ITAT Quashes Time Barred TDS Default Order Passed Against Google India

The two-member bench of George George K. (Judicial Member) and Padmavathy S. (Accountant Member) has observed that for the years under consideration, the period of four years from the end of the financial year in which payment was made or credit was given expired on 31.03.2012, whereas the notice was issued by the AO on 20.11.2012.

The appellant/assessee is a wholly owned subsidiary of Google International LLC, US. It was engaged in the business of providing information technology (IT) and information technology-enabled services (ITeS) to its group companies. The assessee has entered into a Google Adword Program Distribution Agreement dated December 12, 2005 with Google Ireland Ltd. (GIL). As per the agreement, the assessee was appointed as a non-exclusive authorised distributor of Adword programmes to the advertisers in India. As per the agreement, the assessee was liable to pay distribution fees to GIL.

The payment of distribution fees was made without deduction of tax at source. According to the assessee, it was merely a reseller of the advertising space made available under the Adword Program distribution agreement. The assessee is a distributor of advertising space with no access or control over the infrastructure or the process that is involved in rendering the Adword Program. Therefore, the sums so paid were not chargeable to tax under the relevant Double Taxation Avoidance Agreement (DTAA).

There was no deduction of tax on payments in the absence of a primary charge of tax. The AO issued a notice under section 201(1) of the Income-tax Act, 1961 to the assessee to show cause why the distribution fees payable to GIL should not be regarded as royalty. Consequently proceeded for withholding of tax deduction at source under section 195. The AO proceeded to pass an order dated 22.2.2013 under section 201(1) and 201(1A). In the order, the AO held the assessee to be in default for non-deduction of tax at source under section 195 and raised a demand.

The assessee contended that the assessment order where it is mentioned that the proceedings under section 201(1) were initiated by issuing a notice on 20.11.2012 asking the assessee to show cause why it should be treated as an assessee in default in respect of tax not deducted at source on the sums payable to GIL. The notice issued for AYs 2007-08 and 2008-09 was beyond the time limit specified in section 201(3), i.e., beyond 4 years from the end of the financial year in which payment is made or credit is given. Therefore, the assessments are barred by limitation and liable to be quashed.

The department contended that there are time limits prescribed under sub-section (3) of section 201 with respect to orders under section 201(1). However, there is no time limit for passing orders under section 201(1A) of the Income Tax Act.

The assessee contended that though there is no time limit prescribed for passing an order under section 201(1A) of the Income Tax Act, the order should be passed within a reasonable time. When the assessee is not an assessee in default, interest under section 201(1A) would become infructuous. As the order passed under section 201(1) is barred by limitation by making it void ab initio and infructuous.

The ITAT noted that a show cause notice to initiate proceedings under section 201(1) was issued on 20.11.2012, which was beyond four years with respect to assessment years 2007-08 and 2008-09.

Case Title: Google India Pvt. Ltd. Versus The Deputy Commissioner of Income Tax

Citation: IT(IT)A Nos.1511 & 1512/Bang/2013

Date: 10.08.2022

Counsel For Appellant: Sr. Advocate Percy Pardiwala

Counsel For Respondent: Standing Counsel K V Aravind

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