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TMI Blog2023 (3) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. - IT(IT)A No. 2845/Bang/2017 - - - Dated:- 28-2-2023 - Shri George George K., Judicial Member and Ms. Padmavathy S., Accountant Member For the Assessee : Shri Percy Pardiwala, Sr. Advocate Shri Anmol Anand, Ms. Priya Tandon Mr. Mithal Reddy, Advocates For the Revenue : Ms. Neera Malhotra, CIT-DR ORDER Per: George George K., J.M. This appeal at the instance of the assessee is directed against the final assessment order dated 30.10.2017 passed under Section 143(3) r.w.s. 147 144C(5) of the Income Tax Act, 1961 (the Act). The relevant assessment year is 2007-08. 2. The brief facts of the case are that the assessee, Google Ireland Limited (herein after referred as the assessee or GIL) is a foreign company having its registered office at Ireland. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /- from GIPL and also a sum of Rs.51,08,74,532/- from other Indian customers as royalty under the Act and the DTAA. 4. Aggrieved by the draft assessment order the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP vide its directions dated 27.09.2017 rejected all the objections of the assessee. Pursuant to the DPR directions, the impugned final assessment order dated 30.10.2017 was passed. The computation of income and tax thereon as per the final assessment order are as under: - Returned Income 0 Add: Receipts from Google India Private Limited 42,57,53,347 Add: Receipts from other Indian customers 51,08,74,532 Assessed income 93,66,27,879 Tax thereon as per DTAA as computed by the assessee 9,36,62,788 Add: 234A(3)(a) 37,46,512 Add: Interest u/s. 234B 11,89,51,71 Gross payable 21,63,61,041 5. Aggrieved by the final assessment order the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon ble Bench that he is only pressing 2 grounds of appeals i.e. 13 15 for adjudication, which are reproduced below : 13. On the facts and in the circumstances of the case and in law, the Ld. AO/Hon ble DRP has erred in holding that the amount receivable by the appellant from the sale of online advertisement space under the AdWords Program from Google India is taxable as Royalty income under the Act as well as under the DTAA. 14. On the facts and in the circumstances of the case and in law, the Ld. AO/Hon ble DRP has erred in holding that the income from other advertisers amounting to INR 510,874,532 in India towards sale of online ad space is chargeable to tax as Royalty under the Act as well as under the DTAA and without following the decisions by the Hon ble Kolkata Tribunal in the case of ITO Vs Right Florists (P) Ltd. (154 TTJ)142) and Hon ble Mumbai Tribunal in the case of Pinstorm Technologies Vs ITO (54 SOT 78) squarely applicable to the facts of the present case. (emphasis supplied) II. RELIANCE BY Ld. AR ON THE APPEALS DECIDE BY THE HON BLE ITAT BANGALORE IN THE CASE OF GOOGLE INDIA PVT. LTD. NOT APPLICABLE TO THE INSTANT APPEAL AS NOT COVE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30.10.2017, passed by DCIT (Intl. Taxn), Bangalore, is NOT COVERED by the decision of Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited Vs CIT Anr. (2021) 432 ITR 471 (SC) as the business transaction of the appellant i.e. Google Ireland Ltd. with Google India Pvt. Ltd. and the income earned by the appellant i.e. Google Ireland Ltd. from other advertisers in India towards sale of online ad space DOES NOT fall in any of the 4 categories of cases on which the Hon ble Supreme Court has rendered its decision in the case of Engineering Analysis Centre of Excellence Private Limited ( supra) and the same will be established in the following Para 4. 4. Google Ireland Limited ( GIL / assessee company ) is having its registered office at Ireland. The Google Group of companies operates in the USA, UK, Ireland and a number of other countries including India. Google together with its Group Companies referred as Google specializes in internet Search engines and related advertising services. Google maintains an index of websites and other online content, which is made available through its search engine to anyone with an internet connection. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gle India Private Limited. The nature of business transactions with other Indian Customers are given below. 4.6 Nature of Business transaction with other Indian Customers by the appellant Google Ireland Ltd. About Google AdWords Google AdWords is an auction-based advertising program that lets advertisers deliver relevant ads targeted to search queries or web content across Google sites and through the Google Network (i.e. the network of third websites). These advertisements are word based advertisements. Advertisers describe their product/service using key words and provide those to Google along with its web address for displaying the advertisement on its search engine web page when the user/querist searches for such keywords. In summary, Google's AdWords associated with their advertisement. The main advantage of online advertisement is that it displays advertisement to the relevant User/searcher who is searching for such products/ services. Outside of USA, Google Ireland is the regional entrepreneur responsible for commercializing the Google AdWords product. It has rights of exploitation of AdWords to customers in the Europe. Middle East Africa ( EMEA ) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... independently develop a set of keywords that relate to their business and manage their own account online from the Google website. Advertisers determine a daily or periodic advertising budget for AdWords on cost-per-click CPC basis. CPC refers to the unit price or the advertising fee paid each time a user selects or clicks the advertisement, represented as a hypertext link to the advertiser's web page. Advertisers favour the CPC model because they pay nothing to have their link displayed and only pay when a user clicks on the link and visits the advertiser's web page. This is sometimes referred to as performance-based advertising where the viewer engages the advertisement. 4.8 The AdWords Program is a complex computer software using which an Advertiser is able to publish an advertisement on the Google Website . The fact that Adwords program is a complex computer program involving a database management system is ascertained from the description of the Adwords program in Wikipedia which is reproduced below: The AdWords system was initially implemented on top of the MySQL database engine. After the system had been launched, management decided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Google Ireland is for granting of license (authorization) to use the copyright in the Adwords Program as specified in Section 14(a) (iii) and Section 14(b)(ii) and not for the purchase of such software. Obviously, the consideration paid/payable by GIPL for such license or authorization is the consideration paid/payable to GIL for the transfer of certain rights associated with the copyright of the AdWords Program. And, any consideration for the transfer of all or any rights in respect of any copyright is royalty as per the definition of royalty in Sec.9(1)(vi) of the Income Tax Act. 4.13 Therefore whether the license granted is exclusive or non-exclusive does not matter as long as a right is granted to GIPL. Amounts payable for the acquisition of partial rights in the copyright without the transfer fully alienating the copyright rights will represent a royalty. In the instant case, the payments by GIPL to GIL are for the right to use the copyright in the Adwords Program i.e. to exploit the rights that would otherwise be the sole prerogative of the copyright holder i.e. GIL. Therefore, to constitute Royalty under the Income Tax Act it is not necessary that there should be tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 6 of the agreement, Google Ireland has granted GIPL a non-exclusive and non-sub licensable license to display 'Google Brand Features' for the purpose of its marketing and distribution activities. It is clear from Clause 2 of the Agreement that GIPL has been appointed by Google Ireland as the Distributor/Reseller of the AdWords Program. 4.17 The Adwords program basically relies on the powerful search engine technology of Google which in itself is a process. Signing up on Adwords program in effect allows the advertiser to access the auction pricing mechanism of the Adwords program which is based on the search engine technology. Google Ireland as per the service agreement with Google India owns the Intellectual property for the search engine technology and Adwords program. GIPL has been granted the right to distribute the Adwords program to Advertisers in India i.e. GIPL has been granted certain rights connected to the process i.e. distribution rights. GIPL is entrusted with the work of explaining the Adwords product, its functions and auction-pricing mechanism to the advertisers in India. GIPL has also to perform the task of billing and collecting payment from Indian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us software. These are automated software which provides assistance by filtering the content of the ads with specified keywords and helps GIPL in reviewing the content of the ads. 4.19 It is evident from the above description of activities that GIPL is allowed to access various features, software tools, databases which are running on the servers located outside India in order to perform the various activities and to carry out the tasks assigned to it. Hence GIPL has been granted a) The right to distribute to Advertisers the licence to use the process of Adwords program for the purpose of online advertisement. b) The right to access platform for purpose of the maintaining the Advertisers account and servicing the Advertisers. 4.20. Hence GIPL is granted the use of or the right to use the process in the AdWords platform for the purpose of marketing and distribution. Therefore clauses (i) and (iii) of Explanation 2 to Section 9(1)(vi) are satisfied and hence the amounts paid/payable to Google Ireland are taxable under Section 9(1)(vi) of the Act. 4.21 Grant of distribution rights also involves use of Industrial, commercial and scientific equipment T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany has developed the AdWord software programme and it allows Customers worldwide to 'use' or give them the rights to use the AdWord software programme for which the Customers are charged based on the number of users and the nature of user (high end user/low end user). 4.24 In the case of receipts from other Indian Customers even if they were not the licensee, the payment received from the other Customers would not have escaped the definition of royalty under the DTAA because, the appellant has received the payment from the these Customers for the use of copyright in the computer programme (Adword software programme). In other words, the mere fact that the appellant has allowed the Customers to 'use' or has given them the right to use the copyright in the computer programme (AdWord software programme) and has received payments for the same is enough to treat it as royalty payment under DTAA. 4.25 Section 9 which deals with 'Income deemed to accrue or arise in India' applies to all categories of Residents irrespective of their Residential status. Section 9 serves the sole purpose of including within the tax net certain incomes which under norma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vii) of sub section (1) and shall be included in the total income of the non resident, whether or not - The non resident has a residence or place of business or business connection in India - The non resident has rendered services in India . 4.28 The above explanation has clearly done away with the territorial nexus principle and added more weight age to the Source Rule. Secondly, the word rendered', included by the Courts has been removed. It is the situs of the payer and the situs of the utilization of services which will determine the taxability of such services in India. 4.29 Explanation to Section 9 clearly states that for accrual of royalty or FTS, there is no requirement of residence, place of business or business connection in India. If any payment is made by any person resident in India to a non resident person by way of royalty, income is deemed to accrue or arise in India. It was because of this deeming fiction, that the income is taxable in India. It is also observed that the double taxation avoidance agreement between India and Ireland does not come to the rescue of the appellant since this treaty itself provides that the income on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material on record. The issues involved in these appeals revolve around the taxability of payments received by GIL from the assessee, who is engaged in the business of online advertisement space to advertisers in India. The Revenue had sought to characterize these payments received by GIL to be royalty as defined in section 9(1)(vi) of the I.T.Act r.w. Article 12(3) of the India-Ireland Double Taxation Avoidance Agreement (India-Ireland DTAA) and thus chargeable to tax in India in the hands of GIL. The case of the assessee is that the said payments are in the nature of business profits, which are chargeable to tax in Ireland and not in India. Further, since the Department in these proceedings has never alleged that GIL had a Permanent Establishment (PE) in India in terms of Article 5 and accordingly by virtue of Article 7(1) of the India-Ireland DTAA, the right to tax these profits is solely with Ireland. Consequently, the assessee cannot be held to be an assessee in default u/s 201 of the I.T.Act for not deducting tax at source u/s 195 of the I.T.Act while making the subject payment to GIL. 14. For a proper adjudication of the above issue, it is necessary to briefly expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn only at certain fixed times during the day) or duration targeting (to be shown only for a fixed time duration each time). All these types of targeting are over and above the usual subject targeting and are achieved by simple computer commands, given by the proposed Advertiser on the Google AdWords Program. All these facilities are available on the Google AdWords Program to any member of the public, free of charge, to enable him to formulate a suitable draft advertisement for his product or service. The only requirement is that the proposed Advertiser should have a website of his own / or entity giving particulars about his/ its business. The Google AdWords Program itself gives step-by-step and detailed instructions, so that even a person who has a basic knowledge of computers and internet can create a draft advertisement and target it suitably by using the necessary computer commands (or tools). No payment is made for any use of the Google AdWords Program. After formulating the draft advertisement, the Advertiser is required to upload the same for display on Google Search Engine or other online properties using the Google AdWords Program. No payment is made for the same. Thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy enabled services and software development related services from Google India as per the terms and conditions of this Agreement; and C WHEREAS, Google India has expertise in rendering the above services and is willing to render such services for Google Ireland as an independent contractor on the terms and conditions of this Agreement: NOW THEREFORE, in consideration of the mutual covenants and conditions contained herein the parties agree as follows: 1. DEFINITIONS 1. 1 'Affiliate' shall mean any Person, whether de Jure or de facto, that directly or indirectly participates in the capital. control or management of either party or is under common ownership with a party to this Agreement or other entity actually controlled by, controlling. or under common control with a party to this Agreement. 1.2 Confidential Information' shall mean all data and information of a confidential nature, Including know-how and trade secrets, relating to the business, the affairs, the products. the development or other projects or services of Google Ireland or its-suppliers or its affiliate. including but not limited to Intellectual Property. Confidential Information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all registrations and applications therefor; (iii) all patents and patent applications. patentable Ideas, Inventions, innovations and improvements; (iv) all know-how and trade secrets; v) all design and code documentation, methodologies, processes, design information, design flows, encoding techniques, applications, product information. Formulae, engineering specifications, technical data, testing procedures, drawings and techniques and other proprietary information and materials of any kind; (vi) all software programs in both source code and object code format. including all testing software and software tools: (vii) all documentation, records, databases, drafts, designs, codes, drawings and algorithms: and (viii) all confidential and proprietary information related to any of (i) through (vii) above **** **** ****** 1.10 Software Embodiments shall mean all designs, discoveries, inventions. Products. procedures, improvements, developments, drawings, notes, Documentation. information. materials, Intellectual Property and Derivative works Works made, conceived or developed by Google India alone or with others which result from or relate to the Services 1.11 Software Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that all such Confidential Information, Intellectual Property, Software Technology and Documentation shall remain the exclusive property of Google Ireland and, as applicable, its licensors and/or suppliers. 5. 2 Ownership of Derivative works Works and Software Embodiments. Google India shall keep Google Ireland promptly informed of Google India's development of any Derivative works Works and Software Embodiments and hereby irrevocably agrees that all such Derivative works Works and Software Embodiments shall forever be the sole and exclusive property of Google Ireland throughout the world from the date of its creation. As between Google Ireland and Google India no additional action shall be required to vest all right, title and ownership of such Derivative works Works and Software Embodiments in Google Ireland. Google India shall furnish to Google Ireland all such Derivative works Works and Software Embodiments developed by Google India as soon as they become available. From time to-time, promptly upon receipt of Google Ireland's request, Google India shall provide Google Ireland with assignments, in substantially the form of Exhibit B hereto to facilitate Google Ir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ams which incorporate or refer to all or a portion of the Confidential Information shall remain the sole property of Go ogle Ireland or its licensors and suppliers. Such materials shall be promptly returned: (i) upon Google Ireland's reasonable request, or (ii) in accordance with Section 12 upon termination of this Agreement, whichever is earlier. **** ********* ****** 12.5 Rights and Duties of Termination. (a) Upon termination or expiration of this Agreement: (i) Google India shall have the right to retain any sums already paid by Google Ireland under this Agreement and Google Ireland shall pay all sums accrued, but not yet paid, that are due under this Agreement as of the date of such termination; (ii) Google India shall discontinue all use of the Confidential Information, Documentation, Intellectual Property and other Software Technology and shall have no further right with respect thereto. (iii) Google India shall (except as specified in subsection (b) below) immediately return to Google Ireland or (at Google Ireland's request) destroy, all copies of the Confidential Information, Documentation and other Software Embodiments, in its po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2nd Floors Gordon House, Barrow Street, Dublin 4 Ireland ( Google''),and Google Online India Private Limited, a company incorporated under the Indian Companies Act, 1956 and having its registered office at 1st Floor, Prestige Sigma, No. 3 Vittal Mallya Road, Bangalore 560 001 ( Distributor''). WHEREAS 1. Google wishes to enter into the Distribution Agreement for its AdWords Program with Distributor; 2. Whereas Google Inc., a Delaware corporation, and Distributor entered into a Google AdWords Program Distribution Agreement, dated as of December 12, 2005.(the Prior Agreement ), and Google Inc. assigned its rights and obligations under the Prior Agreement to Google; and 3. Google and Distributor desire to terminate the Prior Agreement and further desire that this Agreement supersede and replace the Prior Agreement in its entirety; NOW, THEREFORE, in consideration of the promises and the mutual covenants, agreements, representations and warranties hereinafter set forth, Google and Distributor hereby agree as follows 1. Definitions. The following capitalized terms shall have the meanings set forth below. 1.1 ''Advertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and conditions set forth in this Agreement. Distributor shall conduct its business for its own account, in its own name, aid not as an agent, employee, partner, or franchisee of Google. Distributor may not solicit business from and shall not distribute AdWords Program to (even if unsolicited), any entity that does not have a principal place of business within the Territory. For the avoidance of doubt, an entity's principal place of business will be determined by the place of such entity's registration. All inquiries by any such entity for sale of advertising space shall be referred to the designated Google contact within three (3) business days of receipt by Distributor of such inquiry. 2.2 Distribution Marketing of AdWords Program. Distributor agrees to market and distribute AdWords Program to Advertisers in the designated Territory. within the broad guidelines provided by Google, with its reasonable commercial expertise and own sales force and customer service infrastructure. Distributor shall not subcontract any of its functions or obligations under this Agreement to any third parties. Distributor shall perform its obligations hereunder in a professional and work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation about Advertiser activity, on an aggregate and individual basis. which information shall contain include (i) the total number of Keywords purchased by Advertisers, (ii) the number of impressions of Advertisers' advertisement delivered across the Google network, (iii) the number of clicks delivered across the Google network for Advertisers' advertisement an (iv) the cost of clicks delivered across the Google network for Advertisers' advertisement. Distributor must set up AdWords Program advertising accounts in order to receive such online information. Google reserves the right, but has no obligation, to send reports about an Advertiser's activity directly to such Advertiser. If an Advertiser makes a request to Distributor to receive a user name and password to access such Advertisers individual AdWords Program account activity, Distributor' will grant such request after approval from Google. ***** ***** ****** 6. Brand features. Each party shall own all right, title and interest, including without limitation all Intellectual Property Rights, relating to its Brand Features. Google grants to Distributor nonexclusive and non sublicensable lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, including, but not limited to, any press releases, online publishing or direct mailings concerning or related to the existence or terms of this Agreement. In addition. Distributor agrees to waive all claims against and release Google (and its affiliates, partners and representatives) from any claims or losses in connection with any above publications made by Google. 8. User Data. Google owns all right, title, and interest in and to all information and data, including the User Data collected by Google relating to Advertisers in connection with the provision of the AdWords Program. Distributor shall maintain all User Data in accordance with local law and regulation applicable to such data. and shall implement policies and procedures with respect to the User Data that are at least as protective of the rights of the Advertisers as is provided in the Google Privacy Policy set forth at http://wwvv.qoogle.comlprivacy.html and all relevant policies implied therein ****** ****** ****** 9.4 Effect of Termination. Upon any termination or expiration of this Agreement, (i) all rights and licences granted by one party to the other. including but not limited to rights to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elated to Advertiser issues, but excluding general communications between Distributor and Google (e.g. billing questions, training information) and technical issues that only Google can solve. E-Mail Escalation Limit shall equal five (5) e-mails per month for everyone hundred (100) Advertisers serviced by Distributor, provided, however that the E-Mail Escalation Limit shall only apply beginning thirty (30) days after the completion of tile training. Timing for responses to Customer Queries from Distributor beyond the EMail Escalation Limit shall be at Google's sole discretion. Distributor agrees that Google will have the right, to review samples of communications sent to Advertisers to assess the quality of responses and modify communications accordingly. Google shall also have the right to send questionnaires to Distributor's customers to ensure that Distributor is providing an adequate level of service. Mutual Non-Disclosure Agreement This Mutual Non-Disclosure Agreement (''Agreement'') is made and entered into between Google Ireland Limited, for itself and its subsidiaries and affiliates ( Google''), and Partic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... described above. A Recipient will use the same degree of care. but no less than a reasonable degree of care, as the Recipient uses with respect to its own information of a similar nature to protect the Confidential Information and to prevent: (a) any use of Confidential Information in violation of this agreement; and/or (b) communication of Confidential Information to any unauthorized third parties. Confidential Information may only be disseminated to employees, directors, agents or third party contractors of Recipient with a need to know and who have first signed an agreement with either of the Parties containing confidentiality provisions substantially similar to those set forth herein. ***** ***** ***** 6. This Agreement imposes no obligation upon a Recipient with respect to Confidential Information that: (a) was known to the Recipient before receipt from the Discloser; (b) is or becomes publicly available through no fault of the Recipient; (c) is rightfully received by the Recipient from a third party without a duty of confidentiality; (d) is independently developed by the Recipient without a breach of this Agreement; (e) is disclosed by the Recipient with the Discl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Agreement ('SA') shall be governed by terms and conditions ('Terms and Conditions) available at the following URL: http.l/www.google.co. inladsladwordsterms. html All terms contained in the Terms and Conditions are made a part of this SA through incorporation by reference. The signatory of this Service Agreement represents that she has read and agrees to such Terms and Conditions and the terms of SA. There shall be no force or effect to any different or additional terms of any related SA, purchase order or sales document. Google may decide at any lime, in its sole discretion, to change, suspend or discontinue all or any aspect of its advertising programs, including their availability, and shall notify Customer of material changes and discontinuauons. Google shall have no liability for such decision. By signing below, Customer represents and warrants that all client information, including but not limited to credit card information and invoicing information, provided herein is complete and accurate and that no additional information is necessary for payment of Google invoices. Customer's campaign(s) may go live upon posting. at which time Goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents in advertising creative submitted by Customer. Please carefully read these Google Advertising Agreement terms and conditions ( Agreement') before selecting '1 Accept' and submitting your selection. By selecting 'I Accept', you agree to be legally bound by the terms of this agreement. If you do not agree to the terms of this agreement please select 1 Decline and submit your selection. Customer signature Name Title Company Google Signature Name Title Company. 19. The Standard Google India Private Limited Advertising Program Terms are as under: Google India Private Limited Advertising Program Terms These Google India Private Limited Advertising Program Terms ( Terms ) are entered into by, as applicable, the customer signing these Terms or any document that references these Terms or that accepts these Terms electronically ( Customer ) and Google India Private Limited ( Google'~. These Terms govern Google's advertising program(s) ( Program ) as further described in the applicable Program's frequently asked questions at www.google.com (the FAQs') and, as applicable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only liable to Customer for discrepancies if Customer can certify by contemporaneous documentary evidence that Google posted ads not approved by Customer. With respect to all other advertising, Customer must provide Google with all relevant Creative by the due date set forth in that advertising Program's applicable FAQ or as otherwise communicated by Google. Customer grants Google permission to utilize an automated software program to retrieve and analyze websites associated with the Services for ad quality and serving purposes, unless Customer specifically opts out of the evaluation in a manner specified by Google. Google or Partners may reject or remove any ad or Target any time for any or no reason. Google may modify the Program or these Terms at any time without liability and your use of the Program after notice that Terms have changed indicates acceptance of the Terms. 3. Cancellation. Customer may independently cancel advertising itself online through Customer's account. if any, or, if such online cancellation functionality is not available, with prior written notice to Google, including electronic mail. AdWords online auction-based advertising cancelled onli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithout notice and may subject Customer to legal penalties and consequences. 5. Disclaimer and Limitation of Liability. To the fullest extent permitted by law. GOOGLE DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION FOR NONINFRINGEMENT, SATISFACTORY QUALITY, MERCHANTABILITY AND FITNESS FOR ANY PURPOSE. To the fullest extent permitted by law, Google disclaims all guarantees regarding positioning or the levels or timing of (i) costs per click, (ii) click through rates, (iii) availability and delivery of any impressions, Creative, or Targets on any Partner Property, Google Property, or section thereof, (iv) clicks (v) conversions or other results for any ads or Targets (vi) the accuracy of Partner data (e.g. reach, size of audience, demographics or other purported characteristics of audience), and (vii) the adjacency or placement of advertisements within a Program. EXCEPT FOR indemnification AMOUNTS PAYABLE TO THIRD PARTIES HEREUNDER AND CUSTOMER'S BREACHES OF SECTION 1, to the fullest extent permitted by law: (a) NEITHER PARTY WILL BE LIABLE FOR ANY CONSEQUENTIAL, SPECIAL, INDIRECT, EXEMPLARY, OR PUNITIVE DAMAGES (INCLUDING WITHOUT LIMITATION LOSS O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erties. Nothing in these Terms or an 10 may obligate Google to extend credit to any party. Customer acknowledges and agrees that any credit card and related billing and payment information that Customer provides to Google may be shared by Google with companies who work on Google's behalf, such as payment processors and/or credit agencies, solely for the purposes of checking credit, effecting payment to Google and servicing Customer's account. Google may also provide information in response to valid legal process, such as subpoenas, search warrants and court orders, or to establish or exercise its legal rights or defend against legal claims. Google shall not be liable for any use or disclosure of such information by such third parties. 8. Indemnification. Customer shall indemnify without limit and defend Google, its Partners, agents, affiliates, and licensors from any third party claim or liability (collectively, Liabilities ), arising out of Use, Customer's Program use, Targets, Creative and Services and breach of the Agreement. Partners shall be deemed third party beneficiaries of the above Partner indemnity. Without limitation to the generality of the foregoing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , provided however, that such remedy or relief is consistent with the remedies and limitations set forth in this Agreement. The parties agree that all arbitral proceedings conducted pursuant to this Section, including the existence of any arbitral proceedings, information disclosed in the course of such arbitral proceedings, and any settlements, negotiations, discussions, proposals, and awards related thereto shall be considered confidential information and shall not be disclosed to third parties except as required by law or otherwise provided herein. The parties may, however, disclose such information to an appropriate court, as is necessary to seek enforcement of any award rendered by the arbitrator or to seek any interim, provisional, injunctive or conservatory relief pursuant to the terms hereof 10. Miscellaneous. The Agreement must be construed as if both parties jointly wrote it, governed by Indian law. The Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes and replaces any other applicable agreements, terms and conditions applicable to the subject matter hereof Any conflicting or additional terms cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensured a specified margin over its cost from GIL. If in case, the revenue recorded by the assessee from the sale of online advertisement space to Indian Advertisers was less than its cost (incurred in connection with its distribution function) plus the specified margin, GIL was required to compensate the assessee for the difference. However, where the revenue recorded by the assessee from the onward sale of online advertisement space to Indian Advertisers was more than the cost plus the specified margin of the assessee, the assessee was required to make the payment to GIL. 21. In the present case, it is not in dispute that the DTAA between India - Ireland is applicable in respect of the payments made by the assessee to Google Ireland. The Hon'ble Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd v CIT (supra) at para 108 of its judgment held as under:- 108. Fourthly, the High Court is not correct in referring to section 9(1)(vi) of the Income-tax Act after considering it in the manner that it has and then applying it to interpret the provisions under the Convention between the Government of the Republic of India and the Government of Ireland for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terary, artistic or scientific work including cinematograph film or films or tapes for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for the use of or the right to use industrial, commercial or scientific equipment, other than an aircraft or for information concerning industrial, commercial or scientific experience. 24. The first limb of the above definition treats consideration for the use of or the right to use any copyright of literary, artistic or scientific work including cinematograph film or films or tapes for radio or television broadcasting as royalty. The computerised advertising program i.e., Google AdWords Program is essentially a computer program i.e., a computer software. As per Explanation 3 to section 9(l)(vi), a computer software means any computer programme recorded on any disc, tape, perforated media or other information storage device and includes any such programme or any customized electronic data. It is not in dispute that the Adwords Program is used by the assessee in the present case be it for the purpose of discharging its functions under the distribution agreement or under the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a transfer of any of the rights contained in sections 14(a) or 14(b) of the Copyright Act, for explanation 2(v) to apply. To this extent. there will be no difference in the position between the definition of royalties in the DTAAs and the definition of royalty in Explanation 2(v) of section 9(1)(vi) of the Income-tax Act. 73. Even if we were to consider the ambit of royalty only under the Income-tax Act on the footing that none of the DT AAs apply to the facts of these cases, the definition of royalty that is contained in explanation 2 to section 9(1)(vi) of the Income-tax Act would make it clear that there has to be a transfer of all or any rights which includes the grant of a licence in respect of any copyright in a literary work. The expression including the granting of a licence in clause (v) of explanation 2 to section 9(1)(vi) of the Income-tax Act, would necessarily mean a licence in which transfer is made of an interest in rights in respect of' copyright, namely, that there is a parting with an interest in any of the rights mentioned in section 14(b) read with section 14(a) of the Copyright Act. To this extent, there will be no difference between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneficial to the assessee as compared to section 9(l)(vi) of the Income-tax Act, as construed by the High Court. Here again, section 90(2) of the Income-tax Act, read with explanation 4 thereof has not been properly appreciated **** ******** ****** 117. The conclusions that can be derived on a reading of the aforesaid judgments are as follows: (i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. (ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining exclusively with the owner. (iii) Parting with copyright entails parting with the right to do any of the acts mentioned in section 14 of the Copyright Act. The transfer of the material substance does not, of itself, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m to advertisers within the broad guidelines provided by Google with its reasonable commercial expertise and own sales force and customer service infrastructure. It also provides that the Distributor will distribute the AdWords program in accordance with the training provided by Google. As per para 2.3, distributor shall be responsible for uploading all Advertiser information that is required by Google for participation in the Adwords Program. As per para 2.6, distributor will provide after sales services to Advertisers in accordance with the broad instructions, training and standards of Google. The advertising space is provided by GIL through the Adwords program and GIL also agreed to train the distributor. It is specifically agreed that the agreement shall constitute a non exclusive relationship between Google Ireland and distributor. Google Ireland owns all right, title and interest in and to all information and data including the user data collected by it in connection with the provision of the Adwords Program. 27. As per the service level agreement - Exhibit C to distribution agreement, assessee distributor shall be solely responsible for providing all customer services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer's account without notice and may subject Customer to legal penalties and consequences. 29. As per the services agreement, the assessee was providing information and information technology enabled services to Google Ireland. As regards ownership of intellectual property and ownership of derivate works, it was agreed that all intellectual property shall remain the exclusive property of Google Ireland. The confidential information provided by Google Ireland was to be employed by the assessee in performance of its services under the agreement and it shall remain the sole property of the Google Ireland. The statements recorded from the employees also confirms that the confidential information, software technology and the training documents for providing services under the services agreement are provided by Google Ireland to the assessee. 30. On a consideration of all the above agreements and the facts on record, we find that none of the rights as per section 14(a)/(b) and section 30 of the Copyright Act, 1957 have been transferred by Google Ireland to the assessee in the present case. As held by the Hon ble Apex Court in the case of Engineering Analysis Centre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Delhi High Court in DIT v Sheraton International Inc [2009] 313 ITR 267 held that when the use of trade mark, trade name etc are incidental to the main service of advertisement, publicity and sales promotion and further when there is no consideration payable for such use of trade mark, trade name etc, the consideration cannot be characterised as royalty. Applying the said principle, in the present case, use of Google Brand Features etc are de hors any consideration payable to Google Ireland and further they are incidental and ancillary for achieving the main purpose of marketing and distributing the Google Adwords Program. Hence, the lower authorities were not right in treating the payments as Royalty. 32. As regards the applicability of 'use of or right to use industrial, commercial or scientific equipment the CIT(A) held that the assessee cannot be said to have gained right to use any scientific equipment, since, Google Ireland has not parted with the copyright it holds in the Adwords program and hence it cannot be said that any kind of technical knowhow has been transferred to the assessee company. The CIT(A) was not in agreement with the AO on the above issue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d displaying the said banner advertisement. Pursuant to such arrangement, Yahoo India received consideration from Department of Tourism of India and after retaining its margin, the balance was remitted to Yahoo Hong Kong. The payment remitted by Yahoo India to Yahoo Hong Kong was the subject matter of dispute before the Tribunal. The AO as well as CIT(A) held such payments to be royalty and in that manner, disallowed the expenditure in the hands of Yahoo India under section 40(a) of the Act. The Tribunal, in second appeal, held that banner advertisement hosting services did not involve use or right to use any industrial, commercial, or scientific equipment and no such use was granted by Yahoo Hong Kong. In that manner, the Tribunal set aside the findings of the AO and CIT(A), wherein the subject payments were characterised as royalty. (ii) Pinstorm (supra): Pinstorm was engaged in buying online advertisement space for onward re-sale to an advertiser, much like GIPL in the present case. For such purpose, Pinstorm made payments to GIL, which were disallowed by the AO and CIT(A) under section 40(a)(i) of the Act, on the premise that the said payments were taxable in India. While ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the decision of the Hon ble Supreme Court in Engineering Analysis (supra). The Hon ble Tribunal also relied on the decisions in Yahoo (supra), Pinstorm (supra) and Right Florists (supra). (vi) Myntra Designs (supra): Myntra in this case, made payments to Facebook Ireland Ltd., for online advertising. The AO held the said payments to be royalty and in the alternate, as FTS. The CIT(A) upheld the order of the AO. The Tribunal followed the decision in Urban Ladder (supra), while setting aside the order of the CIT(A). (vii) Play Games (supra): Play games is engaged in the business of providing a platform for online gaming. It had made payments to Facebook Ireland Ltd. for online advertising. The AO and CIT(A) in this case as well, held that payments to be taxable in India. The Hon ble Tribunal observed that Play Games did not get any right to modify/ deal with the servers, which belonged to Facebook Ireland Ltd., in any manner. It was also observed inter alia that the said servers, which hosted online advertisements, were located outside India and that Facebook Ireland Ltd. did not have a PE in India. In that manner, the Tribunal set aside the order of the CIT(A) and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... characterisation of electronic commerce payments analysed various e-commerce transactions and suggested suitable characterisation for consideration flowing thereunder. One of the transactions analysed by TAG was advertising. In the context of online advertisements, including advertisements where the payment is based on number of clicks (i.e., CPC basis), TAG recommended taxability of such payments under Article 7 of the relevant DTAA. The said Article 7 deals with business profits and not royalty. Business profits under Article 7 are taxable only where the nonresident has a PE in India. 36. It is important to note that TAG was set up by OECD and its recommendation on changes to the OECD commentary were accepted by OECD. As per the recent decision of the Hon ble Supreme Court in Engineering Analysis, (supra), OECD commentary is a necessary aid for the interpretation of provisions contained in DTAA. In fact, the High-Powered Committee ( HPC ) on electronic commerce and taxation, set up by the Central Board of Direct Taxes ( CBDT ) had also accepted the view taken by TAG and recommended taxing consideration flowing for online advertisement under Article 7, and not Article 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of Rs.42,57,53,347/- cannot be brought to tax in the hands of the assessee. 10. As regards receipt of Rs.51,09,74,532/- on sale of advertisement space from Indian customers other than GIPL we find it is covered in favour of the assessee by the following orders of the Tribunal: - (i) Yahoo (supra): Department of Tourism of India hired the services of Yahoo India for uploading, displaying, and hosting its banner advertisement on the Yahoo portal, which was operated by Yahoo Hong Kong. For the said purposes Yahoo India engaged Yahoo Hong Kong for uploading and displaying the said banner advertisement. Pursuant to such arrangement, Yahoo India received consideration from Department of Tourism of India and after retaining its margin, the balance was remitted to Yahoo Hong Kong. The payment remi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... portal on behalf of their clients. The AO held the payments made by it for that purpose to Facebook Ireland Ltd., a non-resident, to be taxable in India. The CIT(A) upheld the order of the AO. The Tribunal relied on the decision in Yahoo (supra), Pinstorm (supra), Right Florists (supra), while setting aside the order of the AO/ CIT(A) and holding that the payments for purchase of online advertisement space were not taxable in India. (v) Urban Ladder (supra): The assessee in this case, made payments to Facebook Ireland Ltd., for online advertising. The AO held the said payments to be royalty. The CIT(A) upheld the order of the AO. However, while doing so, the CIT(A) relied upon certain functional aspects of advertisement system qua Patent Number US20040059708A1 as well as US7778872B2. These two patents are held by Google LLC., USA in connection with the Google AdWords Program hereto. The Tribunal, set aside the order of the CIT(A), while following the decision of the Hon ble Supreme Court in Engineering Analysis (supra). The Hon ble Tribunal also relied on the decisions in Yahoo (supra), Pinstorm (supra) and Right Florists (supra). (vi) Myntra Designs (supra): Myntra in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Avenues (supra): Interactive Avenues is an internet advertising agency, which places online advertisements on behalf of its clients. The payments in this case were made to Facebook Ireland Ltd., which were disallowed by the AO and the CIT(A). The Tribunal observed that Interactive Avenues was utilising Google Search Engine amongst others, to buy online advertisement space on behalf of its clients. Be that as it may, the Tribunal set aside the order of the CIT(A) and held that the payments in question could not be characterised as royalty, while relying on the decisions in Urban Ladder (supra) and Play Games (supra 11. The contentions raised by the learned D.R. in her written submission from para 4.6 onwards regarding receipt from other Indian customers has been dealt with in above orders of the Tribunal and 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. 12. In view of the aforesaid reasoning and judicial pronouncements cited supra we allow ground No. 13 to 15. The other grounds raised are left ..... 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