Receipt by Google for Advertisers under AdWord Program is Business Profits: ITAT reiterates [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore bench, while dismissing a Miscellaneous Petition by the income tax department, has reiterated that the Google Ireland taxable in India for the advertisements directly placed by the advertisers under AdWord Program as the same constitute business profits.

The Google Ireland received a sum of Rs.93,66,27,879 from Google India Private Limited (GIPL) and Rs.51,08,74,532 from other advertisers towards sale of online ad space in India under AdWord Program. The revenue took a view that the said amount is chargeable to tax as ‘Royalty’ under the Act and the Double Taxation Avoidance Agreement (DTAA).

The appeals filed by the assessee was dismissed by the Tribunal by holding that the payments relating to Adwords made by the Company to its parent firm Google Ireland is subject to TDS provisions in India the receipts from sale of online advertisement space under AdWords program as business profits by treating GIPL as Permanent Establishment (PE) of GIL in India.

The Revenue, has now, filed a miscellaneous petition contending that the assessment was never made by the revenue by treating the receipts from sale of online advertisement space under AdWords program as business profits by treating GIPL as Permanent Establishment (PE) of GIL in India but was an assessment made on the basis that the receipts were in the nature of royalty and therefore the mistake in the order of the Tribunal in paragraph 190 on the assumption that the revenue assessed the receipts in the hands of GIL as business profits should be rectified suitably.

The Tribunal considered the plea of the assessee that going by the observations in paragraph 116 of its order which is to the effect that GIPL acted as distributor of advertisement space whereas the facts in the cases cited on behalf of Assessee’s were all cases where the advertisements were directly placed by advertisers or persons who purchased space from owner of search engine providing online advertisement space, it appears that the Tribunal has accepted that if advertisements were directly placed by advertisers or persons who purchase space from owner of search engine providing online advertisement space, receipts from providing such advertisement space would be in the nature of business profits.

“Since GIL did not have PE in India nor was GIPL regarded as constituting PE of GIL in India, the said receipts from direct advertisement cannot be brought to tax in India. It is for this reason that the Tribunal has remanded the case to the AO for fresh assessment in paragraph 190 of its order. This is the interpretation of the Tribunal’s order by the Assessee,” the Tribunal observed.

“We are therefore unable to fathom as to why the Tribunal remanded the case to the AO to reframe assessment in the light of the directions contained in the order. We are of the view that in the given facts and circumstances of the case, the issue sought to be agitated in this MP before the Tribunal is highly debatable and two views are possible on the issue. In such circumstances, we are of the view that it would not be appropriate to exercise powers u/s.254(2) of the Act as the order does not suffer from any mistake apparent on the face of the record. We make it clear that none of the observations in this order should influence the mind of the parties in their interpretation of the order,” the Tribunal said.

To Read the full text of the Order CLICK HERE

Article source: https://www.taxscan.in/receipt-google-advertisers-adword-program-business-profits-itat-reiterates/33836/

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