Google Ireland exempted from tax on ₹8,600 cr received from India unit
Google Ireland (GIL) will not have to pay tax on over ₹8,600 crore received from Google India (GIPL), the Income Tax Appellate Tribunal (ITAT) has ruled.
The payment was made during the fiscal year 201213 to 201516 (the assessment Year 201314 to 201617) under the Google Reseller Agreements towards marketing and distribution rights of the AdWords program. Google Ireland did not file an income tax return (ITR) because revenue from the sale of online advertisements was not taxable in India. However, the Income Tax Department felt that such payment is in the nature of royalty and would attract Tax Deducted at Source (TDS) and issued the notice to the assessee (GIL).
GIL submitted before the Assessing Officer (AO) that
The Bench noted that various ITAT decisions had held that income from sale of advertisement space on a website is not taxable in India if there is no permanent establishment of the foreign enterprise here
the order of the ITAT dated July 23, 2017, in the case of GIPL holding that payments to GIL towards the AdWords program to be royalty was set aside by the Karnataka High Court and remanded to the Tribunal. After that, the ITAT, in 2022, ruled that the issue of the sale of online advertising space is not liable to be taxed in India both under the Incometax Act and the DTAA (Double Taxation
Avoidance Agreement). This order was followed by the coordinate Bench of the tribunal in the case of GIPL for AYs 201314 to 201617 and connected appeals vide order dated December 15,,2022.
However, the AO noted that the department is in the process of filing further appeals in the said cases. It was held by the AO that given the departmental stand and the interest of the revenue, a reassessment proceeding had to be completed. Accordingly, the AO added the amount as royalty income. As the assessee (Google Ireland) did not get any relief from the initial hierarchy of appeal of the Dispute Resolution Panel, it moved to ITAT.
WHAT WEIGHED IN
The Bench took note of the previous ruling which mentioned that various ITAT decisions have held that income from the sale of advertisement space on a website is not taxable in India if there is no PE (Permanent Establishment) of the foreign enterprise in India. It was held that such income is not to be regarded as royalty or FTS (Fees for Technical Services). Such a tax challenge is addressed by the introduction of the Equalisation Levy (EL).
Thus, “online advertisement is now covered under
EL. If online advertisement was already covered under the definition of royalty, then bringing it as part of the EL scheme would not arise.” With this, it was said that payment made by GIPL to GIL cannot be characterised as royalty under the IndiaIreland DTAA. The March 26 ruling also followed the same and said the payments made by GIL to the assessee cannot be taxed in the hands of the assessee.
Commenting on the ruling, Amit Maheshwari, Tax Partner with AKM Global, said: “This decision is notably favourable and carries significant implications for multinational enterprises in the technology sector, as it has the potential to establish a precedent favouring taxpayers in similar transactional and online AdWords sales taxation matters. It is pertinent to note that the equalisation levy implications should be considered in these cases as well.”