The Karnataka High Court, while providing relief to Google India, quashed the order passed by Income Tax Appellate Tribunal (ITAT) imposing royalty taxation for ‘Adwords program’.
The assessee, Google India was granted with the marketing and distribution rights of the Adwords programme to advertisers in India under a distribution agreement in 2005. This program enables advertisers to provide a relevant keyword. When this term is searched on the Google search engine, the ad also gets displayed. The advertiser pays if the surfers click on their ads.
AdWord Program is more focused and targeted in advertising campaign which results into more attention, engagement, delivery, and conversion which is only possible on the Google network with the access of tools of search engine and google analytics. Appellant is having the access to the wealth of data about users – including their eating habits, wearing preferences, photographs, sex, phone number, religion – and its analytics tools. It said all of this involves a huge amount of intellectual property (IP) and so Google India could not be described as just a reseller of ad space.
The ITAT held that the agreement between the assessee and GIL is not only in the nature of providing the space for advertisement and displaying the advertisement to the consumers.
“If we look into the advertisement module of the AdWord Program, we will come to an irresistible conclusion that it is not merely an agreement to provide advertisement space but it is an agreement for facilitating the display and publishing of an advertisement to the targeted customers,” the ITAT added.
Therefore, the Tribunal held that payments aggregating to Rs 1,457 crore made by Google India to Google Ireland between 2007-08 and 2012-13 are taxable as royalty.
Senior Advocate Ganesh on behalf of the appellant stated that the documents filed by the assessee were not looked into and altogether a different approach was adopted by the Tribunal by conducting a research and the material after conducting the research on various platforms have been made to be the basis of the judgment delivered by the Tribunal.
He further argued that it is a well settled proposition of law that if any material/any document is relied upon, the same has to be given to all the parties, otherwise it amounts to violation of principles of natural justice and fair play. He has vehemently argued before this Court that the material collected behind of the assessee was used and relied upon by the Tribunal and therefore, the same amounts to violation of principles of natural justice and fair play, hence, the matter should be remanded back to the Tribunal permitting the parties to raise all possible grounds while arguing the matter afresh.
Mr. Aravind, the counsel for the Income-tax department has argued that the material which has been relied upon by the Tribunal is available on internet and merely because the material which is available on internet was not given to the assessee, it does not mean that there is violation of natural justice and fair play. He has vehemently opposed the prayer made by the Senior Counsel for the assessee in respect of remand.
The division bench of Justices Satish Sharma and Vishvajeth Shetty while quashing the ITAT’s order remanded the matter back to the Tribunal to decide the appeals afresh in accordance with law.
The ITAT directed the parties to appear before the Tribunal on May 3, 2021 and within a period of 15 days the appellant shall be free to file the documents/additional documents in support of his contentions and the revenue shall also be free to file documents/additional submissions in support of their contentions. In case any other material is being relied upon by the Tribunal, the same shall also be made available to the assessee/appellant as well as to the counsel for revenue before passing a final order. The Tribunal is requested to make all possible endeavours to decide the matters at an earlier date.
Senior Counsel S. Ganesh, Advocates Anmol Anand, Priya Thandon, Mithul Reddy, Aditya Vikram Bhat appeared for the appellant and Advocate K.V Aravind appeared for the Department.
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