Case Law Details
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.
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