ITAT Grants Tax Exemption To Google Ireland On Rs.8,699 Crores Received From India Unit

ITAT Grants Tax Exemption To Google Ireland On Rs.8,699 Crores Received From India Unit

Cites the provisions under the Income Tax Act and the Double Taxation Avoidance Agreement

The Income Tax Appellate Tribunal (ITAT) has ruled that Google Ireland Limited (GIL) will not have to pay tax on over Rs.8,600 crores received from Google India Pvt Ltd (GIPL).

The payment was made during the fiscal years 2012-2013 to 2015-2016 (Assessment Years 2013-2014 to 2016-2017) under the Google Reseller Agreements towards marketing and distribution rights of the AdWords program.

Google Ireland (assessee) had not filed the Income Tax Return (ITR), as revenue from the sale of online advertisements was not taxable in India. However, the Income Tax Department judged that the payment was ‘royalty’ and attracted Tax Deducted at Source (TDS) and the assessee was issued a notice.

Before the Assessing Officer (AO), Google Ireland submitted that the ITAT order of 23 July 2017 on GIPL payments towards the AdWords program as ‘royalty’, was set aside by the court and remanded to the tribunal.

In 2022, the ITAT ruled that the online advertising space sale issue was not liable to be taxed in India under the IT Act and the Double Taxation Avoidance Agreement (DTAA) between India and Ireland. The order was followed by the tribunal’s coordinate bench for the assessment years and connected appeals vide the 15 December 2022 order.

However, the AO observed that the IT department was in the process of filing an appeal. Therefore, in the interest of the revenue department, reassessment proceedings had to be completed and he added the amount as ‘royalty’ income.

Since the assessee received no exemption from the Dispute Resolution Panel, it approached the tribunal.

The bench noted ITAT’s earlier decisions, wherein income from the sale of advertisement space on a website was not taxable in India if there was no PE (Permanent Establishment) of the foreign enterprise in the country. It was ruled that the income was not to be regarded as royalty or FTS (Fees for Technical Services).

The tribunal noted that the tax challenge was addressed by introducing the Equalization Levy (EL), which was charged on specified services such as online advertisement, provision for digital advertising space, and any other facility or service.

Thus, the ITAT stated, “Online advertisement is now covered under EL. If it were already covered under the definition of royalty, then bringing it as part of the EL scheme would not have arisen.”

The tribunal thus stated that the payment made by GIPL to GIL could not be characterized as ‘royalty’ under the India-Ireland DTAA and was not taxable.