The Bengaluru Bench of the Income Tax Appellate Tribunal (ITAT), comprising George George K., Judicial Member and Padmavathy S., Accountant Member observed that the payment for online advertisement space to Google India is not “Royalty”, thereby granting relief to Google Ireland.
The assessee, Google Ireland Limited (herein after referred as the assessee or 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) under distribution agreement dated 12.12.2005.
The AO on verification of financial statement of GIPL noticed that it had credited an amount of Rs.42 crores to the account of the assessee during the relevant assessment year without deducting tax at source under Section 195 of the Income Tax Act. Further it was noticed by the AO that GIL has also not obtained NIL deduction certificate on the sum received/payable to it.
The AO in the hands of GIPL (Payer) had held that the payments made to the assessee are covered under Section 9 of the Act and also under the provisions of DTAA.The AO considered the amount received/receivable by the assessee towards sale of advertisement space from GIPL and from other Indian customers as ‘royalty’ under the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA).
Aggrieved by the draft assessment order the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP rejected all the objections of the assessee. Hence the present appeal has been filed.
As regards assessment years 2009-10 to 2012-13, the issue was decided in favour of GIPL by the Tribunal by holding that the impugned payment made by it to GIL cannot be characterised as royalty under Act or DTAA.
The Coram observed that “In view of above order of Tribunal, where it is stated that the payment made by GIPL to GIL is not in the nature of Royalty or FTS under the Act and DTAA, a different treatment cannot taken in the hands of the payee, i.e. the assessee in the instant case.”
“We hold that the payment on online advertisement is not liable to be taxed as Royalty in view of the aforesaid judicial pronouncements. Therefore, we hold that a sum of Rs.42 crores cannot be brought to tax in the hands of the assessee.” The Tribunal concluded.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
