The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has recently held that payment by Google India to Google Ireland for the purchase of online advertisement space for onward resale to Indian advertisers does not amount to Royalty as per Article 12(3)(a) of India-Ireland Double Taxation Avoidance Agreement (DTAA).
A wholly owned subsidiary of Google International LLC, US. Google India Private Limited is engaged in the business of providing Information Technology and Information Technology Enabled services to its Group companies.
In addition to that, Google India is also a distributor for the Adwords program by Google International LLC in India. Under the Google AdWords Program Distribution Agreement dated 12.12.2005 (Agreement) entered into between Google India Private Limited (GIPL) and Google Ireland, Google India is appointed as a non-exclusive authorised distributor of AdWords program to the advertisers in India.
The Tribunal bench of Vice President N V Vasudevan and Accountant Member Chandra Poojari observed that, “this issue came for consideration before this Tribunal in assessee’s own case in IT(TP)A No.1513-1516/Bang/2013, and reiterated the findings of the same.
In the said appeal, the Tribunal had held for the Assessment Years 2009-10 to 2012-13, that the impugned payment cannot be characterised as royalty under the India-Ireland DTAA.
It was observed in the earlier decision that perused the Google AdWords Program Distribution Agreement that, “When, under a non-exclusive licence, an end-user gets the right to use computer software in the form of a CD, the end-user only receives a right to use the software and nothing more. The end-user does not get any of the rights that the owner continues to retain under Section 14(b) of the Copyright Act”.
The tribunal also considered the claim of the assessee on beneficial ownership of payments under DTAA that :–
•Certificates issued by the Irish Revenue Authorities stating that GIL is a tax resident of Ireland and its world-wide income is taxed Ireland.
•Fact that there was neither any change in facts of the appellant vis-à-vis the previous year nor was any new material fact brought on record by the ld AO.
•Not providing an opportunity of being heard to the appellant and thereby violating principles of natural justice.
•Rule of consistency requires that when contradictory views are taken visà-vis the previous years, reasons for such contradictory views would need to be specified.
Observing that, the grounds raised by the assessee are infructuous in view of the tribunal’s findings on merit, the Income Tax Appellate Tribunal dismissed the claim of beneficial ownership of payments under DTAA.
However, the claim that the payment by Google India to Google Ireland for the purchase of online advertisement space for onward resale to Indian advertisers does not amount to Royalty, was allowed and the appeal was resultantly allowed and the counter appeals by the revenue were dismissed, in favour of Google India Private Limited.
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