Payment From Google Towards Marketing & Distribution Rights Of AdWords Is Not Royalty, Clarifies Bangalore ITAT
Pankaj Bajpai
28 March 2024 11:01 AM IST
Following the Coordinate Bench ruling in IT(IT)A No.2845/Bang/2017, wherein it was held that the payment made by Google India to assessee was not in the nature of royalty/ FTS and consequently it could not be brought to tax in the hands of assessee, the Bangalore ITAT ruled that amount received by Google Ireland (Assessee) from Google India towards marketing & distribution...
Following the Coordinate Bench ruling in IT(IT)A No.2845/Bang/2017, wherein it was held that the payment made by Google India to assessee was not in the nature of royalty/ FTS and consequently it could not be brought to tax in the hands of assessee, the Bangalore ITAT ruled that amount received by Google Ireland (Assessee) from Google India towards marketing & distribution rights of AdWords program is not royalty.
While clarifying the position regarding taxability of receipts from sale of online advertisement space, the Division Bench comprising of George George K (Vice President) and Laxmi Prasad Sahu (Accountant Member) reiterated that “Unless the non-resident, who is engaged in sale of online advertisement space, has a PE in India, no portion of receipts earned by it from sale of online advertisement space in India can be brought to tax in India as Act read with the relevant DTAA”. (Para 9.38)
As per the brief facts of the case, the assessee company, involved in the business of sale of online advertisement space to Google India Pvt Ltd (GIPL) under Google Reseller agreements, did not file the return on belief that revenue from sale of online advertisement is not taxable in India. The AO noted that the assessee has given the marketing & distribution rights of Adwords program to GIPL without holding the tax at source u/s 195. 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 Adwords 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. Based on the information in the case of GIPL, the AO observed that the assessee-GIL has not filed return for the respective assessment years and not offered the receipts to tax and therefore, income escaped assessment for the above assessment years.
The Bench observed that the issue relating to the taxability of payments received by the assessee from GIPL as per terms of Reseller Agreements, was considered by the coordinate Bench of the Tribunal in assessee's own case for AY 2007-08 in IT(IT)A No.2845/Bang/2017.
The Bench also observed that the Coordinate Bench therein has held that 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.
Hence, the ITAT allowed the assessee's appeal and concluded that the payments made by GIL to the assessee cannot be taxed in the hands of the assessee.
Counsel for Appellant/ Taxpayer: Deepak Chopra, Priya Tandon, Anmol Anand & Aadith Sridhar
Counsel for Respondent/ Department: D.K. Mishra
Case Title: Google Ireland Ltd verses DCIT
Case Number: IT(IT)A Nos.191 to 194/Bang/2024
