2024 (11) TMI 630 - AT - Income Tax

Tribunal Confirms Non-Taxability of Payments for Online Ads Under Income Tax Act and DTAAs, Dismissing Revenue's Appeal.

The Deputy Commissioner of Income Tax (International Taxation), Circle 1 (1), Bengaluru. Versus Google Ireland Ltd.

The Tribunal dismissed the revenue's appeal, affirming that payments made to the assessee were not taxable as royalty or fees for technical services (FTS) ... Taxability of Income in India - royalty or FTS - payments made by GIL and other Indian customers to the assessee - Equalization levy provisions enacted in the Finance Act, 2016 - exemption under section 10(50) - HELD THAT:- This issue was considered by the coordinate Bench of the Tribunal in assessee’s own case for AY 2007-08 [2023 (3) TMI 1304 - ITAT BENGALURU] and it was held that the payment made by the payer (GIPL) to the assessee (GIL) is not in the nature of royalty or FTS and consequently it cannot be brought to tax in the hands of the assessee. The relevant portion of the order is extracted in the order of the CIT(Appeals), hence we are not reproducing the same again. We hold that the payments made by GIL and other Indian customers to the assessee cannot be taxed in the hands of the assessee and find no infirmity in the order of the ld. CIT(Appeals). The grounds by the revenue in this regard are dismissed. Issues:1. Interpretation of Equalization levy provisions and Section 10(50) amendment.2. Interpretation of DTAA between India-UK regarding royalty.3. Determination of income nature from sale of advertisement spaces.4. Assessment of revenue earned through advertising space.Analysis:1. The appeal by the revenue challenged the CIT(A)'s order regarding the Equalization levy provisions and the amendment to Section 10(50) of the Income Tax Act, 1961. The issue revolved around the taxability of income generated from online advertisements. The AO argued that the exemption under section 10(50) would not apply for royalty or fees for technical services taxable under the Act. The Tribunal analyzed the provisions and held that the payments made by the assessee were not taxable as royalty or FTS, based on previous Tribunal orders and the India-Ireland DTAA.2. The second issue involved the interpretation of the DTAA between India and the UK regarding royalty. The CIT(A) disregarded the AO's argument that the DTAA provisions should be harmonized with Section 9 of the Income Tax Act, 1961. The Tribunal, following previous decisions, held that the payments made were not in the nature of royalty or FTS, thereby dismissing the revenue's grounds.3. The third issue addressed whether the sale of advertisement spaces by Google Ireland constituted income in the nature of royalty under section 9(1)(vi) of the IT Act, 1961 and the India-Ireland DTAA. The AO contended that the revenue earned through advertising space was taxable as royalty. However, the Tribunal, relying on previous decisions, held that the payments made were not taxable as royalty, aligning with the findings in the GIPL case.4. The final issue pertained to the assessment of revenue earned through advertising space on the assessee's website. The AO asserted that the primary issue was the revenue from advertising space, not software issues. The Tribunal, considering previous Tribunal orders, concluded that the payments made were not taxable as royalty or FTS. The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal and affirming that the payments made were not taxable in the hands of the assessee.In conclusion, the Tribunal dismissed the revenue's appeal, holding that the payments made to the assessee could not be taxed as royalty or FTS based on the provisions of the Income Tax Act and relevant DTAA, as established in previous Tribunal orders.