Google India Private Ltd vs. ACIT (ITAT Bangalore) - 23 oct 2017
Question of discussion: Google Adword programme and its related advertising facilities related payment whether be treated as ROYALTY payments by India GOOGLE to its foreign counterpart? when such royalty be liable to TDS?Some important pointers of the case (for easy reference):
1- It was the case of the assessee that no rights in the intellectual property of the Google were transferred to the assessee from GIL. Assessee was mere reseller of advertising space made available under the Adword distribution program by GIL. Further as per appellant, the assessee is a distributor of advertising space and it do not have any access or control over the infrastructure or the process that are involved in running the Adword program, as program runs on software, Algorithm, data center which are owned by Google and its subsidies outside India. It was also the case of the assessee that the Adword platform is running on servers located outside India that belonged to or hired by Google. Assessee in India has no control over the server of Google.
2-It was the case of the assessee that neither the assessee nor its advertisers get any right or right to use or exploitation over the underlying I.P. or software which is entirely owned by Google incorporation and its subsidies.
3-In a nutshell, it was the contention of the assessee that it is merely a reseller of advertisement space. The assessee only performs market related activities to promote the sales of advertisement space. No right or intellectual properties were transferred by Google to the assessee or to the advertiser. The assessee has no control or access to the software, Algorithm and data centre,
4-The assessee or the advertisers do not have any right of any use or exploitation or the underlying I.P. and software. The advertisers select key works and place a bid on the online auction. The assessee periodically raises invoice on advertisers for advertising spend incurred by the advertisers.
5-it was noticed that assessee had credited a sum of Rs.119 crores to the account of Google Ireland without deduction of tax at source. Further, GIL (Google Ireland) had also not obtained a NIL deduction certificate on the sums payable to it from the Department.
6- It was further discussed that "Therefore, in our view, the agreement entered between the assessee and the Google India is not merely for providing the advertisement space but was in the nature of providing the services for displaying and promoting of the advertisement to the targeted consumers.
7- It was further observed that "In our view IP of Google vests in the search engine technology, associated software and other features, and hence use of these tools for performing various activities mentioned herein above, including accepting advertisements, providing before or after sale services, clearly fall within the ambit of "Royalty".
8- Language of section 90(2) of the Act beyond doubt is clear and unambiguous that option to exercise the benefit of either the Act or the DTAA is conferred on the nonresident. Hence at the stage of payment without there being any indication by the recipient, the payer cannot step into the shoes of recipient to exercise the option provided under section 90(2) and claim the benefit of DTAA
9- It is further submitted that the application of DTAA is not automatic and it is the specific exercise of option by the recipient subject to fulfillment of certain conditions as contemplated under the DTAA. In the absence of any material or enquiry by the assessee, the assessee cannot jump to the conclusion that the amount is not chargeable under the DTAA.
10-The contention of the assessee that receipt in the hands of Google Ireland is liable to be taxed on cash basis is completely baseless for the reason that the Google Ireland itself has filed return of income for the Assessment Year 2007-08 and 2008-09 and has admitted the Mercantile system of accounting being followed,
For reading full 134 pages case please refer link - http://itatonline.org/archives/google-india-private-ltd-vs-acit-itat-bangalore-royalty-us-91vi-article-12-the-google-adwords-advertisement-module-is-not-merely-an-agreement-to-provide-advertisement-space-but-is-an-agreement/google-india-adwords-royalty-tds/
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