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2023 (2) TMI 22 - AT - Income TaxRoyalty - payments made by the assessee to Google Ireland Ltd. - India-Ireland DTAA - liability to withhold tax fastened on the assessee - HELD THAT - Admittedly, this issue came for consideration before this Tribunal in assessee s own case 2022 (10) TMI 1039 - ITAT BANGALORE wherein held that impugned payment cannot be characterized as royalty under the India-Ireland DTAA. TDS u/s 195 - As 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 agreement dated 12.12.2005, were not in nature of royalty as defined u/s 9(1)(vi) of the Act read with Article 12(3)(a) of TTA between India and Ireland and observed that GIPL was not an assessee in default u/s 201 of the Act, for not deducting the tax at source, on the payment in question, under the section 195 of the Act and the issue of beneficial ownership which is consequential in nature and as such this issue became academic and the appeal of the revenue is not surviving. Accordingly, the appeal of the revenue is dismissed as infructuous.
Issues Involved:
1. Characterization of payments made to Google Ireland Limited (GIL) as 'Royalty' under the Income Tax Act and the India-Ireland Double Taxation Avoidance Agreement (DTAA). 2. Determination of whether GIL is the beneficial owner of the payments received from Google India Private Ltd (GIPL). 3. Withholding liability on Royalty to arise only on a payment basis under the India-Ireland DTAA. Detailed Analysis: 1. Characterization of Payments as 'Royalty': The primary issue was whether payments made by GIPL to GIL for the purchase of advertisement space under the Google AdWords Reseller Agreement constituted 'Royalty' under the Income Tax Act and the India-Ireland DTAA. - Tribunal's Findings: The Tribunal referred to the Supreme Court's decision in Engineering Analysis Centre of Excellence (P) Ltd v CIT, which clarified that mere use of or right to use a computer program without any transfer of underlying copyright does not constitute 'Royalty'. The Tribunal noted that the AdWords program is a computer software and the payments made by GIPL were for the use of this software. However, there was no transfer of any rights as per section 14(a)/(b) or section 30 of the Copyright Act, 1957. Consequently, the payments could not be characterized as 'Royalty' under the DTAA. - Use of Trademarks and Brand Features: The Tribunal observed that the use of Google Brand Features (trademarks, logos, etc.) was incidental to the distribution agreement and did not constitute a separate consideration. The Delhi High Court's decision in DIT v Sheraton International Inc was cited, which held that when the use of trademarks is incidental and no separate consideration is paid, it does not amount to 'Royalty'. - Scientific Equipment: The CIT(A) had concluded that GIPL did not gain the right to use any scientific equipment, as Google Ireland did not part with the copyright in the AdWords program. This finding was not challenged by the revenue, and hence the payments could not be regarded as for the use of scientific equipment. - International Jurisprudence: The Tribunal also referred to the OECD's Technical Advisory Group report and the High-Powered Committee on electronic commerce and taxation, which recommended that payments for online advertisements should be treated as business profits and not 'Royalty'. - Equalization Levy: The introduction of the Equalization Levy (EL) by the Finance Act, 2016, was noted. The EL specifically covers online advertisements, indicating that such payments were not intended to be covered under 'Royalty'. 2. Beneficial Ownership: The revenue contended that GIL was not the beneficial owner of the payments received from GIPL. The CIT(A) had previously ruled that GIL was the beneficial owner, and this was upheld by the Tribunal. - Tribunal's Findings: The Tribunal found that GIL was indeed the beneficial owner of the payments. The certificates issued by the Irish Revenue Authorities confirmed that GIL was a tax resident of Ireland, and its worldwide income was taxed in Ireland. The Tribunal noted that there was no change in the facts or any new material brought on record by the AO to contradict this position. 3. Withholding Liability: The assessee argued that the withholding tax liability on Royalty arises only on a payment basis under the India-Ireland DTAA. - Tribunal's Findings: Given that the payments were not characterized as 'Royalty', the issue of withholding tax liability became academic. The Tribunal did not need to adjudicate this point further. Conclusion: The Tribunal concluded that the payments made by GIPL to GIL for the purchase of advertisement space under the Google AdWords Reseller Agreement were not in the nature of 'Royalty' under the India-Ireland DTAA. Consequently, GIPL was not liable to withhold tax under section 195 of the Income Tax Act. The appeals filed by the assessee were allowed, and the revenue's appeal was dismissed as infructuous.
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