Govt disposed off five FDI proposals aggregating to Foreign Investment of Rs. 3,250 crore during April 2018

CASE LAWS

2018-TII-141-ITAT-BANG-INTL

GOOGLE INDIA PVT LTD Vs JDIT: BANGALORE ITAT (Dated: May 11, 2018)

Income tax - Sections 5(2), 9(1)(vi) & 195 - India-Ireland DTAA - Article 12

Keywords - distribution rights - non deduction of TDS - purchase of advertisement space - resale to Indian advertisers - royalty

Facts:

Present appeal had been preferred by Google India Ltd. challenging the treatment of the payment made by it to Google Ireland Limited in relation to purchase of advertisement space for resale to the advertisers in India under the Google AdWords Reseller Agreement, to be in the nature of "Royalty" under I-T Act as well as India-Ireland DTAA, thus warranting TDS deductions. In addition, the distribution rights granted under the reseller agreement were construed as "IP rights" covered by "similar property" u/s 9(1)(vi) of I-T Act, after holding that as per the reseller agreement, Google Ireland Limited had agreed to provide advertisement space to Google India through AdWords program for distribution to the Indian Advertisers.

Holding:

+ the agreement between the two shows that Google Ireland will disclose certain confidential information to Google India, solely to permit them to perform their obligation under this agreement. Except as otherwise provided in this agreement, Google India agrees that such confidential information shall be kept secret and shall not be disclosed without the prior consent of Google Ireland. Upon termination of the agreement, Google India shall discontinue all use of confidential information, derivative works works and software embodiment, intellectual property and other software technology and shall have no further rights in respect thereto;

+ as far as distributor agreement is concerned, it is seen that Google India was appointed as non-exclusive authorized distributor of Google Adword program to advertisers in accordance with the terms & conditions set forth in this agreement. It has been clarified that distributor shall conduct its business for its own account, in its own name, and not as an agent, employee, partner or franchisee of Google i.e., Google Ireland. It was also made clear that distributor may not solicit business from and shall not distribute Adword program to any entity that does not have a principal place of business within the territory. Under the head ‘Brand feature’, Google grants to distributor (Google India) a non-exclusive and non-sublicensable licence during the term to display google brand features solely for the purpose of distributor’s marketing and distributing Google Adword program under the terms and subject to the conditions set forth in the agreement;

+ while providing advertisement space to the customers or advertisers, Google India has entered into agreement with the advertisers, which is called a Google Advertising Agreement and in this agreement, Google India may decide at any time, in its sole discretion to change, suspend or discontinue all or any aspect of its advertising program, including their availability and shall notify the customer material changes or discontinuation. It shall have no liability for such decision;

+ in the present case, the assessee i.e., Google India has not purchased the advertisement space for putting its advertisement online from the GIL. The assessee has been duly appointed a distributor under the Google Adword Distribution Agreement to distribute and sell the advertisement space obtained from the GIL under the Distribution Agreement. Under the distribution agreement, assessee was obliged to provide pre-sale and after sale services with the help of ITES division. While providing after sales services / technical services, the assessee had access to the intellectual property rights and tools and informatives, derivative works owned by the GIL. Thus, assessee is not a simpliciter buyer of AdWord Space for putting the advertisement either for himself or for others;

+ it is found that assessee has an access to patent, technical know-how, IPRs, trade mark, the process, derivative works, brand features, etc., of the GIL, therefore the payments of advertisement fees made by the assesse after retaining a particular part of it to GIL is not the payment simpliciter towards the purchase of AdWord space which may be treated as business profit in the hands of the recipient but it is a payment of royalty to the GIL in the light of definition of royalty given under the Act and the DTAA. Therefore, the payment made by the assesse to GIL is a payment of royalty and as per provisions of section 9(1)(vi) of the I-T Act, it is an income deemed to accrue or arise in India.