2023 (7) TMI 1432 - AT - Income Tax

Assessee wins appeal as books rejection unjustified, Google Ireland payments not taxable, CSR donations qualify for section 80G deduction

ITAT Bangalore allowed the assessee's appeal, reversing multiple disallowances made by revenue authorities. The tribunal held that books of accounts ... Rejection of books of accounts - HELD THAT:- As the revenue authorities did not point out any discrepancy in the books of accounts of the assessee. Respectfully following the view taken by Coordinate Bench of this Tribunal in assessee’s own case for A.Y. 2008-09 [2023 (4) TMI 106 - ITAT BANGALORE], we do not find any reason to uphold the rejection of the books of accounts. TDS u/s 195 - Dependent agent permanent established addition u/s 40(a)(ia) - HELD THAT:- As relying on assessee own case for A.Y. 2008-09 [2023 (4) TMI 106 - ITAT BANGALORE] we hold that assessee cannot be treated as depending agent PE of Google Ireland and that no disallowance could be made u/s. 40(a)(i) of the act. Royalty / FTS - payment towards on online advertisement paid by assessee to Google Ireland - AO disallowed the payments as Royalty / FTS by holding the assessee to be a dependent agent PE of Google Ireland - HELD THAT:- In case of M/s. Google Ireland Ltd. [2023 (3) TMI 1304 - ITAT BENGALURU], this Tribunal has taken a view that the payment received by the non-resident assessee on sale of online advertisement space directly from the advertisers in India is not taxable in the hands of the non-resident assessee. Thus we hold the payment towards on online advertisement paid by assessee to Google Ireland is not liable to be taxed as Royalty for the years under consideration and therefore no disallowance can be made u/s. 40(a)(i). Applicability of FTS under the Act as well as DTAA - After considering the plethora of decisions, in assessee’s own case as well as in the case of the payee being Google Ireland, we do not find that a case has been made out by the revenue to categorise the amounts paid by assessee to Google Ireland to be FTS. Further, it is also held that the assessee is not a dependent agent PE of Google Ireland in order to bring to tax the business profits of Google Ireland in India. Nothing contrary to the observations of the Coordinate Bench of this Tribunal has been brought to our notice. Respectfully following the above, we hold that the payments paid by the assessee to Google Ireland cannot be treated as FTS and therefore no disallowance could have been made u/s. 40(a)(i). Attribution of income - While considering Issue 4 that assessee cannot be held to be a dependent agent permanent establishment of Google Ireland, the income earned by Google Ireland cannot be taxed in India as business profits. Under such circumstances, the issue of attribution does not arise and becomes infructuous. Deduction u/s 80G - amount incurred by assessee as a part of CSR - AO concluded the donations made by the assessee were not voluntary, and hence cannot be considered as donations, and therefore did not treat the donations made by the assessee for the purposes of section 80G - HELD THAT:- Nothing has been brought on record by the Ld.DR in order to establish that the donations made by assessee are not eligible for the deduction u/s. 80G. We therefore respectfully following the view taken by the Coordinate Bench hereinabove in case of First American India Pvt. Ltd. [2020 (5) TMI 187 - ITAT BANGALORE] direct the Ld.AO to compute the deduction u/s. 80G of the act to the extent of eligibility as per the relevant provisions. Issues Involved:1. Transfer Pricing (TP) Issues2. Rejection of Books3. 10A Deduction4. Dependent Agent Permanent Establishment (DAPE) & 40(a)(i)5. Royalty/Fees for Technical Services (FTS) 40(a)(i)6. Attribution7. 80G Deduction8. Representative Assessee9. Claim for Deduction – Proviso to 40(a)(i)10. MAT Credit11. TDS Credit12. Incorrect Refund Calculation13. Education Cess14. Interest u/s 234B, 234D, and Initiation of Penalty Proceedings u/s 271(1)(c)Issue-wise Detailed Analysis:1. Transfer Pricing (TP) Issues:The transfer pricing issues were withdrawn by the assessee due to an Advance Pricing Agreement (APA) with the Central Board of Direct Taxes (CBDT) dated 04.12.2019. Consequently, all grounds related to transfer pricing issues in the assessee's appeals were dismissed as withdrawn, and the transfer pricing issues in the revenue's appeals became infructuous.2. Rejection of Books:The assessee's books of accounts were rejected by the revenue authorities based on conjectures and surmises. However, the tribunal found that there was no discrepancy in the books of accounts for the years under consideration, similar to the facts for A.Y. 2008-09 where the rejection was not upheld. The tribunal allowed the grounds raised by the assessee on the rejection of books of accounts for A.Ys. 2010-11 to 2014-15.3. 10A Deduction:The assessee did not press the 10A deduction issue for A.Ys. 2010-11 and 2011-12. For the revenue’s appeals, the issue was covered in favor of the assessee by the decision of the Hon'ble Supreme Court in CIT vs. HCL Technologies Ltd. The tribunal directed the AO to recompute the eligible profits for deduction u/s 10A as per the directions by the Supreme Court.4. Dependent Agent Permanent Establishment (DAPE) & 40(a)(i):The tribunal held that the assessee could not be treated as a dependent agent PE of Google Ireland and that no disallowance could be made u/s 40(a)(i). This was based on the tribunal's earlier decisions in the assessee's own case and the decision in Google India Pvt. Ltd. vs. DCIT.5. Royalty/Fees for Technical Services (FTS) 40(a)(i):The tribunal held that the payments made by the assessee to Google Ireland could not be considered as royalty or FTS. This decision was based on the tribunal's earlier decisions and the decision in Google India Pvt. Ltd. vs. DCIT. The tribunal followed the view that the payment towards online advertisement paid by the assessee to Google Ireland is not liable to be taxed as royalty.6. Attribution:Since the tribunal held that the assessee could not be treated as a dependent agent PE of Google Ireland, the issue of attribution did not arise and became infructuous. The grounds pertaining to this issue for AY 2012-13 to 2015-16 were dismissed as infructuous.7. 80G Deduction:The tribunal directed the AO to compute the deduction u/s 80G to the extent of eligibility as per the relevant provisions, following the view taken in First American India Pvt. Ltd. vs. ACIT.8. Representative Assessee:Since the tribunal held that the assessee is not a dependent agent PE of Google Ireland, the issue of taxing the profits attributable to the dependent agent PE of Google Ireland did not arise. The grounds raised by the assessee for A.Y. 2015-16 were allowed.9. Claim for Deduction – Proviso to 40(a)(i):This issue became academic due to the decisions taken on Issues 4 and 5. The tribunal did not decide this issue.10. MAT Credit:This issue required verification based on the details filed by the assessee. The grounds raised by the assessee for A.Ys. 2010-11 and 2012-13 were remanded to the AO for necessary verification.11. TDS Credit:This issue required verification based on the details filed by the assessee. The issue raised by the assessee for A.Ys. 2011-12 to 2015-16 was remanded to the AO for necessary verification.12. Incorrect Refund Calculation:This issue required verification based on the details filed by the assessee. The issue raised by the assessee for A.Y. 2010-11 was remanded to the AO for necessary verification.13. Education Cess:The additional ground on this issue for A.Ys. 2013-14 to 2015-16 was not pressed by the assessee as it was decided against the assessee by the Hon'ble Supreme Court. The additional grounds were dismissed as not pressed.14. Interest u/s 234B, 234D, and Initiation of Penalty Proceedings u/s 271(1)(c):These issues were consequential in nature and did not require adjudication.Disposition of Appeals:- The appeals filed by the assessee for the years under consideration were partly allowed or allowed.- The appeals filed by the revenue for the years under consideration were dismissed as infructuous.