ITAT upholds Non-taxability of Google Ireland's Ad Revenue in India: Payments not Classified as Royalty or FTS [Read Order]

In a recent ruling, the Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) upheld the non-taxability of Google Ireland's Ad revenue in India and held that the payments are not classified as royalty or fees for technical service ( FTS ).

In this case, 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).

The Assessing Officer (AO) observed that GIPL, without deducting tax at source as required under Section 195 of the Income-tax Act, 1961, paid royalties to GIL for marketing and distribution rights of the Adwords program. The ITAT, Bangalore, initially ruled these payments as taxable royalties under the Income-tax Act and the India-Ireland DTAA.

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Following a notice issued under Section 148 of the Income Tax Act, GIL filed a Nil income return and objected to the reopening of assessment, which the AO rejected. The Transfer Pricing Officer (TPO) found no adjustments necessary to international transactions.

The Karnataka High Court later remanded the case back to the Tribunal, which ruled that such online advertising income is not taxable in India. Despite this ruling, the AO proceeded with reassessment due to the department’s intent to appeal, finalizing an order that added the royalties to GIL’s income.

The Commissioner of Income Tax Appeals [ CIT(A) ] allowed the appeal filed by the assessee by following the ITAT order for the ( AY ) 2007-08. Thus revenue appealed against the order of the CIT( A ).

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The counsel on behalf of the assessee submitted that with regard to the stream of income received by the assessee from GIPL, the issue on merit is covered in favour of the assessee by the order of the Tribunal in the assessee's own case for AY 2007-08.

The bench, following the decision of the tribunal, held that the payments made by GIL and other Indian customers to the assessee cannot be taxed in the hands of the assessee.

The ITAT bench, comprising of Kesav Dubey ( Judicial Memeber ) and Laxmi Prasad Sahu ( Accountant Member ), dismissed the appeal filed by the revenue.

To Read the full text of the Order CLICK HERE

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