TaxTMI 
TaxTMI 
2023 (2) TMI 22
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....re common in nature, hence, these are clubbed together heard together and disposed of by this common order for the sake of convenience. 2. Mostly the grounds of these appeals are common in nature and hence for brevity, we consider the IT(IT)A No.1190/Bang/2014, which is the assessee's appeal and the grounds raised in this appeal are as follows: "Based on the facts and in the circumstances of the case, the Ld CIT(A) and the Ld AO have: 1 Erred in holding the payment made by the Appellant to Google Ireland Limited in relation to purchase of advertisement space for resale to the advertisers in India under the Google AdWords Reseller Agreement ('the Agreement') to be in the nature of 'Royalty' under the Act and the India-Ireland Double Taxation Avoidance Agreement (India-Ireland Treaty') stating that the issue is covered under the appeals for earlier years. 2. 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/reselling the advertisement space to the advertisers in India. 3 Erred in h....
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....ny manner to the function of sale of advertisement space to the Indian advertisers being performed by the Appellant. 9. Without appreciating the facts of the case, erred in holding that the amount payable by the Appellant to Google Ireland Limited towards purchase of advertisement space to be in the nature of 'Royalty' under Section 9(1)(vi) of the Act. 10. Erred in upholding the order of the Ld JDIT that the amount payable by the Appellant to Google Ireland Limited is towards right to use of trademark and copyrighted computer program and process, hence is in the nature of 'Royalty as per the Article 12 of the India Ireland Double Taxation Avoidance Agreement. 11. Erred in not following the principle laid down by Hon'ble Mumbai Tribunal in the case of Yahoo India Pvt Ltd (140 TTJ (Mumbai) 195) and Pinstorm Technologies Pvt Ltd (2012) 54 SOT 78 (Mumbai) on similar facts by stating that the facts and issues are completely different and at no stage the Mumbai Tribunal consider what exactly is the AdWords Program. nor did it have occasion to examine the right to use trademark or other IP rights. 12. Erred in not following the decision....
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....lso filed a petition for admission of additional ground and we admit the additional grounds as in our opinion, all the facts are already on record and there is no necessity of investigation of any fresh facts for the purpose of adjudication of above ground. Accordingly, by placing reliance on the judgement of Hon'ble Supreme Court in the case of NTPC Vs. CIT 229 ITR 383 (SC) we inclined to admit the additional ground for the purpose of adjudication as there was no investigation of any fresh facts otherwise on record and the action of the assessee is bonafide. 6. Facts of the case are that the assessee company, Google India Pvt. Ltd. (GIPL), having its registered office at Bangalore was incorporated on 16.12.2003 as a wholly owned subsidiary of Google International LLC, US. GIPL or Google India is engaged in the business of providing Information Technology and Information Technology Enabled services to its Group companies. Further Google India also acts as a distributor for Adwords program in India. The company's activities could be classified into the following segments. IT services :- GIPL has entered into a service agreement with Google Inc to render software deve....
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....ficial owner of the amount received from M/s. Google India Ltd. 8. We have heard the rival submissions and perused the materials available on record. Admittedly, this issue came for consideration before this Tribunal in assessee's own case in IT(TP)A No.1513 to 1516/Bang/2013 for the assessment years 2009-10 to 2012-13, the Tribunal vide order dated 19.10.2022 held as under: 13. We have heard rival submissions and perused the material on record. The issues involved in these appeals revolve around the taxability of payments received by GIL from the assessee, who is engaged in the business of online advertisement space to advertisers in India. The Revenue had sought to characterize these payments received by GIL to be royalty as defined in section 9(1)(vi) of the I.T.Act r.w. Article 12(3) of the India-Ireland Double Taxation Avoidance Agreement (India-Ireland DTAA) and thus chargeable to tax in India in the hands of GIL. The case of the assessee is that the said payments are in the nature of business profits, which are chargeable to tax in Ireland and not in India. Further, since the Department in these proceedings has never alleged that GIL had a Permanent Establishment....
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....riate keywords for his targeted advertisement. Google AdWords Program also contains a number of computer commands, by which the proposed Advertiser can achieve a more focused and particularised targeting, such as geographical or area targeting (advertisement to be shown only in a particular area, say the State of Karnataka) or period targeting (advertisement to be shown only in a certain period) or time targeting (advertisement to be shown only at certain fixed times during the day) or duration targeting (to be shown only for a fixed time duration each time). All these types of targeting are over and above the usual subject targeting and are achieved by simple computer commands, given by the proposed Advertiser on the Google AdWords Program. All these facilities are available on the Google AdWords Program to any member of the public, free of charge, to enable him to formulate a suitable draft advertisement for his product or service. The only requirement is that the proposed Advertiser should have a website of his own / or entity giving particulars about his/ its business. The Google AdWords Program itself gives step-by-step and detailed instructions, so that even a person who has ....
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....ensing, selling, marketing and supporting certain Internet search, advertising system and information organization and management technology products and services to provide information, advertising, search and related services via the Internet, corporate intranets and private networks (collectively, 'Products ''); and . WHEREAS, Google Ireland desires to avail services, relating to, information technology. Information technology enabled services and software development related services from Google India as per the terms and conditions of this Agreement; and C WHEREAS, Google India has expertise in rendering the above services and is willing to render such services for Google Ireland as an independent contractor on the terms and conditions of this Agreement: NOW THEREFORE, in consideration of the mutual covenants and conditions contained herein the parties agree as follows: 1. DEFINITIONS 1. 1 'Affiliate' shall mean any Person, whether de Jure or de facto, that directly or indirectly participates in the capital. control or management of either party or is under common ownership with a party to this Agreement or other....
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....e property rights constituting, embodied in. pertaining to, used in or with respect to the business of Google Ireland, the Products, or the provision of related services and all tangible embodiments hereof, wherever located, including but not limited to the following: (i) all trademarks, trade names, service marks, logos or trade dress, including all registrations and applications therefor; (ii) all copyrights. Moral Rights (as defined below), and other rights in works of authorship including all registrations and applications therefor; (iii) all patents and patent applications. patentable Ideas, Inventions, innovations and improvements; (iv) all knowhow and trade secrets; v) all design and code documentation, methodologies, processes, design information, design flows, encoding techniques, applications, product information. Formulae, engineering specifications, technical data, testing procedures, drawings and techniques and other proprietary information and materials of any kind; (vi) all software programs in both source code and object code format. including all testing software and software tools: (vii) all documentation, records, databases, drafts, designs, codes, drawings and a....
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.... the terms and conditions of such agreements **** **** ****** 5. OWNERSHIP 5.1 Intellectual Property. Google India acknowledges the exclusive right. title and interest of Google Ireland and its licensors and/or suppliers in and to any and all Confidential Information, Intellectual Property, Software Technology and Documentation, and Google India will not at any time do or cause to be done any act or thing impairing or tending to impair any part of said right, title and interest. Google India acknowledges and agrees that all such Confidential Information, Intellectual Property, Software Technology and Documentation shall remain the exclusive property of Google Ireland and, as applicable, its licensors and/or suppliers. 5. 2 Ownership of Derivative works Works and Software Embodiments. Google India shall keep Google Ireland promptly informed of Google India's development of any Derivative works Works and Software Embodiments and hereby irrevocably agrees that all such Derivative works Works and Software Embodiments shall forever be the sole and exclusive property of Google Ireland throughout the world from the date of its creation. As between G....
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.... by this Agreement. Google India shall cause each of its Representatives with access to the Confidential Information to enter into a nondisclosure agreement in a form approved by Google Ireland. Google India shall use the highest standard of care currently employed by any developer or distributor of high technology products in order to avoid disclosure or misappropriation of such Confidential Information. 6.3 Ownership and Return of Confidential Information. All files, lists, records. documents, drawings, specifications, equipment and computer programs which incorporate or refer to all or a portion of the Confidential Information shall remain the sole property of Go ogle Ireland or its licensors and suppliers. Such materials shall be promptly returned: (i) upon Google Ireland's reasonable request, or (ii) in accordance with Section 12 upon termination of this Agreement, whichever is earlier. **** ********* ****** 12.5 Rights and Duties of Termination. (a) Upon termination or expiration of this Agreement: (i) Google India shall have the right to retain any sums already paid by Google Ireland under this Agreement and Google Ireland shall pay....
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....Program. In fact, even after using the Google AdWords Program and formulating / displaying an online advertisement, no payment is made by the Advertiser, unless the Ad is clicked by an end-user. Relevant terms and conditions of the Distribution Agreement are as under:- 'Amended and Restated Google AdWords Program Distribution Agreement. This Amended and Restated Google AdWords Program Distribution Agreement ("Agreement'') is entered into as of December 12, 2005 (the "Effective Date'') by and between Google Ireland Limited, with offices at 1st & 2nd Floors Gordon House, Barrow Street, Dublin 4 Ireland ("Google''),and Google Online India Private Limited, a company incorporated under the Indian Companies Act, 1956 and having its registered office at 1st Floor, Prestige Sigma, No. 3 Vittal Mallya Road, Bangalore 560 001 ("Distributor''). WHEREAS 1. Google wishes to enter into the Distribution Agreement for its AdWords Program with Distributor; 2. Whereas Google Inc., a Delaware corporation, and Distributor entered into a Google AdWords Program Distribution Agreement, dated as of December 12, 2005.(the "Pri....
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....advertiser through the AdWords Program for a given set of one or more advertisements that are used to target those advertisements to potential customers. 1.10 "User Data" means all data and information provided by users via the AdWords Program, including all registration data, names, email addresses, other addresses, contact information, and other identifying information. 2. Appointment of Territory and Distributor Obligations. 2.1 Appointment of Territory. Google appoints Distributor as a non-exclusive authorized Distributor of Go ogle AdWords Program to Advertisers, all under and in accordance with the terms and conditions set forth in this Agreement. Distributor shall conduct its business for its own account, in its own name, aid not as an agent, employee, partner, or franchisee of Google. Distributor may not solicit business from and shall not distribute AdWords Program to (even if unsolicited), any entity that does not have a principal place of business within the Territory. For the avoidance of doubt, an entity's principal place of business will be determined by the place of such entity's registration. All inquiries by any such entity for sa....
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....stributor will provide after-sales services to Advertisers in accordance with the broad instructions, training and standards of Google. 3. Google Obligations. 3.1 Advertising Space. Google agrees to provide advertising space through the AdWords Program for distribution by Distributor to Advertisers as set forth herein. 3.2 Training. Google agrees to train Distributor. 3.3 Non-Exclusivity. This Agreement shall constitute a non- exclusive relationship between Google and Distributor. ***** ***** ****** 5. Reporting Requirements. 5.1 Information Provided by Google. Google will make available to Distributor online information about Advertiser activity, on an aggregate and individual basis. which information shall contain include (i) the total number of Keywords purchased by Advertisers, (ii) the number of impressions of Advertisers' advertisement delivered across the Google network, (iii) the number of clicks delivered across the Google network for Advertisers' advertisement an (iv) the cost of clicks delivered across the Google network for Advertisers ' advertisement. Distributor must set up AdWords Program advertisin....
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....luding the User Data (including any aggregated User Data), the existence and content of this Agreement, and any information provided pursuant to this Agreement, shall be governed by the Google Standard Mutual Non-Disclosure Agreement (introductory paragraph and Sections 1 through 12, inclusive), executed by the parties prior to or concurrently with this Agreement (the "NDA ''), which is attached hereto as Exhibit B, and which is incorporated by reference herein. Each party acknowledges and agrees that it will obtain the other party's prior written approval, which shall include approval of any proposed text, before making any public announcements or communication, including, but not limited to, any press releases, online publishing or direct mailings concerning or related to the existence or terms of this Agreement. In addition. Distributor agrees to waive all claims against and release Google (and its affiliates, partners and representatives) from any claims or losses in connection with any above publications made by Google. 4. User Data. Google owns all right, title, and interest in and to all information and data, including the User Data collected by Google r....
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....iness hours phone support to all Advertisers. E-mail queries from Advertisers shall be responded to within one (1) business day with immediate resolution of any issues when possible. Issues that cannot immediately be resolved by Distributor based on training and procedures provided under the Agreement must be communicated promptly to Google by Distributor and Google will assist Distributor in determining the best solution. Google agrees that it shall provide at least the following minimum levels of service to Distributor: Customer Queries (as defined below), up to the E-Mail Escalation Limit (as defined below), shall be responded to within one (1) business day "Customer Queries" shall mean e-mails sent from Distributor to Google related to Advertiser issues, but excluding general communications between Distributor and Google (e.g. billing questions, training information) and technical issues that only Google can solve. "E-Mail Escalation Limit" shall equal five (5) e-mails per month for everyone hundred (100) Advertisers serviced by Distributor, provided, however that the E-Mail Escalation Limit shall only apply beginning thirty....
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.... will only have a duty to protect Confidential Information disclosed to it by the other Party ("Discloser''): (a) if it is clearly and conspicuously marked as "confidential" or with a similar designation; (b) if it is identified by the Discloser as confidential and/or proprietary before, during. or promptly after presentation or communication; or (c) if it is disclosed in a manner in which the Discloser reasonably communicated, or the Recipient should reasonably have understood under the circumstances including without limitation those described in Section 2 above, that the disclosure should be treated as confidential whether or not the specific designation "confidential" or any similar designation is used. 4. A Recipient will use the Confidential Information only for the Purpose described above. A Recipient will use the same degree of care. but no less than a reasonable degree of care, as the Recipient uses with respect to its own information of a similar nature to protect the Confidential Information and to prevent: (a) any use of Confidential Information in violation of this agreement; and/or (b) communication of Confidential Information to any unauthorized thir....
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....ss Advertising third party Name and address Advertiser Advertising third party Customer will promptly notify Google of any change in address and contact name information for billing purpose. Agreement name. Agreement type Agreement Id Purchase order # Target start date End date Agreement budget Service tax Billing Method Payment Terms (payment due within the following number of days from invoice date) When applicable, Customer's purchase order number references above is required and must be provided by customer for Google Invoicing This Adwords Agreement ('SA') shall be governed by terms and conditions ('Terms and Conditions) available at the following URL: http.l/ www.google.co. inladsladwordsterms. html All terms contained in the Terms and Conditions are made a part of this SA through incorporation by reference. The signatory of this Service Agreement represents that she has read and agrees to such Terms and Conditions and the terms of SA. There shall be no force or effect to any different or additional terms....
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....ms of prepayment are at Google's sole discretion. Prepayment does not obligate Google to deliver any Ad Words ads notwithstanding acceptance of prepayment by Google. Unused portions of prepayments will be returned to Customer after the end date to the extent that there are no amounts still due to Google. Right To Reject Advertisement: All advertisements submitted by Customer are subject to Google's approval. Google reserves the right to review, reject or remove any SA, advertisement, or URL link, except that Google will not cancel placement of an SA, advertisement, or URL link due to inventory demand for other advertisers. Customer pre-authorises Google to modify or rearrange the text elements in advertising creative submitted by Customer. Please carefully read these Google Advertising Agreement terms and conditions ("Agreement') before selecting '1 Accept ' and submitting your selection. By selecting 'I Accept', you agree to be legally bound by the terms of this agreement. If you do not agree to the terms of this agreement please select "1 Decline" and submit your selection. Customer signature Name Title ....
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....ively "Services"). Customer shall protect any Customer passwords and takes full responsibility for Customer's own, and third party, use of any Customer accounts. Ads may be placed on (y) any content or property provided by Google ("Google Property"), and unless opted-out by Customer (z) any other content or property provided by a third party ( "Partner") upon which Google places ads ("Partner Property"). With respect to Adwords online auction-based advertising, Google may send Customer an email notifying Customer it has 72 hours ("Modification Period") to modify keywords and settings as posted. The account (as modified by Customer otherwise as initially posted) is deemed approved by Customer after the Modification Period, and Google is only liable to Customer for discrepancies if Customer can certify by contemporaneous documentary evidence that Google posted ads not approved by Customer. With respect to all other advertising, Customer must provide Google with all relevant Creative by the due date set forth in that advertising Program's applicable FAQ or as otherwise communicated by Google. Customer grants Google permission to utilize an automated software program to retriev....
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....ncluding without limitation any rights needed to host, cache, route, transmit, store, copy, modify, distribute, perform. display, reformat. excerpt, analyze, and create algorithms from and derivative works of Creative or Targets) in connection with this Agreement ("Use"). Customer represents and warrants that LV) all Customer information is complete, correct and current; and (z) any Use hereunder and Customer's Creative, Targets, and Customer's Services will not violate or encourage violation of any applicable laws, regulations, code of conduct, or third party rights (including, without limitation, intellectual property rights). Violation of the foregoing may result in immediate termination of this Agreement or customer's account without notice and may subject Customer to legal penalties and consequences. 3. Disclaimer and Limitation of Liability. To the fullest extent permitted by law. GOOGLE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION FOR NONINFRINGEMENT, SATISFACTORY QUALITY, MERCHANTABILITY AND FITNESS FOR ANY PURPOSE. To the fullest extent permitted by law, Google disclaims all guarantees regarding positioning or the levels o....
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....ighest rate permitted by law, if less). Charges are exclusive of taxes, cesses or other applicable levies. Customer is responsible for paying (y) all applicable taxes, cesses and levies, government charges, and (z) reasonable expenses and attorneys fees Google incurs collecting late amounts. To the fullest extent permitted by law, Customer waives all claims relating to charges unless claimed within 60 days after the charge (this does not affect Customer's credit card issuer rights). Charges are solely based on Google's measurements for the applicable Program, unless otherwise agreed in writing. To the fullest extent permitted by law, refunds (if any) are at the discretion of Google and only in the form of advertising credit for only Google Properties. Nothing in these Terms or and 10 may obligate Google to extend credit to any party. Customer acknowledges and agrees that any credit card and related billing and payment information that Customer provides to Google may be shared by Google with companies who work on Google's behalf, such as payment processors and/or credit agencies, solely for the purposes of checking credit, effecting payment to Google and servicing Custom....
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....India. Either party may, without waiving any remedy under this Agreement, apply to the arbitrator and/or any court having jurisdiction any interim, provisional, injunctive or conservatory relief that is necessary to protect the rights or property of that party until the arbitration award is rendered or the Dispute is otherwise resolved. Any decision rendered by the arbitrator will be final and binding on the parties, and judgment thereon may be entered by any court of competent jurisdiction, including, but not limited to, any court that has jurisdiction over either of the parties or any of their assets. The parties expressly agree that the arbitrator will be empowered to award and order equitable or injunctive relief with respect to matters brought before him, provided however, that such remedy or relief is consistent with the remedies and limitations set forth in this Agreement. The parties agree that all arbitral proceedings conducted pursuant to this Section, including the existence of any arbitral proceedings, information disclosed in the course of such arbitral proceedings, and any settlements, negotiations, discussions, proposals, and awards related thereto shall be considere....
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....ese Terms or an Advertising Program expire or is terminated, Google shall not be obligated to return any materials to Customer. 11. Term: Unless terminated earlier under the terms of this Agreement This Agreement shall have a term of 1 year from the latest of the signature dates below. Customer acknowledges and agrees that if this Agreement expires or is terminated any Customer campaigns in effect as of the date of such expiration or termination or any new campaigns commenced after such expiration or termination shall run thereafter subject to Google's then standard terms and conditions for the Program." 20. Under the Distribution Agreement, the assessee acted as a distributor of online advertisement space to Indian Advertisers. The assessee was ensured a specified margin over its cost from GIL. If in case, the revenue recorded by the assessee from the sale of online advertisement space to Indian Advertisers was less than its cost (incurred in connection with its distribution function) plus the specified margin, GIL was required to compensate the assessee for the difference. However, where the revenue recorded by the assessee from the onward sale of online adv....
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....oogle Ireland are admittedly not transferred to assessee. The assessee has only right to use these for rendering ITES services. Applying ratio of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra), this cannot result in royalty. We proceed to examine whether the definition of 'Royalty' as per Article 12 of India-Ireland DT AA is satisfied in the present case considering the distribution agreement, services agreement and the facts on record. 23. The definition of 'Royalty' as per Article 12(3)(a) of India - Ireland DTAA is as under:- "3. (a) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph film or films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft or for information concerning industrial, commercial or scientific experience. " 24. The first ....
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.... "71. The transfer of "all or any rights (including the granting of a licence) in respect of any copyright", in the context of computer software, is referable to sections 14(a), 14(b) and 30 of the Copyright Act. As has been held hereinabove, the expression "in respect of' is equivalent to "in" or "attributable to". Thus, explanation 2(v) to section 9(1)(vi) of the Income Tax Act, when it speaks of "all of any rights ... in respect of copyright" is certainly more expansive than the DTAA provision, which speaks of the "use of, or the right to use" any copyright. 72. However, when it comes to the expression "use of, or the right to use", the same position would obtain under explanation 2(v) of section 9(1)(vi) of the Income-tax Act, inasmuch as, there must, under the licence granted or sale made, be a transfer of any of the rights contained in sections 14(a) or 14(b) of the Copyright Act, for explanation 2(v) to apply. To this extent. there will be no difference in the position between the definition of "royalties" in the DTAAs and the definition of "royalty" in Explanation 2(v) of section 9(1)(vi) of the Income-tax Act. 73. Even if we were to consider the ambit....
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....there is any repugnancy to the terms of the DTAA. For all these reasons, the determination of the AAR in Citrix Systems Asia Pacific Pty. Ltd (supra) does not state the law correctly and is thus set aside. ***** ******** ****** 108. Fourthly, the High Court is not correct in referring to section 9(l)(vi) of the Income-tax Act after considering it in the manner that it has and then applying it to interpret the provisions under the Convention between the Government of the Republic of India and the Government of Ireland for the Avoidance of Double Taxation and for the Prevention of Fiscal Evasion with respect to Taxes on Income And Capital Gains. ["India-Ireland DTAA'']. Article 12 of the aforesaid treaty defining "royalties" would alone be relevant to determine taxability under the DTAA, as it is more beneficial to the assessee as compared to section 9(l)(vi) of the Income-tax Act, as construed by the High Court. Here again, section 90(2) of the Income-tax Act, read with explanation 4 thereof has not been properly appreciated ***** ******** ****** 117. The conclusions that can be derived on a reading of the aforesaid judgments are as follow....
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....tion 30 of the Copyright Act. (v) The right to reproduce and the right to use computer software are distinct and separate rights, as has been recognized in State Bank of India (supra) (see paragraph 21), former amounting to parting with copyright and the latter, in the context of no exclusive EULAs, not being so." 26. Having considered the above principles in the context of copyright royalty, we proceed to examine the applicability of the above principles to the facts of the present case particularly with reference to distribution agreement, services agreement and other facts on record. As per para 2.1 of the distribution agreement, assessee is appointed as a non exclusive authorised distributor of Google Adwords program to Advertisers. Para 2.2 of the agreement states that the distributor agrees to market and distribute Adwords program to advertisers within the broad guidelines provided by Google with its reasonable commercial expertise and own sales force and customer service infrastructure. It also provides that the Distributor will distribute the AdWords program in accordance with the training provided by Google. As per para 2.3, distributor shall be responsib....
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....ther rights) in Creative, Services and Targets needed for Google and Partner to operate Google's advertising programs for Customer (including without limitation any rights needed to host, cache, route, transmit, store, copy, modify, distribute, perform, display, reformat, excerpt, analyze, and create algorithms from and derivative works of Creative or Targets) in connection with this Agreement ("Use"). The advertiser represents and warrants that (y) all Customer information is complete, correct and current; and (z) any Use hereunder and Customer's Creative, Targets, and Customer's Services will not violate or encourage violation of any applicable laws, regulations, code of conduct, or third party rights (including, without limitation, intellectual property rights). Violation of the foregoing may result in immediate termination of this Agreement or customer's account without notice and may subject Customer to legal penalties and consequences. 29. As per the services agreement, the assessee was providing information and information technology enabled services to Google Ireland. As regards ownership of intellectual property and ownership of derivate works, it ....
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....logos, domain names, or other distinctive brand features that Google may provide to Distributor for use solely under this Agreement. As per para 6 of the distribution agreement, each party shall own all right, title and interest, including without limitation all Intellectual Property Rights, relating to its Brand Features and Google Irland grants to the assessee / distributor nonexclusive and nonsublicensable licence during the Term to display Google Brand Features solely for the purpose of distributor's marketing and distribution of AdWords Program under the terms and subject to the conditions set forth in this Agreement. It is thus evident that the trademark and other brand features are not used independently or de hors the distribution agreement but they are incidental or ancillary for the purpose of carrying out the marketing and distribution of Adword program. The Delhi High Court in DIT v Sheraton International Inc [2009] 313 ITR 267 held that when the use of trade mark, trade name etc are incidental to the main service of advertisement, publicity and sales promotion and further when there is no consideration payable for such use of trade mark, trade name etc, the conside....
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....y the Supreme Court in the case of UOI v Azadi Bachao Andolan [2003] 263 ITR 706, at page 763: "We are unable to agree with the submissions that an act which is otherwise valid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents." 34. Before concluding, it is to be mentioned that the taxability with respect to payments made for purchase of online advertisement has been decided by the following Coordinate Bench orders of the I.T.Act:- (i) Yahoo (supra): Department of Tourism of India hired the services of Yahoo India for uploading, displaying, and hosting its banner advertisement on the Yahoo portal, which was operated by Yahoo Hong Kong. For the said purposes Yahoo India engaged Yahoo Hong Kong for uploading and displaying the said banner advertisement. Pursuant to such arrangement, Yahoo India received consideration from Department of Tourism of India and after retaining its margin, the balance was remitted to Yahoo Hong Kong. The payment remitted by Yahoo India to Yahoo Hong Kong was the subject matter of dis....
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....s made by it for that purpose to Facebook Ireland Ltd., a non-resident, to be taxable in India. The CIT(A) upheld the order of the AO. The Tribunal relied on the decision in Yahoo (supra), Pinstorm (supra), Right Florists (supra), while setting aside the order of the AO/ CIT(A) and holding that the payments for purchase of online advertisement space were not taxable in India. (v) Urban Ladder (supra): The assessee in this case, made payments to Facebook Ireland Ltd., for online advertising. The AO held the said payments to be royalty. The CIT(A) upheld the order of the AO. However, while doing so, the CIT(A) relied upon certain functional aspects of advertisement system qua Patent Number US20040059708A1 as well as US7778872B2. These two patents are held by Google LLC., USA in connection with the Google AdWords Program hereto. The Tribunal, set aside the order of the CIT(A), while following the decision of the Hon'ble Supreme Court in Engineering Analysis (supra). The Hon'ble Tribunal also relied on the decisions in Yahoo (supra), Pinstorm (supra) and Right Florists (supra). (vi) Myntra Designs (supra): Myntra in this case, made payments to Facebook Ireland Ltd., f....
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....an internet advertising agency, which places online advertisements on behalf of its clients. The payments in this case were made to Facebook Ireland Ltd., which were disallowed by the AO and the CIT(A). The Tribunal observed that Interactive Avenues was utilising Google Search Engine amongst others, to buy online advertisement space on behalf of its clients. Be that as it may, the Tribunal set aside the order of the CIT(A) and held that the payments in question could not be characterised as royalty, while relying on the decisions in Urban Ladder (supra) and Play Games (supra). 35. It is also relevant to point out that in the context of interpreting Article 12(3) of India - Ireland DTAA, it is relevant to take note of the existing international jurisprudence. The Technical Advisory Group ("TAG") set up by the Organisation for Economic Co-operation and Development ("OECD"), in its Report (2001) on treaty characterisation of electronic commerce payments analysed various ecommerce transactions and suggested suitable characterisation for consideration flowing thereunder. One of the transactions analysed by TAG was advertising. In the context of online advertisements, including ....
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....ge of EL at 6% on consideration for specified services. Section 164(i) of Finance Act, 2016 provides that "specified service" means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf. Thus, online advertisement is now covered under EL. If online advertisement was already covered under definition of royalty, then bringing it as part of EL scheme would not arise. 39. In view of the aforesaid discussion and the judicial pronouncements, cited supra, we hold that the impugned payment cannot be characterized as royalty under the India-Ireland DTAA. It is ordered accordingly. 40. In the result, the appeals filed by the assessee are allowed." 8.1. Respectfully following the above order of the Tribunal, we inclined to decide the assessee's appeal in IT(IT)A No.1190/Bang/2014 in favour of the assessee. 8.2. Since it was decided on payment made by GIPL to M/s. Google Ireland Ltd. for purchase of online advertisement phase for onward resale to India advertisers, in terms of distribution agreeme....