Case Law Details

Case Name : M/s. Google Ireland Ltd. Vs DCIT (ITAT Bangalore)
Appeal Number : MP No. 259/Bang/2018
Date of Judgement/Order : 20/02/2019
Related Assessment Year : 2007-08
Courts : All ITAT (7623) ITAT Bangalore (465)

M/s. Google Ireland Ltd. Vs DCIT (ITAT Bangalore)

Conclusion: Google Ireland taxable in India for the advertisements directly placed by the advertisers under AdWord Program as the same constitute business profits.

Held: Assessee-Google Ireland received a sum from Google India Private Limited (GIPL) and a certain sum received from other advertisers towards sale of online ad space in India under AdWord Program which was chargeable to tax as ‘Royalty’ under the Act and the Double Taxation Avoidance Agreement (DTAA). Revenue contended in this petition that the assessment was never made by Revenue by treating the receipts from sale of online advertisement space under AdWords program as business profits by treating GIPL as Permanent Establishment (PE) of GIL in India but was an assessment made on the basis that the receipts were in the nature of royalty and therefore the mistake in the order of the Tribunal on the assumption that the revenue assessed the receipts in the hands of GIL as business profits should be rectified suitably under section 254(2). It was held the power of the Tribunal under s. 254(2) was confined to rectifying any mistake apparent from the record. Tribunal did not have inherent power of rectification or review or revision. Tribunal passed a common order in 15 appeals. 14 of the aforesaid appeals relate to GIPL and GIL’s only appeal for AY 2008-09.  In the proceedings in the case of GIPL the dispute was only with regard to non- deduction of tax at source on payments by GIPL to GIL towards sale of online advertisement space under the AdWords program by GIPL and consequent disallowance to be made u/s.40(a)(ia). While deciding the appeal of GIL, Tribunal had followed its decision rendered in the case of GIPL that payments made by GIPL to GIL was in the nature of royalty chargeable to tax in India as “Royalty” and since GIPL did not deduct tax at source on such payment, the sums so paid were disallowed u/s.40(a)(ia) and added to the total income of assessee. This conclusion was reiterated while deciding the appeal of GIL. As far as receipts by GIL directly from advertisers under the AdWords Program was concerned the Tribunal had not given any specific conclusion. Even AO and the CIT(A) had proceeded on the basis that the conclusions in respect of payments by GIPL to GIL would equally apply to direct advertisers also. The case of the Revenue had always been that the said receipts were in the nature of royalty. To this extent it could be said that there appeared to be a mistake in the order of the Tribunal. It appeared that Tribunal had accepted that if advertisements were directly placed by advertisers or persons who purchase space from owner of search engine providing online advertisement space, receipts from providing such advertisement space would be in the nature of business profits. Since GIL did not have PE in India nor was GIPL regarded as constituting PE of GIL in India, the said receipts from direct advertisement could not be brought to tax in India. It was for this reason that the Tribunal had remanded the case to AO for fresh assessment. In the given facts and circumstances of the case, the issue sought to be agitated in this MP before the Tribunal was highly debatable and two views were possible on the issue. In such circumstances, it would not be appropriate to exercise powers u/s.254(2) as the order did not suffer from any mistake apparent on the face of the record.

FULL TEXT OF THE ITAT JUDGMENT

This is a Petition filed by the Revenue u/s.254(2) of the Income Tax Act, 1961 (Act) alleging that there are certain apparent errors in the order of the Tribunal which should be rectified.

2. In the above appeal the question that arose for consideration was as to whether the sum of Rs.93,66,27,879 received by theAssessee from Google India Private Limited (GIPL) and Rs.51,08,74,532 received from other advertisers towards sale of online ad space in Inida under AdWord Program is chargeable to tax as ‘Royalty’ under the Act and the Double Taxation Avoidance Agreement (DTAA).  In Gr.No.15 & 16 the Assessee had also challenged the action of the revenue authorities in bringing to tax a sum of Rs.51,08,74,532 from other advertisers/direct advertisers towards sale of online advertisement space under Ad Words program was in the nature of royalty. The Assessee had also challenged validity of initiation of reassessment proceedings u/s.147 of the Act.

3. The above appeal being ITA No.2845/Bang/2017 being appeal by GIL for AY 2007-08 was heard along with other appeals filed by GIPL for AY 2008-09 to 2015-16. In the assessment of GIPL the payments made towards sale of online advertisement space under ADWords Program was held to be in the nature of royalty chargeable to tax in India as “Royalty” and since GIPL did not deduct tax at source on such payment, the sums so paid were disallowed u/s.40(a)(ia) of the Act and added to the total income of the Assessee.

4. By a common order dated 11.5.2018, the appeals of the Assessee on the above points was dismissed by the Tribunal.

5. In this petition, the revenue has contended that the Tribunal accepted the stand of the revenue that payment by GIPL to GIL constituted ‘royalty’ chargeable to tax in India in paragraph-190 of its order which reads as follows:

“190. So far as assessment on merit is concerned, we find that Revenue has assessed the appellant on business profit received by it after treating the GIPL as its Permanent Establishment in India. The issue of characterization of the payment made by the GIPL to GIL has already been adjudicated by us in the appeals filed by GIPL and we have taken a view that the payments made by GIPL to GIL under the Google AdWord Distribution Agreement is payment of royalty, therefore the receipts in the hands of GIL cannot be treated to be business profit in the hands of the GIL. The GIL and GIPL were dealing on principal to principal basis. Therefore, GIPL cannot be called to be the Permanent Establishment of the GIL. In the light of these facts, we are of the view that Revenue has wrongly assessed the GIL for business profit received by it under Ad Word Distribution Agreement. Moreover, during the course of hearing, the learned Standing Counsel has candidly admitted that now the Revenue’s stand is very clear that the payment made by the GIPL to GIL is in the nature of royalty and not the business profit received by the GIL. Therefore, we are of the considered opinion that assessment of business profit in the hands of GIL after treating the GIPL as Permanent Establishment of the GIL is not proper. Even if the royalty is to be paid by the GIPL to GIL the tax is to deducted on its payment and benefit of the same will be given to GIL while completing the assessment in its hands. Therefore, we set aside the order of CIT(A) and restore the matter to the AO with a direction to reframe the assessment in the light of the observations of the Tribunal in the foregoing paras and also in accordance with law. Accordingly, this appeal is partly allowed for statistical purposes.”

6. It is the plea of the revenue in this petition that the assessment was never made by the revenue by treating the receipts from sale of online advertisement space under AdWords program as business profits by treating GIPL as Permanent Establishment (PE) of GIL in India but was an assessment made on the basis that the receipts were in the nature of royalty and therefore the mistake in the order of the Tribunal in paragraph-190 on the assumption that the revenue assessed the receipts in the hands of GIL as business profits should be rectified suitably.

7. The learned DR reiterated the stand of the revenue as contained in the M.P. The learned counsel for the Assessee brought to our notice that in the appeal by GIPL the stand taken by GIPL was that the payments made by it to GIL were in the nature of business profits and not royalty. Since GIL did not have a PE in India, the same is not taxable in India. GIPL in support of such contention has relied on decisions of various Benches of Tribunal in the case of ITO Vs. Right Florist Pvt.Ltd. (2013) 25 ITR (Tri.)639 (Kol), Pinstrom Technology Ltd. Vs. ITO (2012)54 SOT 78 (Mum.-Trib) and Yahoo India Pvt.Ltd. Vs. CIT 140 TTJ 195(Mum.-Trib). The Tribunal however rejected the claim of GIPL by observing that the facts of GIPL’s case and that of the decisions relied by GIPL were different in paragraphs-116 & 11 7 of its order which reads thus:

“116. In all these cases, the assessee was either an advertiser or act on behalf of some other advertiser and has purchased space from the owner of search engine to display its advertisements online. Therefore, the payment made by the assessee to the owner of the search engine was considered to be business receipt / business profit in the hands of the owner of search engine who is non-resident and in the absence of permanent establishment (PE) in India, the business profits / business receipts received by them were not chargeable to tax in India. But in the instant case, appellant has not purchased the advertisement space for putting its advertisement online from the GIL. The assessee has been duly appointed a distributor under the Google Adword Distribution Agreement to distribute and sell the advertisement space obtained from the GIL under the Distribution Agreement. Under the distribution agreement, appellant was under obligation to provide pre-sale and after sale services with the help of ITES division. While providing after sales services / technical services, the assessee had access to the intellectual property rights and tools and inform atives, derivative works owned by the GIL. In the instant case, assessee is not a simpliciter buyer of Ad Word Space for putting the advertisement either for himself or for others which was the position in the aforesaid cases referred to by the assessee. Therefore, we are of the view that the facts of the case referred to by the assessee i.e., Pinstorm Technologies Ltd., Right Florist and Yahoo India Ltd., are different than the facts of the instant case. Thus the ratio laid down in those cases would not be applicable to the present facts of the case.

117. The learned Counsel for the assessee has also emphatically argued that the issue involved in these appeals is squarely covered by the aforesaid judgments in the case of Right Florist, Pinstorm Technologies Ltd., Yahoo India Ltd., Therefore, issue may be decided following the ratio laid down in the aforesaid cases. If the Tribunal takes a view contrary to the view taken in the aforesaid cases, the matter may be referred to larger bench. In this regard, we have carefully perused the facts of the aforesaid cases and we find the facts of those cases are different and therefore the ratio laid down therein cannot be followed in the instant case. Hence we do not find any merit in the contention of the assessee for making a reference to larger bench if contrary view is required to be taken. We therefore reject these contentions of the assessee.”

8. He also drew our attention to the fact that in the assessment of GIL there were two payments, one received through GIPL and other through other advertisers directly. He drew our attention to Gr.No.15 & 16 of the grounds of appeal in the appeal filed by GIL, which reads thus:-

“15. On the facts and in the circumstances of the case and in law, the Ld. AO/ Hon ‘ble DRP erred in holding that the income from other advertisers amounting to INR 510,874,532 in India towards sale of online ad space is chargeable to tax as ‘Royalty’ under the Act and the DTAA and without following the decisions by the Hon ‘ble Kolkata Tribunal in the case of ITO vs. Right Florists (P.) Ltd. (154 TTJ 142) and Hon’ble Mumbai Tribunal in the case of Pinstorm Technologies vs ITO (54 SOT 78) squarely applicable to the facts of the present case.

16. On the facts and in the circumstances of the case and in law, the Ld. AO has erred in holding that the payment received from direct advertisers pertains to the use or right to use of Copyright in the computer programme and therefore, taxable as royalty in India.”

9. His submission was that the decision of the Tribunal is that GIPL is a distributor of advertisement space of AdWord program for GIL and was bound to provide pre sale and after sale services with the help of ITES division and in doing so it had access to intellectual property rights and tools and informatives, derivative works owned by GIL. The Tribunal has ruled that GIPL is not a simpliciter buyer of AdWord space for the advertisement either for itself or for others which was the position in the cases cited by GIPL. According to him therefore it is implicit from a reading of the decision of the Tribunal in paragraphs 116 & 117 of its order that the payments received directly from other advertisers were in the nature of business receipts and chargeable to tax only if GIL had a PE in India. According to him it is in the light of the above conclusions in paragraph-116 & 117 of its order that the Tribunal has given the directions in paragraph 190 of its order remanding the issue to the AO for ref raming the assessment. His submission was that, in the light of the circumstances pointed out by him as above, the directions in paragraph 190 of the Tribunal’s order is a conscious decision to remand the issue and reframe the assessment of GIL afresh in the light of its observations in paragraph 116 & 117 of its order holding that payments received directly from advertisers were in the nature of business profits. He therefore submitted that there is no error much less an error apparent on the face of the record, calling for interference u/s.254(2) of the Act.

10. We have carefully considered the rival submissions. The scope of proceedings u/s.254(2) of the Act are very limited. The power of the Tribunal under s. 254(2) is confined to rectifying any mistake apparent from the record. The Tribunal does not have inherent power of rectification or review or revision. Unless there is mistake apparent from the record in the sense of patent, obvious, clear error or mistake, the Tribunal cannot recall its previous order. If the error or mistake is one which could be established only by long-drawn arguments or by way of process of investigation and research, it is not a mistake apparent from the record.

11. The Tribunal passed a common order in 15 appeals. 14 of the aforesaid appeals relate to GIPL. Out of the 14 appeals relating to GIPL, 8 appeals were by GIPL relating to AY 2008-09 to 2015-16, 5 appeals were by the revenue being cross appeals relating to AY 2008-09 to 2011- 12 & 2013-14 and one appeal was by the revenue for AY 2010-11 being appeal arising out of proceedings u/s.154 of the Act. GIL’s only appeal for AY 2008-09 was heard along with the other 14 appeals relating to GIPL. GIL received payments on sale of online advertisement space under AdWords program from two sources viz., (1) from GIPL and (2) Direct Advertisers. In the appeals of GIPL, the nature of payment received by GIL from other advertisers/direct advertisers towards sale of online advertisement space under AdWords program was not in issue at all. In the proceedings in the case of GIPL the dispute was only with regard to non- deduction of tax at source on payments by GIPL to GIL towards sale of online advertisement space under the AdWords program by GIPL and consequent disallowance to be made u/s.40(a)(ia) of the Act. While deciding the appeal of GIL, the tribunal has followed its decision rendered in the case of GIPL that payments made by GIPL to GIL towards sale of online advertisement space under ADWords Program was in the nature of royalty chargeable to tax in India as “Royalty” and since GIPL did not deduct tax at source on such payment, the sums so paid were disallowed u/s.40(a)(ia) of the Act and added to the total income of the Assessee. This conclusion was reiterated while deciding the appeal of GIL. As far as receipts by GIL directly from advertisers under the AdWords Program is concerned the Tribunal has not given any specific conclusion. Even the AO and the CIT(A) have proceeded on the basis that the conclusions in respect of payments by GIPL to GIL will equally apply to direct advertisers also.

12. We must however make it clear that it was never the case of the AO or the DRP/CIT(A) that receipts from sale of Advertisements under the AdWord Program was business profits of GIL and that it was taxable in the hands of GIL because GIPL constituted PE of GIL in India. The case of the revenue has always been that the said receipts were in the nature of royalty. It was the case of GIL that the receipts were not in the nature of royalty and were in the nature of business profits of GIL and since GIL did not have a PE in India, the said receipts are not chargeable to tax in India. To this extent it can be said that there appears to be a mistake in the order of the Tribunal in paragraph 190 of the order.

13. It is the plea of the Assessee that going by the observations in paragraph 116 of its order which is to the effect that GIPL acted as distributor of advertisement space whereas the facts in the cases cited on behalf of Assessee’s were all cases where the advertisements were directly placed by advertisers or persons who purchased space from owner of search engine providing online advertisement space, it appears that the Tribunal has accepted that if advertisements were directly placed by advertisers or persons who purchase space from owner of search engine providing online advertisement space, receipts from providing such advertisement space would be in the nature of business profits. Since GIL did not have PE in India nor was GIPL regarded as constituting PE of GIL in India, the said receipts from direct advertisement cannot be brought to tax in India. It is for this reason that the Tribunal has remanded the case to the AO for fresh assessment in paragraph 190 of its order. This is the interpretation of the Tribunal’s order by the Assessee.

14. The appeals were not heard by either of us. We are therefore unable to fathom as to why the Tribunal remanded the case to the AO to reframe assessment in the light of the directions contained in the order. We are of the view that in the given facts and circumstances of the case, the issue sought to be agitated in this MP before the Tribunal is highly debatable and two views are possible on the issue. In such circumstances, we are of the view that it would not be appropriate to exercise powers u/s.254(2) of the Act as the order does not suffer from any mistake apparent on the face of the record. We make it clear that none of the observations in this order should influence the mind of the parties in their interpretation of the order.

15. In the result, the miscellaneous petition is dismissed.

Download Judgment/Order

More Under Income Tax

One Comment

  1. Ujwal Pandit says:

    Hello, I read your article, and your information about ceipt google adword program business profit itat reiterates is really amzing and very helpful for me. Thank you very much:)

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

January 2021
M T W T F S S
 123
45678910
11121314151617
18192021222324
25262728293031