Google Ireland Ltd Vs DCIT (IT) (ITAT Bangalore)
ITAT Bangalore held that payment made by Google India Pvt. Ltd. to Google Ireland Limited (assessee) for sale of online advertisement space is not taxable in India as the same cannot be regarded as royalty or FTS.
Facts- 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 Google Reseller agreements dated 12.12.2005 and 1.7.2012 and to direct advertisers. The assessee did not file the return of income for AYS 2013-14 TO 2016-17 on belief that revenue from sale of online advertisement is not taxable in India.
During the proceedings u/s. 201 in the case of GIPL, it was found that GIPL had paid an amount of Rs.11,149,188,289 during FY 2012-13 to GIL towards marketing & distribution rights of Ad words program in India and the receipts are taxable in the hands of GIL in India under the Act and India-Ireland DTAA as royalty as per Explanation 2 to section 9(1)(vi) of the Act.
Being aggrieved by the final assessment order, the assessee has preferred the present appeal challenging the addition made treating the payments received from GIPL (payer) as royalty income.
Conclusion- Held that income from sale of advertisement space on a website is not taxable in India if there is no PE of the foreign enterprise in India. It was held that such income is not to be regarded as royalty or FTS.
Held that the payment made by the payer (GIPL) to the assessee (GIL) is not in the nature of royalty or FTS and consequently it cannot be brought to tax in the hands of the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals at the instance of the assessee are directed against the final assessment orders passed separately u/s. 143(3) r.w.s. 147, 92CA and 144C(13) dated 18.01.2024 for AYs 2013-14 &201415 and 25.1.2024 for AYs 2015-16 & 2016-17 respectively. The issue involved in all these appeals is common and hence they are heard together and disposed of by this consolidated order.
2. The brief facts of the case are that 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 Google Reseller agreements dated 12.12.2005 and 1.7.2012 and to direct advertisers. The assessee did not file the return of income for AYS 2013-14 TO 2016-17 on belief that revenue from sale of online advertisement is not taxable in India.
3. The AO noted that the assessee has given the marketing & distribution rights of Ad words program to GIPL without holding the tax at source u/s. 195 of the Income-tax Act, 1961 (the Act). During the proceedings u/s. 201 in the case of GIPL, it was found that GIPL had paid an amount of Rs.11,149,188,289 during FY 2012-13 to GIL towards marketing & distribution rights of Ad words program in India and the receipts are taxable in the hands of GIL in India under the Act and India-Ireland DTAA as royalty as per Explanation 2 to section 9(1)(vi) of the Act. The AO noted that the ITAT, Bangalore has held the payments made to GIL towards Ad words program as royalty vide its order dated 23.10.2017.
4. Based on the above information in the case of GIPL, the AO observed that the assessee-GIL has not filed return of income for the respective assessment years and not offered the receipts to tax and therefore income escaped assessment for the above assessment years. Notice under Section 148 of the Act was issued to the assessee. The assessee filed Nil return of income pursuant to the notice u/s. 148 of the Act and sought for the reasons recorded for reopening of the assessment. On receipt of the reasons recorded for reopening the assessment, the assessee raised its objections which were disposed by the AO. During the course of assessment proceedings the matter was referred to the Transfer Pricing Officer (TPO) and the TPO concluded that no adjustment was required to the international transactions. The assessee submitted before the AO that the order of the Tribunal dated 23.10.2017 in the case of GIPL holding that payments to GIL towards Ad words program to be royalty was set aside by the Hon’ble High Court of Karnataka and remanded to the Tribunal. After the remand from High Court, the Tribunal vide its order dated 19.10.2022 in IT(TP)A Nos.1513 to 1516/Bang/2013 for AYs 2009-10 to 2012-13 decided the issue of sale of online advertising space is not liable to be taxed in India both under the Income-tax Act and DTAA. This order was followed by the coordinate Bench of the Tribunal in the case of GIPL (payer) for AYs 2013-14 to 2016-17 in IT(IT)A No.1190/Bang/2014 and connected appeals vide order dated 15.12.2022. However, the AO noted that department is in process of filing further appeal in the said cases. It was held by the AO that in view of the departmental stand and the interest of the revenue, reassessment proceeding had to be completed. Accordingly, the AO passed the draft assessment order making additions towards royalty income as under:-
