. under Section 201(1) and 201(1A) is unsustainable. Therefore, he submitted that, the A.O. has erred in holding the assessee as `assessee in default’ and the Ld. CIT(A), after considering the relevant facts, has rightly held that, the payments made by the assessee to M/s. Google India Private Limited fall under Section 194C of the Act, and the assessee has rightly deducted TDS @ 2%. Therefore, he submitted that the order of the Ld. CIT(A) should be upheld.
11. We have heard both parties, perused the material available on record and had gone through the orders of the authorities below. The short point for consideration from the grounds of appeal filed by the Revenue is whether the payment for online advertising under the Google AdWords program represents payment for work, specifically advertising under Section 194C or “Fee for Technical Services” under Section 194J of the Act. For payment to be characterized as “Fee for Technical Services” under Section 194J read with Explanation 2 to Section 9(1)(vii) of the Act, the services rendered must be managerial, technical or consultancy in nature. It is a well-established judicial proposition from various decisions, including the decision of the Hon’ble Supreme Court in the case of CIT Vs. Bharti Cellular Ltd. (supra), that technical services require the application of human skills, intelligence or direct human intervention. The mere use of a highly sophisticated, automated technology, facility or standard software interface by the consumer does not mean that the service provider is rendering technical services to the customer. In the case of Google AdWords program, the platform is a standard, automated, self-service portal. The advertiser logs in, can select keywords, set budgets and upload ad copy. The matching of keywords to search terms, the auctioning of ad rank and the final publishing of the ad are all managed automatically via Google’s complex, packaged algorithm. The presence of a sophisticated algorithm system for automated technology facility does not equate with rendering technical services. The consumer is merely using an automated facility to purchase advertising space. Therefore, going by the services rendered by M/s. Google India Private Limited to the assessee, it can safely be concluded that it is a tailor made “Ad Program” which can be used by any customer depending upon their requirement by logging into Google and therefore, the arguments of the Revenue that the services provided by M/s. Google India Private Limited are in the nature of managerial, technical or consultancy services and fall under Section 194J read with Explanation 2 to Section 9(1)(vii) of the Act, is incorrect. Further, the argument of the learned Senior Standing Counsel for the Revenue that the services provided by M/s. Google India Private Limited require human intervention is also not proved by relevant evidence going by the facts of the present case and the nature of services availed by the assessee. Therefore, the reliance of the learned counsel for the Revenue on the case of CIT Vs. Bharti Cellular Ltd (supra), is totally misplaced going by the observations of the Hon’ble Supreme Court in the above case, because even in the case of CIT Vs. Bharti Cellular Ltd., (supra), the Supreme Court has not decided the issue, however, made a passing remarks on the issue of definition of FTS and held that, any services provided by the service provider by using technology and human intervention fall under the category of “Fee for Technical Services”. The Hon’ble Supreme Court further observed that, going by the facts of the above case, they are unable to decide the issue and thus, set aside the matter to the A.O. with a direction to verify the facts to ascertain whether the services rendered in the above case fall under the category of FTS or not. Therefore, the arguments of the learned Senior Standing Counsel for the Revenue that the issue has been decided in the case of CIT Vs. Bharti Cellular Ltd., (supra), is also incorrect and thus, the arguments of the learned Senior Standing Counsel for the Revenue cannot be accepted.
12. Coming back to another aspect of the issue. It is not a case of the Revenue that the assessee has not deducted the TDS at all on payment made to M/s. Google India Private Limited. The assessee has entered into contract with M/s. Google India Private Limited and made payment after deducting TDS @ 2% as per Section 194C of the Act. The contract for advertising is specifically covered by the provisions of Section 194C of the Act, which includes contracts for advertising. Once the Legislature has consciously and intentionally made advertising as the subject matter of Section 194C of the Act, then the same cannot be brought within the ambit of Section 194J of the Act, because if a particular item is specifically characterized in a particular Section of the Act, it will override the provisions of a general section. This fact is further strengthened by the Circulars issued by the CBDT. The CBDT has issued a Circular No. 714 dated 03.08.1995, wherein it was clarified that the provisions of Section 194J of the Act, are applicable with advertising agencies, who make payments for professional services such as payments to Film artists, Cameraman, Director etc. However, when the advertising is made in print media or electronic media, provisions of Section 194C would be applicable. Since the statute has created a specific legislative entry for advertising under section 194C of the Act, it is an elementary principle of statutory interpretation that a specific provision overrides a general provision. Since the advertising is specifically covered under section 194C of the Act, the Revenue cannot bypass this explicit classification to drag a digital advertising contract into the residual basket of Section 194J, simply because the medium used is electronic or highly advanced. Therefore, on this count also, the order passed by the A.O. under Section 201(1) and 201(1A) of the Act, cannot be upheld.
13. Coming back to another aspect of the issue. The learned counsel for the assessee made an argument in light of amendment to Section 194J by the Finance Act, 2020 and the memorandum explaining the provisions of Finance Bill, 2020, and submitted that, the rate of TDS has been brought down to 2% from 10% on payments made in respect of “FTS”, except payment for professional services. Further, the purpose of amendment has also been explained in the memorandum explaining the Finance Bill, which clearly states the purpose, as per which, there are large number of litigations on the issue of short deduction of tax treating the `assessee in default’ where the assessee has deducted tax under Section 194C, whereas the Tax Officer claimed that, the tax should have been deducted under Section 194J of the Act. Therefore, to reduce litigation, it is proposed to reduce the rate of TDS under Section 194J, in case of FTS, other than professional services to 2% from the existing 10%. We find that, although the amendment take effect from 01.04.2020 with effect from A.Y. 2020-21, but going by the intention of the legislature in amending section 194J to bring the rate of TDS to 2%, it is very clear that, the purpose was to reduce the litigation on this issue of conflict between Sections 194C and 194J and therefore, even if it is applicable from A.Y. 2020-21, going by the rationale and purpose, the benefit should be given to the assessee for earlier years also. Since the assessee has deducted TDS @ 2% on payment to M/s. Google India Private Limited, which is almost similar to the amended provisions of Section 194J, in our considered view, on this count also, the order passed by the A.O. under Section 201(1) and 201(1A), holding the assessee as “assessee in default” for short deduction of TDS and consequent interest cannot be upheld.
14. In this view of the matter and considering the facts and circumstances of the case and also by considering the ratios of various case laws discussed herein above, referred by the learned counsel for the assessee and learned Senior Standing Counsel for the Revenue, we are of the considered view that, the payments made by the assessee to M/s. Google India Private Limited for Google `AdWords program’ is a simple advertising contract in electronic media which falls under Section 194C of the Act, and the assessee has rightly deducted TDS @ 2% as applicable under Section 194C of the Act. The A.O., without appreciating the relevant facts, simply computed short deduction of TDS and consequent interest under Section 201(1) and 201(1A). The Ld. CIT(A), after considering the relevant facts, has rightly deleted the additions made by the A.O. Thus, we are inclined to uphold the order of the Ld. CIT(A) and dismiss the appeal filed by the Revenue.
15. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the Open Court on 19th June, 2026.
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