ITAT Slaps Google India With Tax Liability On Rs 1,457-Cr Revenue For Failure To Deduct TDS For Remittances to Google Ireland [Read Order]

Google India has been slapped with tax liability worth crores, with the ITAT dismissing six appeals filed by Google India for the assessment years 2007-08 to 2012-13. The issue was whether Google India was liable to deduct tax at source for its remittances made to Google Ireland Limited (GIL) as advertisement revenue amounting to Rs 1,457 crores.  Google India was appointed as a non-exclusive authorized distributor of AdWords programmes to advertisers in India by GIL. Further, Google India had entered into an agreement with GIL for resale of online advertising space under the advertisers’ programme to advertisers in India.

When it was found that Google India had been crediting sums to the account of GIL without deduction of tax at source, proceedings under Section 201 were initiated against Google India for failure to comply with provisions of Section 195 of the Income Tax Act. As per Section 195, there is an obligation on the part of the payer to deduct TDS, in case the assessee is making payment to a non-resident. Notice was issued to Google India calling upon it to answer why it should not be treated as assessee in default for not deducting the tax at source on the sums payable to GIL.

It was contended by Google India that no rights in the intellectual property of the Google were transferred to it from GIL and that Google India was a mere reseller of advertising space made available under the AdWord distribution programme by GIL. Further, it was contended by Google India that it was not paying any amount in the nature of royalty under the law or the Double Taxation Avoidance Agreement (DTAA).

It was submitted on behalf of the Income Tax Department that the amount credited by Google India to the account of Google Ireland would constitute sum chargeable under the provisions of the Income Tax Act as the payment is in the nature of royalty for the purpose of license to use intellectual property rights.

Hearing both sides, the ITAT decided against Google India and held that it had used the information, patented technology, etc from GIL, which is royalty, and therefore, as per the mandate of Article 12(2) of the DTAA, royalty was to be taxed in accordance with the laws of India. The ITAT observed, “Thus the intention of the assessee as well as of the GIL is clear and conspicuous that they wanted to avoid the payment of taxes in India. That is why, despite the duty of the assessee to deduct the tax at the time of payment to GIL, no tax was deducted nor any permission was sought for paying the amount.”

It was further observed by ITAT that, “In our view, whether it is business profit or royalty, in both the circumstances, so far as the assessee is concerned, the assessee is duty-bound to deduct the TDS unless there is an adjudication by the AO to the contrary u/s.195(2)”.