Payments towards Marketing and Distribution Rights of Google Ad words not Royalty: ITAT [Read Order]

The Bangalore Income Tax Appellate Tribunal ( ITAT ) Bench held that the payment made by Google India to the assessee does not fall under the category of royalty or Fees for Technical Services (FTS).

The case centered around Google Ireland ( Assessee ) receiving payments from Google India for marketing and distribution rights related to the AdWords program.

The Bangalore Bench clarified that these payments are not to be classified as royalty.

The background of the case reveals that the assessee company engaged in selling online advertising space to Google India Pvt Ltd ( GIPL ) under Google Reseller agreements. Initially, the assessee did not file returns, believing that revenue from online advertisements is not taxable in India.

However, the Assessing Officer (AO) noted that tax had not been withheld at the source under section 195 of the Income Tax Act, pertaining to payments made by GIPL to the assessee for AdWords program rights.

During subsequent proceedings under section 201, it was discovered that GIPL had paid a substantial amount to GIL (Google Ireland Limited) for these rights.

The AO determined that these receipts are taxable in India under the Act and India-Ireland DTAA as royalty, based on Explanation 2 to section 9(1)(vi) of the Income Tax Act.

Deepak Chopra, Priya Tandon, Anmol Anand & Aadith Sridhar represented the assessee whereas the department was represented by D K Mishra.

It was noted that, unless a non-resident entity involved in online advertising has a Permanent Establishment (PE) in India, the income generated from such activities cannot be taxed in India as per the relevant Double Taxation Avoidance Agreement ( DTAA ).

However, the tribunal bench of Accountant Member Laxmi Prasad Sahu and Vice President Geroge George K held that the payments made by Google Ireland Limited to the assessee cannot be taxed in the hands of the assessee as royalty.

To Read the full text of the Order CLICK HERE

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