AI Drafter 
TaxTMI 
TaxTMI 
2017 (10) TMI 1090
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....site. Ground 2: Erred in holding that Google Ireland Limited, Ireland has granted the Appellant the right to use of the Adwords program, which is a complex computer program without parting with the copyright, thus granting license to use the software without appreciating the fact that the Appellant is only involved in marketing and distribution of advertisement space to the Indian advertisers and that it is GIL which uses the back end process/ program for processing and displaying the advertisement. Ground 3: Erred in holding that the amount payable towards purchase of advertisement space to be in the nature of 'Royalty' under the Act, even after acknowledging that the Appellant is distributing advertisement space to the advertisers in India. Ground 4: Erred in confirming that Distribution Agreement cannot be read without the service agreement (ITES agreement) between the Appellant and GIL and the Appellant has been granted right to use intellectual property owned by GIL without appreciating the fact that ITES service agreement is a separate agreement under which the Appellant performs an independent global outsourcing function for GIL for which i....
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...., the assessee raised the following common ground in ITA Nos.1511 & 1512/Bang/2013 for assessment year 2007-08 and 2008-09: 12. Erred in upholding validity of initiation of proceedings undre section 201(1) of the Income-tax Act, 1961 for the subject assessment year after the expiry of four years from the end of the relevant financial year. Brief facts 04. The assessee Google India Private Limited (Google India) company registered under the provisions of the Companies Act and wholly subsidiary of Google International LLC, US. Google India is appointed as a non-exclusive authorized distributor of Adword programs to the advertisers in India by Google Ireland. Google is specialized in Internet search engines and related advertising services. Google maintains an index of websites and other online content which is made available through its search engine to anyone with an Internet connection. 05. Under the Google Adword Program Distribution agreement dated 12/12/2005, Google India was granted the marketing and distribution rights of Adword program to the advertisers in India. 06. As per assessee it is engaged in information technology (IT) and IT enabled service (ITE....
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.... developed by Google incorporation USA and its subsidiaries outside India. 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. 08. It was submitted by the assessee that the advertisers gets its advertisement uploaded into Adword program, and thereafter it directly logged on the Adword program website owned by Google and follows the various steps to create the Adword account for itself. It is also the assessee's case that the advertisers select the key words, content and presentation related to its ads and places a bid on the online system for the price it is willing to pay overtime its user clicks on its advertisement. One of the steps is the selection of the payment in INR and once the terms and conditions displayed are accepted an assigning contract is entered between the advertiser and Google India (assessee) for sale of ad space. It was further submitted that once the advertisers creates the accounts and upload and advertisement the same automatically gets stored on Adword platform owned by Google on t....
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....rdingly the tax liability of the appellant u/s.201 (1) and 201(1A) for the AY 2007-08 to 2012-13 were determined by considering the amounts payable to GIL as royalty under the Act and under the DTAA. 10.4 Feeling aggrieved by the order passed by The AO, appeals were preferred before the CIT (A). However the CIT (A) vide impugned order had decided the issues against the appellant by treating the amounts payable to GIL as royalty under the Act and under the DTAA. Hence the present appeals were filed by the assessee before us on various grounds mentioned herein above. 10.5 It may be appropriate to mention here that the assessee, had raised the common ground no.1 to 11 in all the six appeals and the ground no.12 was only restricted to two assessment years for 2007-08 and 2008-09. During the course of argument it was pointed out that the assessee had not raised the ground no.11 raised before CIT (A) pertaining to royalty income, if any, is taxable on receipt basis. Therefore, the assessee, in all the appeals had filed the additional ground bearing no.13, before us. We have heard the argument on admissibility of additional ground at this stage from both the sides. In our view the a....
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....e copyright holder of the Ad Words program, is in a position to share confidential information whenever required with Appellant. L. Grant of distribution right also involves transfer of process M. Without access to the back-end, Google India cannot perform its marketing and distribution activities. Google India has access to the processes running on the data centers, based on the distribution rights granted to it by Google Ireland N. Appellant is granted the use or the right to use the process in the Adwords platform for the purpose of marketing and distribution. (Page 49 of the order u/s 201) O. Grant of distribution right also involves use of Industrial, commercial and scientific equipment P. Adwords program, in one way, is also commercial cum scientific equipment and without having access to servers running the Ad Words platform, Google India cannot perform its functions as per the Distribution Agreement. 12. The appellant had challenged the order passed by the AO however the CIT(A) had decided the issues against the assessee and confirmed the withholding tax liability in the hands of the Appellant on the basis that the amount paya....
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.... in the Appellant may review as a part of its outsourcing services, whether the South African Ad conformed with the local government regulations of South Africa. Likewise an advertisement placed by an Indian advertiser who has entered into a contract with the Appellant may be reviewed by any other center rendering said services. Similarly the Appellant may record an advertisement placed by a customer situated in the Europe. There is no professional interaction between the distribution team and ITES team since these are separate functions performed independent of each other. (c) The process of review of advertisements is largely automated and run outside India, and the Appellant is involved in reviewing only those Ads which cannot be completely reviewed by the automated system. (d) The function of providing ad policy administration services can be outsourced to another third party company or another company outside of India. That is, this outsourcing function does not need to be located in India. It is mere coincidence that the Appellant has undertaken to perform ITES outsourcing services as a part of its business. Thus, based on....
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....vities and responsibilities between the two divisions. The approach of the AO and the CIT(A) to read one agreement into the other for the purposes of concluding the taxability as royalty is baseless Such an approach adopted by the AO and CIT(A) would only lead to circuitous arguments leading to no definite conclusion. 2.3.2 Amount Payable by the Appellant to Google Ireland for purchase of advertisement space under the Distribution Agreement is not in the nature of 'Royalty' In terms of Explanation 2 to section 9(1)(vi), the term 'royalty' means consideration for transfer of all or any rights (including the granting of a license) in respect of use of a patent, invention, model, design, secret formula, process, trademark, similar intellectual property or in relation to imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill. In the instant case, as per the 'Google Ad Words Program Distribution Agreement' between the Appellant and Google Ireland: * the Appellant is appointed as a mere non-exclusive distributor of advertisement space to the advertisers in ....
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....e Ad Words program would be regarded as falling within the scope of 'similar property' referred to in section 9(l)(vi) of the Act. * Applying the principle of ejusdem generis and 'Noscitur a sociis', to interpret the meaning of the term "similar property" mentioned in Explanation 2(i) to section 9(1)(vi) of the Act, it shall be understood in the context of patent, invention, model, design, secret formula or process or trade mark which are all form of intellectual property. * From the definitions of intellectual property, it may be inferred that the term "Intellectual Property' refers to property which is the essentially the product of human intellect. The present non-exclusive right to distribute the advertisement space is a commercial right and not an intellectual property rights. In any event it is submitted that no payment is made by the Appellant to Google Ireland for grant of such right. Further the definition of the tax royalty in Article 12(5) of the India Ireland DTAA is narrower in scope than the definition in Explanation 2 as inter alia the words "similar property" has not to be found. (ii) Grant of distribution righ....
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....e nature of advertisement fees and the consideration paid by the Appellant to Google Ireland for purchase of advertisement space through Adwords program is also in the nature of advertisement fees. (iii) Grant of right to use Trademarks and Brand features The AO sought to characterise the amount payable to Google Ireland as royalty, considering that the Appellant uses the brand name 'Google', which would amount to use of trademark under the provisions of the Act. Google Trademarks and other brand features being referred to in the Distribution Agreement are mere incidental to enable the Appellant to distribute the ad space in India. There has been no specific transfer of any patent/ trademark to the Appellant in this regard. Any reseller or distributor to perform its obligations as a reseller needs to use the brand of the product being sold. For example, if Raymond appoints a person as its authorised distributor, such person may identify himself as an authorised reseller of Raymond products through signage board. This does not mean that payments by the reseller to Raymond for purchase of products is royalty. It is submitted that mere use o....
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....ssified under intellectual property. * However, the Adwords program cannot be equated to a secret process since information relating to the program is freely available to the public on Google's website along with explanatory videos regarding the same. Hence, Google Ad Words program cannot be considered a secret process and hence, it does not constitute "process" within the meaning of the term as defined in Clause (i). (v) Grant of distribution rights also involves transfer of know-how The AO observed that Google Ireland is obliged to train Google India for marketing and distribution of Ad Words Program. Further, the AO also draws unwarranted reference to the ITES division in this regard. The AO has again disregarded the fact that review of advertisements as per the local law requirements and Google Editorial policies is undertaken by the ITES division and not by the Ad Words division. Further, the AO observed that the training is given to Google India for the purpose of imparting of information concerning technical, commercial or scientific knowledge, experience or skill as specified in clause (iv) of Explanation 2 to Section 9(l)(vi) of the ....
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.... tax a payment as royalty is that the sai7 is for the "use of" or "the right to use" an intellectual property right. Where such use or right to use has not been granted, the payment cannot be characterized as "royalty. The term "use" or "right to use" has not been defined under the Act. As per Oxford Advanced Learner's Dictionary and treatise authored by D P Mittal titled "Indian Double Taxation Agreements & Tax Laws", to constitute "use" or "right to use" the payer should have (a) complete control of the IP and (b) exclusive use which excludes multiple users. In the instant case, the amount payable by the Appellant to Google Ireland is not for the use or for right to use any scientific equipment. Hence, based on the following facts, the same is not in the nature of 'royalty' even under Explanation 2(iva) to section 9(l)(vi) of the Act. - No part of the server is devoted and earmarked for the Appellant; - "Use" or "right to use" equipment connotes that the Appellant has the possession and control over the equipment and the equipment is virtually at its disposal. The Appellant does not exercise any possessory rights in relation to the ....
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....ited by Google India to the account of GIL would constitute a sum chargeable under the provisions of the Act as the payment is in the nature of royalty for the purposes of license to use to the intellectual property rights (IPR). It was submitted that amount credited by Google India to the account of Google Ireland would constitute sum chargeable under the provisions of the Act as the payment is in the nature of royalty for the purpose of license to use Intellectual Property Rights (IPR). 17. Show cause notice under section 201 of the Act was issued as Google India failed to comply with provisions of Section 195 of the Act. In para-3, page 5 of the order, the AO has recorded that the distribution Adword program involves three parties viz, the licensor, the reseller and the advertiser. The licensor is Google Ireland, the distributor is Google India and the end-user is the advertiser. The Assessing Officer by considering the judgment of the Madras High Court in the case of Consim Inidia Pvt Ltd Vs Google India Pvt Ltd dated 30/9/2010 explained the concept of search engine and explained how search engine operate. The AO considering the provisions of section 9(1)(vi) r.w Explanation....
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....ing of all the clauses of various agreements in conjunction with the Google Adword program distribution agreement, it is clear beyond doubt that the Google India has been provided license to use IPR for which Google India has agreed to make certain payments to Google Ireland and the same is in the nature of royalty as per the provisions of section 9(1)(vi) of the Act read with DTAA.. The Google Ireland is allowing Google India access to all intellectual property and confidential information and is used by the Google India for activities related to distribution agreement. The obligations under the distribution agreement and the service agreement would make it clear that both the documents cannot be separated from each other. For the purpose of marketing and distribution activities Google India is granted the right to use the valuable business asset of Google Ireland which includes intellectual property in the products and services offered by Google Ireland. 19. DR submitted that Intellectual Property Rights of Google resides in search engine technology, associated software and other features, hence right to use IPR for performing various activities like accepting advertisements a....
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....gle India). The license to sell enables the Google India to transact the license/right to use the Adword program. The consideration paid is for the license to enable Google India to resell the license/right to use to the advertisers. As held by the jurisdictional High Court in the above referred cases but for the license, the sale of advertisement space to the advertiser by the Google India in the search engine of Google which is an IP would amount to infringement. 24. Under the distribution agreement the assessee has been granted right to use trademarks and brand features. The grant of right to use trademarks and brand features is for the purpose of selling the advertisement space and the license to use the IP being tool of the trade for the Google India, right to use Google trademarks and other brand features without any ambiguity would amount to license to use IP and the consideration constitutes Royalty chargeable under section 195 of the Act. 25. Under the distribution agreement the assessee has been granted distribution rights involving transfer of rights in process. The entire search engine technology on which license has been granted to Google India for selling advert....
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....fered by the portal, would be covered by the expression royalties. Hence in view of the ruling of the AAR, the payment for license to use or for access to portal is royalty under section 9(1)(vi) of the Act. 28. Ld Standing counsel relied upon jurisdictional High Court judgment in the case of Synopsis International Ltd (2013)212 Taxman 454 (Karnataka) Samsung Electronics Ltd (245 CTR (R) 481), CGI Information Systems and Management Consultants (2014) 226 Taxman 319, Authority for Advance Ruling in Skills of Ireland Ltd, Vodafone South Ltd (ITAT Bangalore bench) and ABB FZ-LCC (2017) 83 Taxman.com 86 (Bangalore -ITAT), the amount paid towards license to use IPR is the nature of royalty and chargeable under the Act under section 195 of the Act. 29. On the basis of the above, it was summarized learned Advocate for the Revenue that exploitation of search engine which is an IPR and the said IPR being used by the Google India as tools of trade and therefore is royalty and therefore liable for tax under the Act as well as DTAA. 30. The learned Advocate sought to distinguish the judgment relied upon by the assessee in the matter of Right Florist limited is not applicable to the fa....
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....s are displayed. 33. Ld AR further submitted that the revenue failed to appreciate that the functioning of the Appellant under the ITeS service agreement is separate from that of the distribution function which ought to be treated distinctly. 34. Ld AR submitted that Both the reports of High Powered Committee as well as Technical Advisory Group have concluded that the payments in relation to advertisement fees are not in the nature of 'royalty'. Accordingly, when the payments made directly by advertisers to Google Ireland cannot be regarded as royalty, the payments made by the distributor for the same ad space cannot be characterised as royalty. 35. Ld AR submitted that the minimum levels of service specified in Exhibit C cast obligations on GIL as a well as on the Appellant to render the services. In terms of Clause 2.6 of the Reseller agreement, the Appellant is required to provide aftersales support. In terms of Exhibit C, the advertisers are to contact the Appellant for support and the terms in the Exhibit only specify the minimum levels of service to be adhered to by the Appellant whilst communicating with the customers. The terms in the Exhibit cannot be read....
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....We are reproducing herein below all these submissions made by the Ld. AR in this regard as under: II. ABOUT ADWORDS PROGRAM 1. What is Google Adwords program? Google Adwords program is a 'self-serve' online advertising service provided by Google (reference hereinafter to Google would include Google Inc / Google Ireland as the context may require) for business wanting to display ads in relation to their websites on Google property or third party property (advertising space'). The Adwords program enables advertiser to create, change and monitor the performance of 'sponsored links' to set a budget for advertising and only pay when people click the ads. This, the advertiser can do by providing the "text" of the advertisement and by providing/registering a search term or phrase or a "keyword" which is relevant to the advertiser's website, so that when the said term or phrase is searched for by any user on the Google Search Engine, the Advertisement ("Ad") of the advertiser may also get displayed on the search results page in addition to the organic search results, though separately identified as 'Sponsored Links' or 'Ads'. A user thus gets an opportun....
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....rds account and begin advertising on Google, the advertiser needs an e- mail address and a website to which the user can be directed to from the Google search results page that displays the advertisement . (Please refer Annexure Page 212 of Paper Book Volume. This step is generic to any advertiser in the world who wishes to Adwordise through the Adwords Program. The Adwords account is set-up on the servers owned/ hired by Google outside India. Accordingly, Google India does not have any role to play at this stage of the Adwords account set-up process. The advertiser would be first required to create a website having details of their products / services. b. Step 2 (Setting up of Adwords Account basis Location, Time zone and Currency) Advertiser will then be required to set up Adwords account ('https://Adwords.google.com). Once the email address is provided, the advertiser is required to select his location and time zone along with the currency that the advertiser wishes to use (Please refer Page 213 of Paper book Volume. This part of the account set-up process is common for Advertisers across locations and not specific to India based customers....
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....ervers. d. Step 4 (Billing details) Under this section, the following payment methods would need to be selected by the Advertiser: * Whether automatic or manual payments * Whether through credit card, net banking or cheque These options are also required to be selected by the Advertiser on the Google website, as per his discretion and without any interference from Google India Private Limited. e. Step 5: Acceptance of Advertising Program Terms This step requires the Advertiser to accept the Advertising Program Terms for the Adwords program. These terms may be accepted by the Advertiser by selecting the box "Yes, I agree to the above Terms and Conditions". Where the Advertiser selects Indian Rupee as the billing currency (basis the country selected in Step 2) the Adwords program will automatically direct the Advertiser to the Advertising Program Terms relevant to Google India Private Limited. When contract is entered into by Google India Private Limited, advertiser is bound by all Adwords program terms & conditions and Google Ireland Limited is bound to place th advertisement Subject to ad review proces....
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....cess begins automatically by Google Ireland Limited. All aspects of the ad are reviewed, including the headline, description, keywords, and website. These aspects are reviewed according the Adwords advertising policies. Most ads are reviewed within one business day, and some ads are eligible to run while in review. If advertiser ad has any issues, it will stop running. To help get ad running again, advertiser is notified of the policy by Google Ireland Limited and informed what the advertiser can next do to get it running again. Once an advertiser registers for Adwords through the online process and places his advertisement for display, the advertisement (i.e. the data) is reviewed through an automated system. An advertisement which is not processed through the automated system is sent to service providers in different jurisdictions (ITES team) for review/ conformity with the Google Editorial Guidelines. The purpose of the ITES outsourcing service engagement is to review the Ads specified for manual review (originating from various countries) for conformance with Google's editorial policy/guidelines. These Ads are reviewed in accordance with Google polici....
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....uters. This infrastructure also shortens the product development cycle and lets Google pursue R&D initiatives more costeffectively. Although most of this infrastructure is not directly visible to users, it is a part of providing a high-quality user experience and enabling significant improvements in the relevance of the search and advertising results Algorithms One of the key drivers of Google's success is the technology behind its algorithm: the PageRank technology. Historically, search engines relied heavily on how many times a word appeared on a web page to determine relevance of that page to a user's query. Google's searches, however, used the PageRank algorithm to examine the entire link structure of the web and determine which pages are most important, creating greater accuracy and relevance. 8. How can advertiser manage its Adwords account? Advertiser needs to manage Adwords account on its own or it can seek services of Google certified Partners/ marketing agencies. Google certified Partners/ marketing agencies help with a range of services, including managing advertisers Adwords account or developing website, he....
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....ords are searched by the people . Advertisement would be shown to the target consumer advertisement with the help of various tools, which include showing of advertisement with keywords, phrase, and broad words with generic or same meaning. v. The Google search engine or search based campaign gives high conversion rate and better return of investment then display of advertisement on television rate, newspaper and magazine. 39. As one can experience whenever he/she is searching on a search engine the hotels in Bangalore then various advertisement would display in the search results. In this process of display of advertisement search is focused on key words that people may be entering into search engine. Thus for displaying advertisement, the algorithm the PageRank technology is used in Adwords program to target content, things on display sides, based on behavioral targeting of servers along with website surfers . Another mode of advertisement by the Google Adword program is a social advertising program where the advertisements pop up at Face book, Twitter and other social media with the help of keywords or user profile. In the case of the social advertisement, the adverti....
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.... history of the users as well as to the behavior of the persons searching Google search engine. 43. Based on various inputs mentioned above and contents of more than two million websites the appellant / Google was able to provide the effective focused ad campaign to the advertisers. The Adword programs and tools therein give the advertiser to pick up the key words, phrases which are similar in nature and germane, which are in a digitalised tabulated form / grouped together. The advertiser is having the access to this Google analytics programme (patented and specialized software) through the appellant. Whenever one particular key word is searched, the targeted consumers will be shown the ad and by clicking on the ad, the consumers will be landed on a web page. The selection and the display of the key word, play a pivotal role in the advertising campaign and for the purpose, Appellant / Google has provided the optimization and technique to the advertiser. Google (appellant as service provider under the agreement) uses its expertise and the information within its domain and control, to suggest the key words based on the recent marketing material and need of the advertiser. The appe....
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.... singular plural, abbreviation, acronyms (short word) stemming. For example, if the advertisement shows the formal shoes, then the key words are formal plus shoes. if it is broad match key words then the advertisement will show formal shoe, sport shoe, black dress shoe, party shoes etc. However if the advertiser had only opted for exact word match, then search result would only show a formal shoe. 47. Appellant helps the advertiser with the help of tools of Adwards program to include or delete various variation of the key words in the realm of advertisement campaign and similarly the advertiser may with the help of Google tool can avoid the unnecessary traffic on its website. For example, if an advertiser does not want the visit of the a surfer who is searching the service apartment on rent basis and only wants that the person surfing and the person who is surfing to buy the apartment, then the appellant can help him by putting negative words of rent in the key-word search. therefore the only person who is searching for service apartment would be landing on to the advertiser's web site and the person who is searching on rented service apartment would not be visiting the web site....
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....f it is for engagement, then a different strategy and different advertisement content is provided, if its for conversion, then different strategies are provided and if it is for retention of the old customer, then refer a friend suggest a friend etc., are being suggested. 51. For all these strategies, the Google is having a targeted geography wise, region wise, gener wise, class wise data base tools. With the use of these tools there will be an increase of the CTR (Click Through Rate). For that purposes the expertise and the data base of the Google is essential. With the help of these strategies, the targets can be fixed by the advertiser with the help of Google Adword and the target can be fixed like where it is to be displayed (tablet, desktop, mobile, ipad etc.,) search network country, state, city, postal code ad schedule of the day, hour and the day of display. . Like for example, if a doctor is free during the noon time of every Friday, then the ad company can be strategized for showing his ability during the morning / noon time of Friday or on the evening time of Thursday. Assessee with the help of Google analytics gives the accurate impression of persons visiting the adv....
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....on for the purposes of selecting the ad campaign and for maximizing the impression and conversion of the customers to the ads of the advertisers. Thus the activities of the assessee are not merely restricting to display of advertisement but is extended to various other facets as mentioned herein above. In other words, by using the patented algorithm, appellant decides which advertisement is to be shown to which consumer visiting millions of website / search engine. Therefore, in our view, it is not the advertisement or selling of the space rather it is focused targeted marketing for the product/ services of the advertiser by the Assessee/Google with the help of technology for reaching the targeted persons based on the various parameters information etc,. Had it been merely providing the space then the other features as deliberated and discussed hereinabove would not be required. Moreover in our view, the space on search engines / websites are readily available and therefore there was no occasion to market and sell it. Any person with the help of buying the static IP addresses can upload the data/ advertisement in the endless web world. Therefore, in our view, the agreement entered ....
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....rocedures, and in compliance with standards, provided by Google. All advertisers shall be instructed by Appellant to contact it for support, and not to communicate directly with Google. * Clause 7 providefor mutual non-disclosure agreement (Exhibit - B) to the Adword agreement. * As per clause 8, GIL owns all right, title and interest in and to all information data including the user data, collected by Google related to advertisers in connection with the provisions of Adword programme. Further it is the duty of the appellant to maintain all user data in accordance with local laws and regulations. 57. Assessee has been providing after sales support to the advertisers. It is not the case of Appellant that it is not providing after or before sale services to the advertisers. It is the case of the Appellant that ITEs segment of the Appellant provids services to Google Ireland to meet the queries of various clients of Google Ireland worldwide and for that purposes the access to IPRS, confidential information and NDAs are there. 58. However as per the agreement dt.12.12.2005, the primary responsibility is on the Appellant to provide after or before sale services, ....
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....the advertisement in real-time basis, clearly shows that the space is not sold by the assessee, rather the placement of the advertisement to a particular targeted consumer at a particular time is bided among the advertisers and for that, services were rendered by the appellant with the help of patented Adword program . If one advertiser bid for the particular key word like sport shoes higher than the other competitor, then the advertisement of that sport shoes would be displayed first in comparison to other competitors. However if in the next week there is sale for the product of the second bidder pertaining to sport shoes, the second bidder may bid higher in comparison with the first bidder, In that eventuality, the advertisement of the second bidder would be displayed first on the search result, in comparison to the first advertiser. Thus there was no sale of ad space on the web for displaying of advertisement on a particular place / site. Even otherwise, if we consider that the appellant is selling advertisement space then, at which location/ web place, the said ad- space was sold by the appellant to the advertiser,. It is the case of the assessee that the ads are stored in the ....
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....to have been provided not under the distribution agreement, but under the service agreement. This is only a design / structure prepared by the assessee to avoid the payment of taxes. 64. The appellant cannot be compensated by the GIL for rendering the services to itself or for rendering the services which the appellant is required to render under the distribution agreement. The use of intellectual property is embedded in the Google Adwords programme which is necessary to be used by the appellant for rendering the services prior or post sales of the advisement space under the distribution agreement or service agreement. 65. As is clear from the above, the appellant was using the customer data not only for rendering the services under ITES but also for promoting marketing and distributing the ad space on the search engine and websites. The customer data is a confidential data which is in control of the Google, which is maintained by the appellant as well and the entire Adwords Programme works around customer data, users profile etc. It is inconceivable to run the Google / appellant marketing programme without having access to the customer data. Therefore the argument of the ass....
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....re neither in the nature of royalty under section 9(1)(vi) read with Explanation 2 or in the nature of fee for technical services under section 9(1) (vii) read with Explanation 2 or taxable under article 12 of the DTAA. The payments received were thus, rightly held by the Tribunal, to be in the nature of business income. And since the assessee admittedly does not have a permanent establishment under the article 7 of the DTAA 'business income' received by the assessee cannot be brought to tax in India. The findings of the Tribunal on this account cannot be./aulted. The Tribunal pointedly observed that there was no evidence brought on record by the revenue to enable them to hold that the agreement was a colourable device, in particular, that the payments received were for use of trade mark, brand name and stylized mark 'SY' Formula One World Championship Ltd. v CIT [20161 76 taxmann.com 6 (Delhi HC): "There is no doubt that the main object of the RPC and the relevant provisions of the ALA was not the permission to use the trademarks, but granting and designating Jaypee as the promoter of the event and laying out the rights of the parties, particularl....
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....k were incidental to the main purpose of the agreement. The main purpose of the agreement is referred to as carrying out advertisement, publicity and sales promotion. The main purpose/ business do not involve providing license to use any IPR and IPR was not used as a tool of the trade. 70. We have heard the rival contentions of the parties and perused the record. Clause 1.5 of the agreement dt.12.12.2005 provides Google Brand features. As per the said clause, the appellant was permitted to use tradename trademarks, service marks, domains or other distinctive brand features of Google solely for the use under the distribution agreement. Further, clause 6 of the agreement provides the brand feature like IPRs relating to brand features, the said IPRs were granted by the Google to the appellant on a non-exclusive and non-sub-licenceable basis for the purposes of marketing and distribution of Adword programme, subject to the condition mentioned therein. If we look into the activities of the assessee, for the purpose marketing and distribution of Adword programme, then, it is not possible for the appellant to undertake these activities, without the use of the Google, trademark and o....
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....or the end-user sees while the back-end portion is accessible only by Google Ireland and Google India and it was wrongly observed that without access to the back-end, the Assessee cannot perform its activities of marketing and distribution. 72. Assessee in this regard, has submitted that the Assessee does not have access to any back-end portion as referred by the AO as databases, software tools, etc under the Distribution Agreement. Therefore, the conclusion of AO that the Appellant has been granted the use of or the right to use the process in the Ad Words platform, especially for the purpose of marketing and distribution is factually incorrect and is based on surmise and conjecture. 73. Further Appellant submitted that the Adwords, though a program, cannot be considered as a "process" within the meaning under Explanation 2(i) to section 9(1)(vi) of the Act. Further Adwords Programme cannot be equated to a secret process since information relating to the program is freely available to the public on Google's website along with explanatory videos regarding the same. Hence, Google Ad Words program cannot be considered a secret process and hence, it does not constitute "proc....
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....her than royalties, even under alternative definitions of royalties that cover payments 'for use, or the right to use, industrial, commercial or scientific equipment." 77. Further it was submitted that Central Board of Direct Taxes vide F No 5001 122/ 99 dated December 16, 1999 has constituted a High Power Committee on 'Electronic Commerce and Taxation'. The committee has held that payments arising from advertisements would constitute profits and gains from business or profession. It was submitted that Technical Advisory Group report and the High powered Committee report are binding in nature. In this regard, ld AR submitted that India had a representative as part of the Technical Advisory Group constituted by the OECD which representative did not express any dissent to the view expressed and High Powered Committee was constituted by the CBDT itself and all the members of the Committee have agreed with the view taken, including members from the CBDT .Further it was submitted that coordinate bench in the matter of Right Florist (supra) has agreed with the views of the High Powered Committee and stated as under: "13.1n the light of the above discussions, even ....
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....ce of PE. 81. We have in detail examined the working of Adwords Programme herein above and come to the conclusion that Appellant makes use of the user data /customer data ( personal information, general information like user profile, age sex, language, type of mobile, time when customer is visiting particular web site/ searching on search engine , how much time is spent on internet and on which web site etc for the purposes of targeted/ focus marketing campaign for the advertisers ) and the patented technology , with algorithm to advertise/ disseminate ads, which was not the case either before the High Powered Committee or in the matter of Right Florist P. Ltd (supra). Present case is not a case of merely displaying or exhibiting of advertisement by the advertiser on the website, case in hand is a case of use of patented technology, secret process, use of trade mark by the appellant, therefore decision of coordinate bench in the case of Right Florist Private Limited is not applicable to the facts and circumstances of the present case. In the present case the Google India has been provided access to the IPR, Google Brand features, secret process embedded in Adwords Programme as t....
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....nt of the Department of Tourism of India on its portal was not in the nature of royalty but the same was in the nature of business profit and in the absence of any PE of Yahoo Holdings (Hong Kong) Ltd., in India, it was not chargeable to tax in India. Assessee thus was not liable to deduct tax at source from the payment made to Yahoo Holdings (Hong Kong) Ltd., for such services and in our opinion, the payment so made cannot be disallowed by invoking the provisions of section 40(a) for non-deduction of tax. In that view of the matter we delete the disallowance made by the Assessing Officer and confirmed by the learned CIT(A) under section 40(a) and allow the appeal of the assessee." Relying upon para 8 of Yahoo India (supra), the coordinate in para 6 of the decision in Pinstorm (supra) held as under : 6. Yahoo India (P.) Ltd. . Dy. CIT display of the banner advertisement of the Department of Tourism of India on its use by the assessee any industrial, commercial or scientific equipment and no such Isro Satellite Centre Dell International Services (India) (P.) Ltd. advertisement of the Department of Tourism of India on its portal was not in the nature of royalty but the sa....
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....her second limb of Section 5(2)(b), i.e. income 'deemed to accrue or arise in India', can be invoked in this case. So far as this deeming fiction is concerned, it is set out, as a complete code of this deeming fiction, in Section 9 of the Income Tax Act, 1961, and Section 9(1) specifies the incomes which shall be deemed to accrue or arise in India. In the Pinstorm Technologies (P.) Ltd.'s case (supra) and in Yahoo India (P.) Ltd's case (supra), the coordinate benches have dealt with only one segment of this provision i.e. Section 9(1)(vi), but there is certainly much more to this deeming fiction. Clause (i) of section 9(1) of the Act provides that all income accruing or arising whether directly or indirectly through or from any 'business connection' in India, or through or from any property in India or through or from any asset or source of income in India, etc shall be deemed to accrue or arise in India. However, as far as the impugned receipts are concerned, neither it is the case of the Assessing Officer nor has it been pointed out to us as to how these receipts have arise on account of any business connection in India. There is nothing on record do demon....
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....unless Customer specifically opts out of the evaluation in a manner specified by Google. Google or Partners may reject or remove any ad or Target any time for any or no reason. Google may modify the Program or these Terms at any time without liability and your use of the Program after notice that Terms have changed indicates acceptance of the Terms." This vesting of power in the appellant, clearly demonstrate give the appellant in India right to access the portal / Google Adword program at any point of time. In view of the above, the decisions relied upon by the Ld. AR are not applicable to the facts of the case. Accordingly, all the ground nos.1 to 11 of the appeals of the assessee are dismissed. GROUND NO.12 83. We will deal with ground No.12 which is common only in asst. year 2007-08 and 2008-09. 84. Learned counsel for the assessee has brought to our notice the following dates and events: 85. After giving details of the proceedings which took place before the AO, in respect of ground NO.12 for assessment years 2007-08 and 2008-09, it was contended by the learned counsel for the assessee that 8/02/2013 The Revenue issued another show cause notice asking the assess....
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.... 2002-03, there was no limitation provided for initiating proceedings under Section 201. The Tribunal has, after considering the various decisions of the Apex Court, as well as the Delhi, Kerala, Punjab & Haryana High Courts, held that the proceedings having been initiated by the Revenue beyond the period of four years from the end of the relevant financial year, would be barred by limitation. Challenging the same, Sri K V Aravind, learned counsel for the Revenue has vehemently argued that when there is no limitation provided under the Act, proceedings can be initiated at any stage and at any time. In the alternative, he submitted that even if it is held that proceedings are to be initiated within a reasonable time, then too, the period of seven years from the end of the financial year, as has been provided for by the Finance Act, 2014, would be the reasonable time. He has submitted that Section 153 of the Act provides for time for completion of assessments and reassessments. Sub-section (1) of the said Section provides for assessment to be completed within two years from the end of the assessment year and one year from the end of the financial year in which the return was filed. H....
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....ly of compensatory nature. It cannot be a means to penalise the payer. The provision for payment of interest would arise from the date when it ought to have been deducted i.e., from the date of payment by the payer to the Recipient. The liability to pay interest would end on the date when such tax has been deposited by the Recipient, either by way of advance tax or along with the return of income. Interest, herein, being compensatory in nature, cannot be thus charged for the period beyond the date when such tax has already been deposited by the Recipient. If the Revenue is permitted to charge interest even after the Recipient has deposited the tax, the same would amount to undue enrichment of the Revenue, as even after receiving the tax, it would continue to get interest on the amount which has already been paid or deposited with it. As such, the liability of the assessee herein would not be for payment of interest after the period of deposit of tax by the Recipient. 87. Our attention was also drawn to the judgment of the Special Bench of Tribunal in the case of Mahindra & Mahindra Ltd., vs. DCIT (30 SOT 374) Our attention was drawn to paras.14.1, 14.2, 17.1, 17.5, 17.10, 17.10 ....
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....r initiation of proceedings u/s 201(3) against the resident in India but in absence of any provision for limitation for initiation of proceedings u/s 201, same period should be applicable for initiation of proceedings for non- resident as well. 91. For the purpose of above, it was submitted that the reasoning which was given by courts/Tribunal referred by the assessee are not available as all the judgments referred by the learned counsel for the assessee were for the period prior to introduction of amendment in section 201(1) of the Act. It was submitted that on the analogy and reasoning given by the Special Bench in the case of Mahindra & Mahindra (supra) in paras.14.2, 17.10 and 17.11 are no more available to the assessee as the said reasoning were given by the Special Bench in the case of Mahendra & Mahendra (supra) in the absence of limitation for initiation of proceedings or passing of order u/s 201 of the Act as applicable on said date and therefore, the Special Bench has applied the limitation as provided u/s 143(2), 149, 153, 154 and 263 to the proceedings under section 201 of the Act. The special bench after detailed examination in para.14.2, in the case Mahindra & Mahi....
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.... courts in the judgements relied on by the assessee, period of six years has to be read/considered in view of the legislative interference by introduction of section 201(3) of the Act. In the absence of such an analogy and any other Limitation other than period of six years would amount to discrimination in the limitation between the payment to resident and non-resident. 4) The assessee has relied on the judgement of the Delhi High Court in the case of Bharathi Hotels Ltd (2016) 76 taxman.com 256 (Delhi) to contend that even after introduction of section 201(3) of the Act and in the absence of any limitation provided by the Act in respect of payments to the nonresident's, the reasonable limitation has to be read into. With great respect, the Delhi High Court has not provided any l imi tat ion wi th respect to payments to non-resident's. Without prejudice to the above contention even if the contention of the assessee that in the absence of any limitation, reasonable time limit has to be read into the section is to be accepted, applying the same analogy as held by the various courts relied upon by the assessee and considered by the Delhi High Court, the period of six....
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....ities. The ld. DR has contended that the Tribunal is not competent to lay down any time limit. If this contention is brought to the logical conclusion it will mean that the unlimited time will be available to the Departmental authorities at their sweet-will for taking action under this section. In our considered opinion this contention raised on behalf of the revenue is bereft of any force for the simple reason that certainty is the hallmark of any proceedings. It is beyond our comprehension that how, in the absence of any time limitation provided in the section, the action can be taken in indefinite period. It is wholly impermissible to argue that unlimited time limit be granted to the revenue for taking action under this section. The sword of taxing authorities cannot be allowed to hang, forever, over the head of the tax payers. If this proposition of the learned D.R. is accepted that will give license to the authorities to take action even after 30, 40 or 50 years. The canons of limitation are ordinarily provided expressly in the Act and in their absence, they are to be impliedly inferred by taking into consideration the scheme of the relevant provisions. The ld. DR has relied o....
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....bad high court in the matter of Mass Awash (P.) Ltd. [2017] 83 taxmann.com 306 (Allahabad) had occasion to deal with all judgments referred before us and thereafter it was held as under "71. In the entirety of the discussion, we find it difficult to hold that period consumed by Revenue in prosecuting matter against main payee would have resulted in accrual of a right upon Assessee so as to deprive Revenue from proceeding under Section 201(1) and 201(1A), though, admittedly, Assessee-petitioner has committed default by not complying Section 195 by non-deduction of TDS on the amount paid to Smt. Nidhi Raman. Defence of petitioner that it was misrepresented by seller by not disclosing by any of them that she was an N.R.I. would equally be available to Revenue also for explaining delay and also their bonafide is fortified that they make all possible efforts to recover entire amount of tax from person liable to pay tax and as a last resort they have sought to exercise power under Section 201(1) and 201(1A) against Assessee. 72. The view taken by Delhi High Court that period of limitation of four years, as applicable for making Assessment under Section 147, should be ma....
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....r of judicial review in the case like present one, it would be appropriate to consider whether power has been exercised by competent authority within a reasonable period and whether delay is unjust, arbitrary, whimsical or it is for valid reasons. If Court finds that delay in exercise of power is for valid and bonafide reasons, alleged delayed exercise of power cannot be held invalid." 98. The contrary judgment of Hon'ble Delhi High Court in the matter of Bharti Airtel Ltd v. Union of India [(2016) 76 taxmann.com 256] was relied upon by the Ld. AR. The DR relied upon Bhura Exports Ltd [2011] 13 taxmann.com 162 (Calcutta) and Mass Awash (P.) Ltd. [2017] 83 taxmann.com 306 (Allahabad) In our view the decision of the Special Bench and other judgments apply with equal force in favour of both i.e resident as well as non-resident providing period of limitation of four years from the end of the financial year for initiation of proceedings on the analogy and principle mentioned in section 147, 148, 153 etc prior to amendment in law. However there are contrary judgments in favour of the revenue post amendment which does not provide any limitation for initiation of proceedings u/s.201 ....
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.... scheme of Section 201 Act, the resident of India cannot be discriminated visà- vis. The non-resident under Income Tax Act and similarly under DTAA non-resident cannot be discriminated viz-a-viz resident. If we accept the argument of the Ld. AR that the limitation of 4 years, as held provided by the Special Bench would continue to apply to nonresident even after post amendment to section 201, in that eventuality, hostile discrimination towards the resident-payee will creep in i.e., the limitation for initiation under section 201 against the resident payee would be six years and against the non-resident payee it would be four years. This is neither the intention of the legislature nor the mandate of the Special Bench or the judgment referred herein above. On the contrary, if we accept the argument of the Ld. DR that there is no limitation for initiation of proceedings under 201, in view of Hon'ble Caltutta and Allahabad High Court judgments (supra), if the payee is non-resident then, it will amount to discrimination against the nonresident as the proceedings may be initiated against the resident within four years and there is no limitation for initiation of proceedings agains....
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....the method of accounting upon the basis of which the profits or gains are computed under the head "Profits and gains of business or profession"; Accordingly, the AO has concluded that the meaning of the term "paid" includes amount incurred i.e. where it becomes payable. 105. On appeal to CIT(A), the first appellate authority has not agreed to the submissions of the assessee and held that the amount payable by the Assessee to Google Ireland is royalty under the provisions of the Act, without adjudicating on the specific ground raised by the Appellant in this regard. 106. Aggrieved by the order of the CIT(A) the Assessee has raised the following submissions before us : Submissions of the assessee 107. In this regard the Ld. AR for the assessee has submitted that the amount payable by the Assessee is not in the nature of 'royalty' under the Act and the India-Ireland DTAA. However, it was submitted that assuming amount payable to Google Ireland is in the nature of 'royalty', then in terms of Article 12 of the India-Ireland DTAA, income in the nature of royalty is chargeable to tax in the hands of the nonresident only on receipt basis. 108. Our attentio....
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....yment" would not crystallize the charge under the DTAA irrespective of the position under the Act and accordingly Royalty should not be taxable in India. 113. The Ld. AR sought to distinguish the finding of AO which was based on ruling of Supreme Court in the case of Standard Triumph Motors Co. Ltd. It was submitted the judgment is distinguishable. a. The decision does not take into account the provisions of the DTAA as probably none existed at that time; b. CSC Technology Singapore Pte Ltd Vs ADI, New Delhi 12012-TII-35-ITAT-DEL-INTLJ, c. The decision of the Hon'ble Delhi ITAT in the case of Pizza Hut International LLC (supra) factors the observations of the Hon'ble Supreme Court in the case of Standard Triumph Motors while holding that the royalty can be considered as taxable in the hands of the recipient on a receipt basis. 114. Further, reliance is also placed on a recent decision of the Hon'ble Bombay High Court ruling in the case of Siemens Aktiengesellschaft ITA No. 124 of 2010. The Hon'ble High Court was dealing with Article 12 of India Germany DTAA and held that the assessment of Royalty or fees for technical services should....
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....ty under Section 195 is a vicarious liability in the sense that its survival in the hands of tax-deductor is wholly dependent on existence of tax liability in the hands of recipient of income. When a credit afforded by, or a payment made by, an Indian resident, to a non-resident, does not trigger the taxability of that income in the hands of recipient, the tax deduction liability does not come into play at all. This scheme of the Act is implicit from the wordings of Section 195 (1) which state that "Any person responsible for paying to a nonresident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force" (Emphasis, by underling supplied by us). When income embedded in a payment is not taxable under the Income Tax Act, 1961, the tax withholding liability does not get triggered at all. ....
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....thhold would be the year of accrual. Submissions of the revenue 121. The assessee by reading the language of definition of royalty in the DTAA has contended that the amount paid to Google Ireland is taxable in the year of receipt and hence no obligation to deduct tax at source on credit basis. 121.1 The section 195(1) imposes obligation on the assessee to deduct tax at source in respect of the payments made to non-resident if the sum is chargeable under the provisions of the Act. It is further held by various Supreme Court in the case of GE India and Ellie Lilly that the provisions of section 195 has to be read along with charging provisions i.e. section 4, 5,9 and 90 of the Act. On conjoint reading of the above provisions, it is clear that the amounts paid by the assessee to Google Ireland are chargeable under the Act on accrual basis. Hence contention of the assessee that amount is chargeable in the hands of the Google Ireland on receipt basis is misplaced. 121.2 If the language of definition of royalty under the DTAA is read Article 12(3)(a) with Ireland, the wordings "the term "royalties" as used in this article means payment of any kind received as consideration fo....
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....only section which has imposed obligation on the assessee is section 195(1) of the Act . The sect ion obligates the assessee to deduct tax at source in respect of the income chargeable under the Act. The section does not empower the payer to examine the applicability of the DTAA to the payee. Language of section 90(2) of the Act beyond doubt i s 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. 121.7 It is further submitted that the application of DTAA is not automat ic and i t 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 conc lus ion tha t the amount i s not chargeable under the DTAA. 121.8 The contention of the assessee that receipt in the hands of Google Ireland is liable to be taxed on cash basis is completely baseless....
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....esident exercising option under section 90(2) of the Act to claim benefit of the provisions of the Act, and specifically in view of the Mercantile system of accounting being followed by the nonresident, if the nonresident claims that the same is taxable on accrual basis under section 4, 5 and 9 of the Act, read with the specific language of section 195(1) of the Act, the contention is clearly illogical and contrary to the scheme of the Act. Undisputedly it is settled position of law that whether to claim benefit under the Act or under the DTAA is the option of the non-resident. In the absence of any authority in favour of the assessee, the assessee cannot presume that the nonresident would be claiming benefit under the DTAA. If such was the situation, the Act has provided mechanism for the non-resident to express that under section 195 of the Act before the concerned assessing officer. In the absence of any such exercise on behalf of the non-resident, the contention of the assessee is baseless and liable to be rejected. 121. 1 3 . If the terms of the payment as agreed between the parties is examined it is clear that on periodic intervals the amounts are liable to be paid. In vie....
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.....e "Where the total sum paid to non-resident is not chargeable to tax in India" 122.3. Further Ld AR submitted that in the case of GE India Technologies (P) Ltd (supra) has held that the provisions of Section 195 are required be read with the provisions of Section 4, 5, 9, and 90(2). The Hon'ble court had held as under : "While deciding the scope of s. 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of s. 195. Hence, apart from s. 9(1), ss.4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying TDS provisions" 122.4. Further Ld AR submitted that the case of Vodafone South (supra) is not applicable automatically. As per AR in the case of Vodafone South (Supra) has not factored the principle laid down by the Hon'ble Supreme Court in the case of GE India Technologies (P) Ltd (supra).Further Ld AR submitted that decision of the Supreme Court in Palam Gas is in a completely different context and cannot be relied on to submit that 'received' should be interpreted as 'receivable'. 122.5. Ld AR submitted that....
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....ment taxes of its own employees, and for taxes on any property it owns. Distributor shall be responsible for the payment of all other taxes imposed by any governmental authority in the Territory or elsewhere in connection with the distribution of AdWords Program under this Agreement "Taxes" means all central, state, provincial and municipal, income, franchise, business, gross receipts, payroll, property, sales, use, excise, value-added, consumption, goods and services, harmonized sales, and all other similar taxes or duties. Distributor agrees to reimburse, indemnify, defend and hold Google harmless from any deficiency (including penalties and interest) relating to taxes that are the responsibility of Distributor under this Section 4. 123.2. Similarly in Exhibit A ( payment terms and conditions ) it is provided as under : 1. Distributor shall pay fees for the distribution right to Google an amount equal to the excess of : (A) Revenue earned by Distributor and recognized in accordance with accounting standard in the books of account of Distributor pursuant to this Agreement. (B) (i) Expenses incurred under and recorded on the books of account of Distributo....
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....tion and privy to the accounting standard and accounting practice of GIL, has treated the said payment as a business profit of GIL in its books of account. The uniform policy is required to be adopted for deduction of taxes at source in case, by the person responsible for paying amount to a non-resident. There is no caveat or condition laid by the Act on the person responsible for paying to nonresident. In our view, whether it is business profit or royalty, in both the circumstances, so far as the assessee is concerned, the assessee is duty-bound to deduct the TDS unless there is an adjudication by the AO to the contrary u/s.195(2). 123.6 The argument of the Ld. AR that under the provisions of Indo-Ireland DTAA, the royalty is chargeable to tax in the hands of the non-resident on receipt basis needs to be rejected, as the benefit of DTAA, is only available to non-resident and not to the resident payer. Moreover, the assessee cannot claim that the royalty is chargeable to tax in the hands of the non-resident on receipt basis as the assessee has no access to the accounting method followed by GIL. 123.7 The Ld. Standing Counsel for the Revenue had filed the copy of the return of....
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....s may misuse the provision and avoid payment of taxes. To illustrate this, if A company is rendering services to B company, and B company is supplying some technology to A company, then there is a mutual obligation of paying and receiving the amount. It is possible for both A and B either to keep separate accounts for both transactions or they can indulge into adjustment of their accounts by debiting and crediting their accounts without actual payment. In such a situation, there will not be any occasion for B company to receive the actual payment from A company. 123.13 Further, the income arising on account of royalty payable by resident or non-resident in respect of any right, property or information used or services utilized for the purposes of business or profession shall become due and payable as per the provisions of the IT Act, as well as under DTAA when such information is used or service is utilized by the recipient. In the present case, the distribution fees was credited as accrued by the assessee after utilizing the benefit under the distribution agreement to the account of GIL, Therefore, the same is chargeable to tax when it was credited to the account of GIL and the....
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.... only in November, 2011. The following written submissions were made in this regard. The distribution fee payable by the Appellant to Google Ireland for the period December 2006 to June 2009 remained unpaid until FY 2011-12. The Appellant had approached the Reserve Bank of India through the Authorised Dealer bank in November 2011 requesting for approval to remit the amounts to Google Ireland. Pursuant to the approval from the RBI on 12 May 2014, the Appellant has remitted the distribution fee pertaining to aforementioned period in May 2014. 123.18. If we examine the conduct of the assessee it is clear that the assessee has not sought the permission for the distribution fees to be paid to its AE (GIL) for AY 2006-2009, upto Nov 2011. 123.19 Thus the intention of the assessee as well as of the GIL is clear and conspicuous that they wanted to avoid the payment of taxes in India. That is why, despite the duty of the assessee to deduct the tax at the time of payment to GIL, no tax was deducted nor any permission was sought for paying the amount. If the permission for paying the amount is taken immediately after entering into agreement, then this argument of not making the....
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....ot in the Assessment years under consideration or not or even before the lapse of time limit to deduct and deposit the TAX , Secondly the Appellant have not sought permission for remittance till Nov 2011Though the agreement was entered on 12.12.2005, thirdly present case is a case of collusion between the payer and payee . Further when Google Ireland itself is following the mercantile method of accounting then there is no occasion to treat the cash method of accounting and concluding that the Royalty would trigger only on actual payment of amount lastly the royalty paid to Google Ireland is taxable as per Income Tax Act , which provides for maintaining the accounts as per mercantile method as per section 145 of Income Tax. Further the coordinate bench had not followed the binding judgment of Hon'ble Supreme court in the matter of Transmission Corporation of AP (Supra). 123.23 The contention of the Ld. AR that the judgment passed by the Hon'ble Apex Court in the case of Transmission Corporation of AP (Supra) is applicable to the facts is not correct. In fact, Section 195 deals with a situation where any person is making the payment or part of the payment, to a non-resident which ....
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....E India Technology Centre P. Ltd (supra) does not come to the rescue of the assessee. The applicability of DTAA cannot be suo-moto be determined by AO without there being any application under section 195( 2) of the Act for the purposes of deducting the Tax at source. The Coordinate bench in the matter of Vodafone South Ltd. [2015] 53 taxmann.com 441 (Bangalore - Trib.) after referring and dealing GE India Technology Centre P. Ltd (supra) held as under : 36. The next peripheral issue is, can the payer claim full protection of DTAA as is available to the payee in respect to the payments payee had received. The DTAAs are not more than the allocation of the taxes, they do not provide any other mode, how the taxes are to be collected whether by advance deduction etc. This is an area of the domestic law, the sum chargeable to tax is to be considered, with an angle of the domestic law, unless the payee is there to demonstrate that he is not chargeable under the DTAA either by himself or through a payer. The payee never comes u/s 195 (3) of the I.T. Act. It is not available on the record that payee had ever informed the payer about the holding of their tax residency certificate a....
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....hat double taxation treaties do is to establish an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax claims are expected, or at least theoretically possible. Essentially therefore, through the mechanism of a treaty the contracting states mutually bind themselves not to levy taxes, or to tax only to a limited extent, in cases where the treaty reserves taxation for the other contracting states, either wholly or in part. Contracting states thus and qua treaty provisions, waive tax claims or divide tax sources and/or the taxable object. Unlike rules of private international law tax treaty norms assume that both contracting states tax according to their own law. Treaty rules do not lead to the application of foreign law. What treaty rules do is to limit the content of the tax law of both the contracting states to avoid double-taxation. In effect, double taxation avoidance treaty rules merely alter the legal consequences derived from the tax laws of the contracting states, either by excluding application of provisions of the domestic tax law where these apply or by obliging one or both of the concerned States to allow....
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.... was an erroneous belief. We will consider the evidence available on record in support of the assessee's conclusions in the later part of this order, but analysis of the scheme of income tax act, namely recovery of taxes in advance by withholding under Chapter XVII, procedure u/s 195(2) and 195(3) and procedure for assessment persuade us to say that certainly the rights as available to the payee to defend itself in an income tax assessment proceedings are not available to the assessee as payer in equal force. The learned Counsel for the Revenue has rightly pointed that provisions of DTAA would not automatically attract in the defense of the payer. There may be number of reasons for not assessing the income in the hands of the payee. The payee may be entitled for some deductions, some exemption etc. The cumulative setting of all these peripheral factor and their bearing in ultimate decision making process will be considered by us in later part of the order 126 Respectfully following the judgment of Hon'ble SC in the matter of Transmission Corporation of AP Ltd. v. CIT [1999] 239 ITR 587, orders of the coordinate benches in the matter of Vodafone South Ltd. [2015] 53 taxmann.c....
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....has actually been credited (0 the account of GI during the FYs 2005-06 (0 2010-11. 29/01/2013 The assessee replied to show cause notice dated 18/1/2013 and it Document 2 15/02/2013 was mentioned as under ] The fallowing are the amounts payabla by the Company o 90029 Ireland towards digtnbution 985 for FY 2005-06 to FY 2010-11, 35 par Be bocks of azcsunt 425753347 - C 1 10,82,61,062 _ J{' - f 66,58,00,133 200010 | 1856802383 2010-11 3,72,01,00,047 i KRB, PRI PRI .z : ' 2 in ralation to the non deduction of (8 8 sourca on tha istribulion fees resorded 55 paysdle by e Company, ws wish 10 reflerate our submissions made vide leller dated November 29, 2012 and submit that 85 par the provisions of 0 8 Acl and the 00:46 Tax Avor 4 hetwean प ठआठirstand ('Indla-ireland DTAA ), the diskitation et m " र 1 / (09 Google Feland are not in the nature of royalty, wasranling ed Bx u/s 195 of the Act. Refiance in this regard can be [43085 on the Further, it was mentioned in para.3 (at page 129 of paper book) that as per Article 12 of the India-Ireland Double Taxation Avoidance Agreement, income in nature of royalty is chargeable to tax in hands of non-resident only on re....
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.... in India. 1. A3 per non disclozure agrecment, what द the information shared by Google India and Google ireland and vica versa. As par the Agreemant, 1 92 information may inciude (bt nat imted 10) tangible, Gtangibia, visudl, mlect-onic infermation such ax (स ) irade secrets, ह ) financial Information: ( ) technical niormabon inckiding the resaarch 'RIDEMGNL, prOCeOAnes, aigorithme adc. (ठbusiness micomation inciuding operetione, planning, markating, ड ट 8/02/2013 The Revenue issued another show cause notice asking the assessee to furnish following information al Whether any service tax/sales tax was paid by Google Ircland or by Google india on behalf of Google Ireland for marketing छ प distribution of Adwords Program. Details of service rendered by the ITES division of GIPL 10 Google lreland. Also clanfy whether the service rendered by ITES division of GIPL is in any way related to Adwords program. If so furnish in detail with documentary evidence (reports, email ctc: the nature of service rendered} the nature of service rendered with regard to Google Adwords Program, d) Coemplete details of training giver: GIPL for distribution of Adwords....
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....ofit before interest, depreciation and taxes [5-(6+7+8h+9 to 14+15k+16e+17 to 33+ 40 346+ 35 to 30)| 41 Interest 41 42 Depreciation 42 C 43 Profit before taxes (40-41-42) 43 C 44 Provision for current tax 44 C 45 46 Provision for Deferred Tax 48 49 50 2 Provision for Fringe benefit Tax 47 Profit after tax (43-44-45-46) Balance brought forward from previous year Amount available for appropriation (47 +48) Appropriations 45 C 46 C 47 48 C 40 TAX PROVISIONS AND APPROPRIATIONS Transferred to reserves and surplus a b Proposed dividend/Interim dividend b Î Ñ Tax on dividend/Tax on dividend for earlier years d. Any other Appropriation 0 C d 50e Total (50 a to d) 51 Balance carried to balance sheet in partner's account (49-50e) Part A-OI 2 3 4 a Other Information (optional in a case not liable for audit under section 44AB) Method of accounting employed in the previous year Is there any change in method of accounting Effect on the profit because of deviation, if any, in the method of accounting empl....