Amounts Paid By Google India To Google US For Seconded Employees Does Not Come Within ‘FTS’ or ‘FIS’: ITAT

The Banglore Bench of the Income Tax Appellate Tribunal (ITAT) has held that amounts paid by Google India to Google US with reference to seconded employees do not come within the fees for technical services (FTS) or fees for included services (FIS) under the Income Tax Act or under the India-US Tax Treaty.

The two-member bench of George George K. (Judicial Member) and Padmavathy S. (Accountant Member) has observed that the seconded employees were working solely under the control and supervision of Google India (GIPL) and not on behalf of Google US during the period of secondment.

The assessee, Google LLC, is a foreign company incorporated in the USA. For the assessment years 2010–11 and 2012–13, the AO issued reassessment notices. The reason for the issue of a notice under Section 148 was that the assessee had received certain payments from GIPL and returns of income were not filed.

During the course of reassessment proceedings, the matter was referred to the Transfer Pricing Officer (TPO) to determine the arm's length price (ALP) of the payments received by the assessee.

The TPO ruled that because the international transactions with Associated Enterprises (AE) were at ALP, no adjustment was required. However, the AO observed that the assessee company received payments from GIPL for seconding its employees to GIPL.

The AO, after analyzing the arrangements between GIPL and the assessee, observed that GIPL has required technical services from the assessee, which were to be provided through certain employees of the assessee who were technical or managerial experts in their respective domains at a sufficiently higher level in the assessee's employee hierarchy. In a normal course of action, this would amount to a service or contractual agreement between GIPL and the assessee. The assessee would have provided professional services to the GIPL, against which the GIPL would have made payments to the assessee. Since these services are technical and managerial in nature, and since they also provide and impart a skill set to the concerned manpower of GIPL for the execution of technical and managerial jobs, such an arrangement would have fallen under the Indo-US DTAA and been covered as Fees for Included Services.

The AO passed a draft assessment order by bringing to tax a sum of Rs. 20,63,50,635 and a sum of Rs. 39,48,22,872 for assessment years 2010–11 and 2012–13, respectively.

The tribunal has held that the AO in the draft assessment order has assumed that a service agreement exists between the assessee and GIPL for the provision of services by the assessee to GIPL. There is nothing on record to suggest that the assumption of AO is correct.

Case Title: M/s. Google LLC Versus JCIT (OSD) (IT)/DCIT (IT)

Citation: IT(IT)A No. 167/Bang/2021

Date: 20.02.2023

Counsel For Appellant: Percy Pardiwala, Anmol Anand, Priya Tandon, Mithal Reddy

Counsel For Respondent: Neera Malhotra

Click Here To Read The Order