Google India (P.) Ltd. Vs Jt. DIT (ITAT Bangalore)
In terms of Google Adwords distribution agreement, assessee was licensed to use trademarks, brand features and other intangibles owned by Google Ireland though same not stood transferred to the assessee. Therefore, payments made by the assessee-company to Google Ireland for use of all the intangibles constituted ‘Royalty’ under section 9(1)(vi) and assessee was under an obligation to withhold tax under section 195. Therefore, disallowance made by AO was justified.
FULL TEXT OF THE ITAT JUDGMENT
These appealsare preferred by the assessees as well as the Revenue against the respective orders of the CIT(A) pertaining to assessment years 2007-2008 to 2015-2016. Since the issues involved in these appeals are interconnected and interrelated, these were heard together and are being adjudicated through this single consolidated order for the sake of convenience. We, however, prefer to adjudicate them one after the other as under:
2. IT(IT)A Nos. 1190/Bang/2014, 949&950/Bang/2017
Though grounds raised in these appeals are almost similar, but for the sake of reference we extract the grounds raised in ITA No.1 190/Bang/2014 as under:
Based on the facts and in the circumstances of the case, the Ld CIT(A) and the Ld AO have:
1. Erred in holding the payment made by the Appellant to Google Ireland Limited in relation to purchase of advertisement space for resale to the advertisers in India under the Google AdWords Reseller Agreement (‘the Agreement’) to be in the nature of ‘Royalty’ under the Act and the India-Ireland Double Taxation Avoidance Agreement (‘lndia-lreland Treaty’) stating that the issue is covered under the appeals for earlier years.
2. Erred in holding that the amount payable towards purchase of advertisement space to be in the nature of ‘Royalty’ under the Act, even after acknowledging that the Appellant is distributing/reselling the advertisement space to the advertisers in India.
3. Erred in holding the amount payable by the Appellant to Google Ireland Limited as Royalty by attributing the same towards right to use of Trademark, even after concluding that the assesse company was permitted to use the trademarks of Google for the purpose of marketing and distribution of AdWords program.
4. Erred in holding that the Ad Words program is complex computer software, the right to use has been granted to the Appellant without appreciating the fact that Ad Words program is a standard advertisement service through which the advertiser is able to advertise its products or services on the Google webs ite.
5. Erred in holding that Google Ireland Limited has granted the Appellant the right to use of the AdWords program, which is a complex computer program without parting with the copyright, thus granting licence to use the software without appreciating the fact that the Appellant is only involved in marketing and distribution/resale of the advertisement space to the advertisers in India.
6. Erred in holding that the training provided in relation to the advertisement program, its functionality, tools available etc. to the distribution team of the appellant who markets and distributes the same to advertisers in India tantamount to rendering of services to the Appellant even after concluding that such training is restricted to use of the AdWords program and not how to develop the AdWords program.
7. Erred in confirming that the distribution rights granted under the distribution/ reseller agreement are itself –IP rights” covered by “similar property” used in Sec 9(1)(vi) of the Act, after holding that as per the distribution/reseller agreement Google Ireland Limited has agreed to provide advertisement space to the Appellant through AdWords program for distribution to the Indian Advertisers.
8. Erred in confirming that Distribution Agreement/Reseller Agreement cannot be read without the service agreement (ITES agreement) between the Appellant and Google Ireland Limited and the Appellant has been granted right to use intellectual property owned by Google Ireland Limited without appreciating the fact that ITES service agreement is a separate agreement under which the Appellant performs an independent global outsourcing function for Google Ireland Limited for which it receives arm’s length consideration and is not linked in any manner to the function of sale of advertisement space to the Indian advertisers being performed by the Appellant.
9. Without appreciating the facts of the case, erred in holding that the amount payable by the Appellant to Google Ireland Limited towards purchase of advertisement space to be in the nature of ‘Royalty’ under Section 9(1)(vi) of the Act.
10. Erred in upholding the order of the Ld JDIT that the amount payable by the Appellant to Google Ireland Limited is towards right to use of trademark and copyrighted computer program and process. hence is in the nature of ‘Royalty’ as per the Article 12 of the India Ireland Double Taxation Avoidance Agreement.
11. Erred in not following the principle laid down by Hon ‘ble Mumbai Tribunal in the case of Yahoo India Pvt Ltd (140 TTJ (Mumbai) 195) and Pinstorm Technologies Pvt Ltd (2012) 54 SOT 78 (Mumbai) on similar facts by stating that the facts and issues are completely different and at no stage the Mumbai Tribunal consider what exactly is the AdWords Program, nor did it have occasion to examine the right to use trademark or other IP rights.
12. Erred in not following the decision of the Calcutta Tribunal in the case of Income Tax Officer vs Right Florists Pvt Ltd (ITA No.1336/Ko1/2011) on similar facts.
The Appellant craves, to consider each of the above grounds of appeal without prejudice to one another and craves leave to add, alter, delete or modify all or any of the above grounds of appeal.
3. In IT(IT)A Nos.949 &950/Bang/2017,the appellant has also assailed the order of the CIT(A) denying the benefit of beneficial ownership by raising following common grounds : –
Beneficial ownership of payments under the DTAA
Not adhering to the rule of consistency by not following the Ld CIT(A) ’s decision for AY 203-14 in the Appellant’s very own case and taking contradictory views without considering:
