Bengaluru ITAT adjudicates
issue of taxability of Google’s Adwords program payment in light of HC
direction to dispose of appeals independently without being influenced by
earlier ITAT order, reconfirms characterization of payment as
royalty under the domestic law as well as India-Ireland DTAA; Notes
that assessee had entered into distribution agreement as well as service
agreement with GIL and under the former, Google India was appointed as an
authorized distributor of Adwords programs to the advertisers in India, whereas
under the latter, assessee rendered ITES services and software development
services for GIL; Perusing all relevant agreements and relevant documentation,
ITAT observes that the obligation cast upon the assessee under the
Google Adword distribution / reseller agreement can only be discharged with the
help of the ITES division, therefore, the distribution agreement and the
service agreement are interconnected; Considering the nature of services
performed by the assesse with the aid of ITES division, ITAT rules that since
the assessee had an access to patent, technical know-how, IPRs, trade mark, the
process, derivative works, brand features, etc., of the GIL, “the payments of
advertisement fees ... is not the payment simpliciter towards the purchase of
AdWord space which may be treated as business profit.. but it is a payment of
royalty to the GIL...”; Relies on jurisdictional HC ruling in Synopsys
International Ltd., distinguishes ITAT rulings in Pinstorm Technologies Ltd.,
Right Florist and Yahoo India Ltd. on facts, observes unlike these cases,
assessee in the instant case, is not a simpliciter buyer of Adword Space for
putting the advertisement for himself or others; Remarks that introduction
of equilisation levy would not convert the nature of payment made by the
assessee, also rejects assessee’s bona-fide belief stand for non-deduction of
TDS observing that the distribution and service agreements were prepared in
such a way to give transaction a different colour; With respect to whether
GIL is the beneficial owner of royalty income so as to claim concessional tax
rate under DTAA, ITAT restores the matter to the AO to re-adjudicate the issue
in the light of the license agreements executed between the parent
holdings of GIL:ITAT
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