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TMI Blog2021 (9) TMI 852X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee in default u/s. 201(1) of the Act. Accordingly, we set aside the orders passed by Ld. CIT(A) for the years under consideration and direct the AO to delete the demand raised u/s. 201(1) of the Act and also the consequential interest charged u/s. 201(1A) of the Act - Decided in favour of assessee. - IT (IT) A. Nos. 598 to 600/Bang/2020 - - - Dated:- 3-9-2021 - George George K., Member (J) And B.R. Baskaran, Member (A) For the Appellant : Percy Pardiwalla, Sr. A.R. For the Respondents : Muzaffar Hussain, D.R. ORDER Per B. R. Baskaran , Accountant Member The assessee has filed these three appeals challenging the common order dated 16.03.2020 passed by LD CIT(A)-12, Bengaluru and they relate to the assessment years 2012-13 to 2015-16. In all the three years, the Ld. CIT(A) has confirmed the demand raised by the AO u/s. 201(1)/201(1A) treating the assessee as an 'assessee in default' for non-deduction of tax at source from the payments made to M/s. Facebook Ireland towards advertisement fees. 2. The assessee herein is an Indian company. The AO noticed that the assessee has made payments to M/s. Face Ireland Ltd. towards advertisement charges as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s database of users. To touch upon a few of the alternatives that Facebook provides - the businesses could choose their target market based on the age group, location, gender etc. The advertisement made in the Facebook platform is not a dormant or passive or broad based advertisement as made in TVs, or newspapers or public hoarding. Unlike the traditional medium of advertisements, what Facebook offers is - dynamic, highly target group specific and real time monitored advertising. (iii)...... (iv) It is evident that a business entity or advertiser can target specific groups and monitor the conversions or the success of the advertisements. There are provisions to monitor and evaluate the overall effectiveness of the ad campaign, to study the market behaviour with respect to the products of various range, to generate a wealth of actionable data using tools of business analytics, to make commercially best decisions with regard to the ad campaigns and new product launches, to design new products and launch them selectively in the most potential markets, to analyse the consumer purchase pattern and to derive the maximum return on investments. Given the immense scope and possibi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me at paragraphs 6 (Pages 10 to 16) of his order. Accordingly, the Ld. A.R. submitted that the conclusions reached by Ld. CIT(A) are identical with his conclusions reached in the case of Urban Ladder Home D cor Solutions Pvt. Ltd. (supra). He submitted that, in the case of M/s. Urban Ladder (supra), the Ld. CIT(A) has held that the advertisement charges paid to M/s. Facebook Ireland is in the nature of Royalty and he has reached identical conclusion in the instant cases also. 8. We heard Ld. D.R. and he also submitted that the orders passed by Ld. CIT(A) in the instant cases are identical with the order passed by him in the case of Urban ladder (supra). 9. We notice that the Tribunal, in the case of Urban Ladder (supra) has extracted the relevant observations made by Ld. CIT(A) in its order and the same is identical with the observations made in the instant cases. Accordingly, we feel it convenient to extract relevant portions of the order passed by the Tribunal in the case of Urban Ladder Home D cor Solutions P Ltd. (supra). In the case of Urban Ladder (supra), the Tribunal has examined the nature of payments made to three companies, vis., M/s. Facebook Ireland, M/s. Rocket ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ystem will be explained below. Furthermore, although FIG 2 shows a particular arrangement of components constituting advertisement system 120, those skilled in the art will recognize that not all components need be arranged as shown, not all components are required, and that other components may be added to, or replace, those shown. 17. The parent document, illustrate an embodiment of the invention and together with the description, explain the invention. In the drawings, in FIG. 2 is a diagram functionally illustrating an advertising system consistent with the invention. Here the ad consumers (130) and the advertisers (110) are outside the bod whereas the management component 210, a tools component 220, a billing component 230, one or more data bases 240, an ad consumer interface component 250 are inside the bod. I find that the appellant who is handling management component, tools component, billing component and or one or more data bases certainly has more privileges and access to the programs than the ad consumers (130) and the advertisers (110). Then the Ld. CIT(A) proceeded to discuss about another patent documents as under:- 18. Further, the patent number US77 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xt of advertising for use with a search engine, may track all possible ad impressions, ad impressions already reserved, and ad impressions available for given keywords. The ad serving operations) 230 may service requests for ads from ad consumers 130. The ad serving operation(s) 230 may use relevancy determination operation(s) 235 to determine candidate ads for a given request. The ad serving operation(s) 230 may then use optimization operation(s) 240 to select a final set of one or more of the candidate ads. Finally, the ad serving operations) 250 may use presentation ordering operation(s) 250 to order the presentation of the ads to be returned. The fraud detection operations) 2ZZ can be used to reduce fraudulent use of the advertising system (e.g. bu advertisers), such as through the use of stolen credit cards. The Ld. CIT(A) has then observed as under:- 20. Thus, from the document of the patent numbers cited supra, it is clear that the appellant's roles are intertwined with that of user and advertisers. 21. These instances are only illustrative and there are a number of such documents which evidence that the technical support cannot be carried out without acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- 31. In view of the above, the argument of the appellant that consideration paid for purchase of software, cloud computing, cloud space hiring, (involving transfer of the right to use the software) is not royalty is not acceptable. The grounds in this respect are therefore dismissed. Aggrieved by the order passed by Ld. CIT(A) for the three years under consideration, the assessee has filed six appeals, viz., three appeals for the demand raised u/s. 201(1) of the Act and three appeals for the interest charged u/s. 201(1A) of the Act. 10. We heard the parties and perused the record. We notice that the AO has mainly invoked the provisions of sec. 9(1)(vi) of the Act in respect of payments made to M/s. Facebook and M/s. Rocket Science Group (MailChimp) to hold that the same is royalty . In respect of payments made for Amazon Web Services, the AO has also referred to the provisions of DTAA entered into India and USA in addition to sec. 9(1)(vi) of the Act. However, the AO has held that these payments are royalty mainly considering the provisions of sec. 9(1)(vi) of the Act. 11. M/s. Facebook is located in Ireland and other two are companies located in USA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income-tax Act (section 9(1)(vi), along with explanations 2 and 4 thereof), which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases. 169. Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income-tax Act were not liable to deduct any TDS under section 195 of the Income-tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 13. Hence the relevant DTAA provisions should be considered in the cases before us also for determining the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Our Content 5.1 We own or license all Intellectual Property rights in Facebook at Work and Our Content. Facebook at Work and Our Content is protected by copyright laws and other Intellectual Property Laws. All such rights are reserved to us. 5.2 You may, and you must ensure that your Users will; (a) only use Facebook at Work for its intended purpose within the scope of the License. (b) not make alterations, copies, extractions, modifications or additions to Facebook at Work and Our Content or any part of it, or sell, copy, disclose, distribute, disseminate or license it or any part of it or misuse it or any part of it in any way or reverse engineer, decompile, disassemble or decipher it or evade technical limitations on the use of Facebook at Work; (c) not re-publish, sell, extract, reproduce, disseminate or otherwise use Facebook at Work and Our content, except as expressly permitted by this Agreement or with our prior written permission; and (d) not use our copyrights, trademarks, protected designs and trade dress (including but not limited to Facebook, Facebook at Work, or any of the trademarks listed here (currently available at www.facebookbrand. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e us. The Kolkatta bench of Tribunal, in the case of ITO vs. Right Florists (2013)(32 taxmann.com 99)(Kol-Trib.), has considered an issue - whether the payments made to foreign search engine portals for online advertising services resulted in accrual of income in India in their hands in terms of sec. 9(1) of the Act. The co-ordinate bench referred to the following decisions rendered by other co-ordinate benches:- (a) Pinstorm Technologies (P) Ltd. vs. ITO (24 taxmann.com 345)(Mum) (b) Yahoo India (P) Ltd. vs. DCIT (2011)(11 taxmann.com 431)(Mum) In the above said two cases, the Tribunal held that the amount paid by the assessee to M/s. Google Ireland Ltd. for the services rendered for uploading and display of banner advertisement on its portal was in the nature of business profit on which no tax is deductible at source, since the same was not chargeable to tax in India in the absence of PE of Google Ireland Ltd. in India. Finally, the co-ordinate bench held as under in the case of Right Florists:- 28. In view of the above discussions, we are of the considered view, on the limited facts of the case as produced before us, the receipts in respect of online advertising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the use in the business of the assessee. The right to use those facilities, as stated earlier, is intertwined with the main objective of placing advertisements in the case of Facebook and Mailchimp. In the case of AWS, the payment is made only for using of information technology infrastructure facilities on rental basis. Hence the question of transferring the copy right over those facilities does not arise at all. The agreements extracted above also make it clear that the copyright over those facilitating software is not shared with the assessee. In any case, the main purpose of making payment is to place advertisements only and not to use the facilities provided by the non-resident companies. Thus the facilities provided by the non-resident companies are only enabling facilities, which help a person to place his advertisement contents on the platform of Facebook or to use MailChimp facility effectively. In case of AWS, the payment is in the nature of rent payments for use of infrastructure facilities. 22. Accordingly, we are of the view that the these non-resident recipients stand on a better footing than those assessees before the Hon'ble Supreme Court in the case of E ..... X X X X Extracts X X X X X X X X Extracts X X X X
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