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2023 (3) TMI 1304 - AT - Income TaxIncome deemed to accrue or arise in India - Royalty or FTS - Taxability of payments received by the assessee from GIPL as per terms of the distribution agreement as well as the payments received by the assessee directly from Indian advertisers - HELD THAT - As regards assessment years 2009-10 to 2012-13 2022 (10) TMI 1039 - ITAT BANGALORE the issue was decided in favour of GIPL by the Tribunal by holding that the impugned payment made by it to GIL cannot be characterised as royalty under Act or DTAA The payment made by GIPL to GIL is not in the nature of Royalty or FTS under the Act and DTAA, a different treatment cannot taken in the hands of the payee, i.e. the assessee in the instant case. The contentions raised in the written submission of the learned D.R. has been addressed by the Tribunal in the payer s case i.e. GIPL (supra). Hence, we are not dealing with the same in this order. Therefore, we hold that a sum cannot be brought to tax in the hands of the assessee. Receipt on sale of advertisement space from Indian customers other than GIPL - The contentions raised by the learned D.R. in her written submission regarding receipt from other Indian customers has been dealt with in the order of the Tribunal in the case of GIPL (supra). Therefore, we hold that the payment on online advertisement is not liable to be taxed as Royalty in view of the aforesaid judicial pronouncements. It is ordered accordingly.
Issues Involved:
1. Taxability of payments received by Google Ireland Limited (GIL) from Google India Pvt. Ltd. (GIPL) under the distribution agreement. 2. Taxability of payments received by GIL from other Indian customers for online advertisement space. 3. Characterization of payments as 'royalty' under the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and Ireland. 4. Reopening of assessment under Section 148 of the Income Tax Act. Issue-wise Detailed Analysis: 1. Taxability of Payments from GIPL: The Assessing Officer (AO) held that payments made by GIPL to GIL for the sale of online advertisement space were taxable as 'royalty' under Section 9 of the Income Tax Act and the DTAA. However, the Tribunal found that the payments made by GIPL to GIL were not in the nature of royalty. The Tribunal referred to the Supreme Court's decision in Engineering Analysis Centre of Excellence Private Limited, which clarified that mere use of or right to use a computer program without transferring the underlying copyright does not constitute royalty. The Tribunal concluded that the payments from GIPL to GIL could not be characterized as royalty under the India-Ireland DTAA. 2. Taxability of Payments from Other Indian Customers: The Tribunal examined whether the payments received by GIL from other Indian customers for online advertisement space were taxable as royalty. The Tribunal referred to several decisions, including Yahoo India Pvt. Ltd., Pinstorm Technologies Pvt. Ltd., and Right Florists Pvt. Ltd., which held that payments for online advertisement space do not constitute royalty. The Tribunal concluded that the payments received by GIL from other Indian customers could not be characterized as royalty under the India-Ireland DTAA. 3. Characterization of Payments as 'Royalty': The Tribunal analyzed the definition of 'royalty' under Article 12(3) of the India-Ireland DTAA, which includes payments for the use of or the right to use any copyright, patent, trademark, design, model, plan, secret formula, process, or industrial, commercial, or scientific equipment. The Tribunal found that the agreements between GIL and GIPL did not involve the transfer of any rights as per Section 14(a)/(b) and Section 30 of the Copyright Act, 1957. The Tribunal concluded that the payments could not be characterized as royalty under the DTAA. 4. Reopening of Assessment: The Tribunal did not specifically address the issue of reopening the assessment under Section 148 of the Income Tax Act, as the primary issues were decided in favor of the assessee on merits. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the payments received by GIL from GIPL and other Indian customers could not be characterized as royalty under the India-Ireland DTAA. The Tribunal relied on the Supreme Court's decision in Engineering Analysis Centre of Excellence Private Limited and various other decisions to conclude that the payments were not taxable as royalty. The other grounds raised by the assessee were left open and not adjudicated.
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