The Banglore Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the amounts paid by Google India to Google US in relation to seconded employees do not come under the purview of fees for technical services (FTS) or fees for included services (FIS) as per the Income Tax Act or the India-US Tax Treaty.
For the assessment years 2010-11 and 2012-13, the assessing officer (AO) had issued reassessment notices as the company had received certain payments from Google India, and returns of income were not filed. During the reassessment proceedings, the matter was referred to the Transfer Pricing Officer (TPO) to determine the arm’s length price (ALP) of the payments received by the company.
The TPO ruled that since the international transactions with Associated Enterprises (AE) were at ALP, no adjustment was required. However, the AO observed that the company had received payments from Google India for seconding its employees to Google India.
The AO, after analyzing the arrangements between Google India and the company, concluded that Google India required technical services from the company. The services were to be provided through certain employees of the company who were technical or managerial experts in their respective domains at a sufficiently higher level in the company’s employee hierarchy.
In a normal course of action, this would amount to a service or contractual agreement between Google India and the company, falling under the Indo-US DTAA and being covered as Fees for Included Services.
The AO passed a draft assessment order by bringing a sum of Rs. 20,63,50,635 and a sum of Rs. 39,48,22,872 for assessment years 2010-11 and 2012-13, respectively, to tax.
The two-member bench comprising George George K. (Judicial Member) and Padmavathy S (Accountant Member) has observed that the seconded employees were working exclusively under the control and supervision of Google India and not on behalf of Google US during the period of secondment.
Percy Pardiwala, Anmol Anand, Priya Tandon, Mithal Reddy represented the assessee-appellant, Google LLC and Neera Malhotra represented the respondent-revenue.
The tribunal bench ruled that the AO’s draft assessment order assumed that a service agreement exists between the company and Google India for the provision of services by the company to Google India from the observation that there is nothing on record to suggest that this assumption is correct.
It was thus held that, the payments made by Google India to Google US for seconded employees cannot be considered as fees for technical services (FTS) or fees for included services (FIS).
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