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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 ..... in India. The assessee derives more than 97% of its total revenue from advertisement services through its AdWords program worldwide. The AdWords program is used by various business houses to promote their products and services via targeted advertising. The AO on verification of financial statement of GIPL noticed that it had credited an amount of Rs.42,57,53,347/- to the account of the assessee during the relevant assessment year without deducting tax at source under Section 195 of the Act. Further it was noticed by the AO that GIL has also not obtained NIL deduction certificate on the sum received/payable to it. The AO in the hands of GIPL (Payer) had held that the payments made to the assessee are covered under Section 9 of the Act and also under the provisions of DTAA. The AO in the case of GIPL (Payer) passed orders under Sections 201 & 201(1A) of the Act in respect of payments made to the assessee to the tune of Rs.42,51,53,437/-. 3. Based on the orders passed under Section 201 & 201(1A) of the Act in case of GIPL (Payer) notice under Section 148 of the Act was issued to the assessee on 29.03.2014. The assessee filed Nil return of income on 14.08.2014 pursuant to the notice i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of online advertisement space directly from advertisers in India, the learned A.R. submitted that the issue is covered in favour of the assessee by the following coordinate bench orders of the Tribunal: - i. Interactive Avenues Private Limited v. DCTT, [ITA 3I30/Mum/2019, decision dated 07.07.2022, (ITAT - Mumbai)], ii. ESPN Digital Media (India) Pvt. Lid. v. DCIT, [ITA 1070/Chny/2018, decision dated 04.05.2022 (ITAT - Chennai)], iii. Matrimony.com Limited v. ACIT, [ITA 1391/Chny/20l9, decision dated 20.04.2022 (ITAT-Chennai)], iv. Play Games 24X7 Private Limited v. DCIT, [ITA 1533/Mum/2019, decision dated 23.03.2022 (ITAT-Mumbai)], v. Myntra Designs Pvt. Ltd. v. DCIT, [ITA 598/Bang/2020, decision dated 03.09.2021 (ITAT-Bengaluru)], vi. Urban Ladder Home Decor Solutions Pvt, Ltd. v. ACIT, [ITA 615/Bang/2020, decision dated 17.08.2021 (ITAT-Bengaluru)], vii. Inception Business Services v. ITO, [ITA 2674/Chny/2016, decision dated 18.02.2019 (ITAT-Chennai)], viii. ITO v. Right Florists Pvt. Ltd., (2013) SCC OnLine ITAT 6870 (ITAT - Koikata), ix. Pinstorm Technologies (P.) Ltd. v, ITO, (2012) 54 SOT 78 (ITAT - Mumbai), x. Yahoo India (P.) Ltd. v. DCIT, (201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bangalore in the case of Google India Pvt. Ltd. were with respect orders passed u/s 201(1) and 201(1A) of the I.T. Act. Secondly, the Hon'ble ITAT Bangalore, while deciding these appeals in favour of the assessee i.e. Google India Pvt. Ltd , relied upon 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). 2. In the case of Engineering Analysis Centre of Excellence Private Limited Vs CIT & Anr. (2021) 432 ITR 471 (SC) the Hon'ble Supreme Court has rendered its decision only on 4 categories of cases. The relevant Para 4 of the order of the Hon'ble Supreme Court is reproduced below : "4. The appeals before us may be grouped into four categories: i) The first category deals with cases in which computer software is purchased directly by an end-user, resident in India, from a foreign, non-resident supplier or manufacturer. ii) The second category of cases deals with resident Indian companies that act as distributors or resellers, by purchasing computer software from foreign, non-resident suppliers or manufacturers and then reselling the same to resident Indian end-users. ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. 4.2 Marketing and distribution services for the AdWords program - Under the Google AdWords Program Distribution Agreement dated December 12, 2005 ('Agreement') entered into between GIPL and Google Ireland, Google India is appointed as a non-exclusive authorized Distributor/Reseller of AdWords program to the advertisers in India 4.3 Under the Amended Google AdWords Program Distribution Agreement dated December 12, 2005 ("Distribution Agreement or Agreement") entered into between Google India Pvt. Ltd. (GIPL) and Google Ireland Ld., Google India was granted the marketing and distribution rights of AdWords program to the advertisers in India. GIPL has a distribution team which markets and distributes the AdWords program to the advertisers in India. For these services, GIPL is remunerated on a cost plus mark-up basis for the distribution services under the AdWords program. 4.4. The appellant vide letter dated 07.12.2016 had furnished the following details before the A.O of the amount received/ receivable from India as given below: Name and address of payer Nature of receipt Amount (Rs.) Google India Private Limited Sale of online advertisement space 42, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e advertiser then has to modify the content/description and submit the same to GIL. On receipt of the modified content the above verification process is followed for clearance before the display of advertisement. * Upon clearance of the content/description, the advertisement are uploaded into the system at the data centre and displayed on the webpage. Since the agreements and other transactions are similar to the one entered by GIPL with the appellant company the discussions that are taken for determining the chargeability of receipts from GIPL will apply accordingly for these amounts also. 4.7 The AdWords program is complex computer software that is used by the Advertisers to create, display and maintains advertisements. This aspect also emerges from the description of the Adwords program in the submissions given by the appellant during the course of 201 proceedings before the A.O which is reproduced below for reference: "AdWords program is an advertising product that specifically relates to a search engine query. For instance, if a user searches the word 'flower', the Google search engine will return the most relevant links to that term. The AdWords program re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulated in Section 14(a)(iii) and Sec.14(b)(ii) of the Indian Copyright Act. Thus, the transaction in question involves transfer of copyright right to GIPL, though non-exclusive. 4.10 It does not matter if GIPL has been granted an exclusive or nonexclusive right to market and distribute the Adwords Program in India. In fact any right in respect of a copyright can be conferred, because a copyright is a bundle of rights which may be divided and assigned, or restrained in whole or in parts. 4.11 Therefore it is to be noted that the expression "exclusive right" used in Sec. 14 of the Copyright Act refers to the rights of author/creator and not the "exclusive right" to be given by him to some party to reproduce the copyrighted work or sell the computer programme etc. It also does not mean that non-exclusive right given by the owner of the copyright to some other party to do one or more acts will not have copyright in respect of the property. Even grant of one right in respect of a copyright or work would amount to transfer or the use of copyright. 4.12 Grant of distribution rights in AdWords program amounts to Royalty under clause (vi) to Explanation 2 to Section 9(1)(vi) of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Words Program b) and the right to sell the license to use the Adwords program to the end-user of AdWords Program who are Advertisers. 4.15 The Advertisers in India are the licensees who are allowed to use the Intellectual Property embedded in the Adwords Programs by GIPL. Yet, by giving the Distributor/Resellser (GIPL) the right to distribute and sell the Adwords Program, the licensor (Google Ireland) has parted with the license which the Distributor/Reseller (GIPL) uses in order to sell the Adwords program to the end-user (Advertisers). The Distributor/Reseller (GIPL) may not be licensed for use of the intellectual property (except the right to market and resell) but nevertheless it has paid the consideration for its use. There is nothing in the royalty definition to suggest that the consideration for use of intellectual property will be consideration for royalty only if the payee itself is the user of the right. Hence the sums received/receivable by Google Ireland are covered by clause (v) of Explanation 2 to Section 9(1)(vi) of the Act. 4.16 Grant of distribution rights in AdWords program amounts to Royalty under clause(i) and clause (iii) to Explanation 2 to Section 9( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... running on these data centres based on the distribution rights granted to it by Google Ireland. Without access to such process GIPL will not be in a position to carry out the tasks as per the Distribution Agreement. In the submission dated 22nd August 2013 before the A.O it was stated that AdWords Program is operated on the servers located outside India, which are not owned and controlled by GIPL. 4.18 As per the submission made before the A.O, GIPL is involved in performing back office functions for Adwords program which include: a) Response to the queries of client's customers: The queries generated by the customers of Google entities flow from customers through a workflow based on pre-determined parameters. On receiving the query, the team responds to the query. The response to is routed through Google Ireland; and b) Reviewing advertisements for the purpose of running the same on the Google website: These services mainly involve IT enabled data processing work. The data comes from the customer and is routed to GIPL through a workflow based on language and tier. On receiving the data, the team reviews the advertisement to ensure that the advertisement conforms with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is sent to the IT enabled services team to review for conformation with the editorial guidelines. f. As per the reply of Mr. Vikas Agnihotri, Director Sales - BFSI of GIPL, the billing information of Advertisers from India is available on the servers located outside India which is then accessed by the billing department to issue invoices to its customers. g. GIPL is given exhaustive training on all activities related to Adwords program and also on the software (tools) and systems to be used for the purpose of marketing, for maintenance of adwords accounts, for purpose of billing etc. Clause 3.4 of the distribution agreement requires Google Ireland to render services so that GIPL is able to utilize the distribution rights to market, distribute Adwords program and for maintenance of Adwords accounts, billing etc. Since such services are in connection with activities which are covered by Clauses (i) to (iv), (iva) and (v), the sums paid/payable to Google Ireland are also covered by clause(vi) to explanation 2 to section 9(1)(vi) of the Act. Therefore, the sums payable under the Distribution agreement would also be covered by clause (iva) of Explanation 2 to Section 9(1)(vi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deration for the transfer of any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trademark or similar property, if such income is payable in pursuance of an agreement. In addition to this, an exception is created for any income by way of Royalty for transfer of rights for any computer software supplied by a non resident manufacturer along with a computer/ computer based equipment. 4.26 The words 'accrue' and 'arise' must be viewed in contradistinction to the word "receive". Income is said to be received when it reaches the assessee. On the other hand when the right to receive the income becomes vested in the assessee it is said to accrue or arise. Section 9 encompasses all incomes that shall be deemed to accrue or arise in India and it consists of all income accruing or arising, whether directly or indirectly, through or from any business connection in India. 4.27 India began expanding its tax base in 2012, starting with the amendments to section 9(1)(vi) by Finance Act, 2012, by virtue of which inter alia the definition of royalty under the ITA was broadened. The explanation is extra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to taxability of payments received by the assessee from GIPL as per terms of the distribution agreement dated 12.12.2005 as well as the payments received by the assessee directly from Indian advertisers. As regards chargeability of income received from GIPL is concerned we notice that in the hands of GIPL, the AO had show caused why the payment made by it to GIL (assessee in this case) is not in the nature of royalty. The GIPL vide its reply dated 15.02.2013 explained that the payment made by it to GIL is in the nature of advertisement fees and not royalty under Act and DTAA. The AO, however, rejected the contentions of the GIPL and passed order under Sections 201 & 201(1A) of the Act dated 22.02.2013 for assessment years 2007-08 to 2012- 13. For assessment years 2007-08 and 2008-09, the Tribunal disposed off the case on 10.08.2022 on the short ground that order passed under Section 201 of the Act for AY 2007-08 and 2008-09 are barred by limitation (ITA Nos. 1511 & 1512/Bang/2013 order dated 10.08.2022). As regards assessment years 2009-10 to 2012-13 in IT(TP)A 1513 to 1516/Bang/2013 the issue was decided in favour of GIPL by the Tribunal by holding that the impugned payment made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isements and provide appropriate keywords on searching of which the websites of the advertisers would be displayed on top of the Google search engine with the abbreviation "Ad". For instance, pursuant to the search query "Fresh Flower Delivery", website of "Ferns N Petals" is listed two times among websites of various other businesses. The listing of the website of "Ferns N Petals" at the top of the list is a sponsored link accompanied by a small abbreviation "Ad", and the other listing is an organic search result as it does not have any such abbreviation. [Page 318 of paper book 1] This is because, "Ferns N Petals" utilised the "Google AdWords Program" to advertise its business on the Google Search Engine. The targeting of advertisement is achieved by using appropriate keywords, which can be selected only by the Advertiser. The Google AdWords Program contains a glossary of keywords together with helpful suggestions for the Advertiser to select appropriate keywords for his targeted advertisement. Google AdWords Program also contains a number of computer commands, by which the proposed Advertiser can achieve a more focused and particularised targeting, such as geographical or area t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices agreement dated 1.4.2004 entered into with GIL. The relevant terms and conditions of this agreement are as under: `THIS SERVICES AGREEMENT (''Agreement'') is entered into as of 1st April, 2004 (the "Effective Date''), by and between Google Ireland Limited, a corporation organized under the laws of Ireland ("Ireland'') and having its office at Seagrave House, 19120 Earlsfort Terrace, Dublin 02, Ireland, and Google Online India Private Limited, a company incorporated under the provisions of the Companies Act, 1956 and having its registered office at Prestige Sigma, 1st Floor, NO.3 Vittal Mallya Road, Bangalore 560001, India ('Go ogle India') and having a branch office at RMZ Future, Block A, 4'" Floor Plot No. 14, Road No.2, Hitec City Layout, Madhapur village, Ranga Reddy District, Hyderabad 500081, Andhra Pradesh. A. WHEREAS, Google Ireland is in the business of developing, licensing, selling, marketing and supporting certain Internet search, advertising system and information organization and management technology products and services to provide information, advertising, search and related services via the Internet, corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivative works work (as defined in 17 USC. §101), translation, abridgment, revision or other form in which such material may be recast, transformed or adapted, (ii) for patentable or patented material, any improvement thereon. and (iii) for material protected by trade secret, any new material derived from such existing trade secret material, including new material which may be protected to copyright, patent and/or trade secret. 1.4 "Documentation" shall mean any and all information, written or otherwise, provided by Goode Ireland to Google India describing the Intellectual Property or the Products and any updated, improved or modified version(s) of such materials including information contained in published written materials, on magnetic media or communicated by electronic means. 1.5 "intellectual Property' shall mean all intellectual, proprietary, and/or intangible property rights constituting, embodied in. pertaining to, used in or with respect to the business of Google Ireland, the Products, or the provision of related services and all tangible embodiments hereof, wherever located, including but not limited to the following: (i) all trademarks, trade names, service m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (the Services"). 2.2 Performance. Upon agreement between Google Ireland and Google India as to the Services and completion date for a particular Services project, Google India will perform the Services. Google India agrees to use commercially reasonable efforts to perform the Services in a timely fashion and as described to it by Google Ireland. Google India may not subcontract work under this Agreement unless specifically and to the extent set forth in the Services. Google India shall, at all times, be responsible for work done by its subcontractors within the scope of this Agreement as it is for work done by its own employees. At the option of Google Ireland, Google India shall make Goggle Ireland a party to the agreements that Google India may execute with its subcontractors and Google Ireland shall have the right to pre-approve the terms and conditions of such agreements **** **** ****** 5. OWNERSHIP 5.1 Intellectual Property. Google India acknowledges the exclusive right. title and interest of Google Ireland and its licensors and/or suppliers in and to any and all Confidential Information, Intellectual Property, Software Technology and Documentation, and Google Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to Google India solely to permit Google India to perform its obligations under this Agreement. Except as otherwise provided in this Agreement, Google India agrees that such Confidential Information shall be kept secret by Google India during the term of this agreement and after the expiration hereof Google India shall refrain from using or exploiting any and all Confidential Information for any purposes or activities other than those contemplated in this Agreement. 6.2 Agreement Not to Disclose Confidential Information. Google India shall not disclose or facilitate disclosure of such Confidential Information to any Person without the prior consent of Google Ireland, except to its Representatives, and then only to the extent necessary for the performance of the activities contemplated by this Agreement. Google India shall cause each of its Representatives with access to the Confidential Information to enter into a nondisclosure agreement in a form approved by Google Ireland. Google India shall use the highest standard of care currently employed by any developer or distributor of high technology products in order to avoid disclosure or misappropriation of such Confidential Informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he only difference is where Indian Advertiser purchases from the assessee, it pays in INR whereas where Indian advertiser purchases from GIL, it pays in foreign currency. 17. In a case where the assessee is involved in purchase and resale of online advertisement space to Advertiser and if such Advertiser finds it difficult to use Google AdWords Program, he can get guidance and assistance from the employees of the assessee working under the Distribution Segment. However, substantial portion of Indian Advertisers in India prepare their draft advertisements themselves, with the aid of the Google AdWords Program itself. All this is completely free and is open to any member of the public. No payment is made for any use of the Google AdWords Program. In fact, even after using the Google AdWords Program and formulating / displaying an online advertisement, no payment is made by the Advertiser, unless the Ad is clicked by an end-user. Relevant terms and conditions of the Distribution Agreement are as under:- 'Amended and Restated Google AdWords Program Distribution Agreement. This Amended and Restated Google AdWords Program Distribution Agreement ("Agreement'') is ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks, logos, domain names, or other distinctive brand features that Google may provide to Distributor for use solely under this Agreement. 1.6 "Intellectual Property Rights" shall mean any and all rights existing from time to time under patent law, copyright law, semiconductor chip protection law, moral rights law, trade secret law, trademark law, unfair competition law, publicity rights law, privacy rights law, and any and all other proprietary rights, as well as, any and all applications, renewals, extensions, restorations and re-instatements thereof now or hereafter in force and effect worldwide. 1.7 "Keywords" means words chosen by an advertiser through the AdWords Program for a given set of one or more advertisements that are used to target those advertisements to potential customers. 1.10 "User Data" means all data and information provided by users via the AdWords Program, including all registration data, names, email addresses, other addresses, contact information, and other identifying information. 2. Appointment of Territory and Distributor Obligations. 2.1 Appointment of Territory. Google appoints Distributor as a nonexclusive authorized Distributor of Go ogl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. Distributor will comply with all United States and local laws and regulations applicable to the distributor of the goods and services. including but not limited to the Foreign Corrupt Practices Act and US regulations of international boycotts. Distributor shall (a) conduct business in a manner that reflects favorably at all times on the AdWords Program and on Google's goodwill and reputation, and (b) agrees to adhere to the minimum levels of service as specified in Exhibit C. Breach of this Section 2. 5 will constitute a material breach of this Agreement. 2. 6 After-Sales Support. Distributor will provide after-sales services to Advertisers in accordance with the broad instructions, training and standards of Google. 3. Google Obligations. 3.1 Advertising Space. Google agrees to provide advertising space through the AdWords Program for distribution by Distributor to Advertisers as set forth herein. 3.2 Training. Google agrees to train Distributor. 3.3 Non-Exclusivity. This Agreement shall constitute a non-exclusive relationship between Google and Distributor. ***** ***** ****** 5. Reporting Requirements. 5.1 Information Provided by Google. Google wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therewith) shall inure to the benefit of Google. No party shall challenge or assist others to challenge the Brand Features of the other party (except to protect such party's rights with respect to its own Brand Features) or the registration thereof by the other party, nor shall either party attempt to register any Brand Features or domain names that are confusingly similar to those of the other party. 7. Confidentiality; Limitation on Public Announcements. Disclosure of confidential and/or proprietary information disclosed hereunder, including the User Data (including any aggregated User Data), the existence and content of this Agreement, and any information provided pursuant to this Agreement, shall be governed by the Google Standard Mutual Non-Disclosure Agreement (introductory paragraph and Sections 1 through 12, inclusive), executed by the parties prior to or concurrently with this Agreement (the "NDA ''), which is attached hereto as Exhibit B, and which is incorporated by reference herein. Each party acknowledges and agrees that it will obtain the other party's prior written approval, which shall include approval of any proposed text, before making any pub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice Level Agreement Distributor shall be solely responsible for providing all customer services to Advertisers. according to the procedures, and in compliance with standards, provided by Google. All Advertisers shall be instructed by Distributor to contact Distributor directly for support and not to communicate directly with Google. Distributor agrees that it shall provide at least the following minimum levels of service: Business hours phone support to all Advertisers. E-mail queries from Advertisers shall be responded to within one (1) business day with immediate resolution of any issues when possible. Issues that cannot immediately be resolved by Distributor based on training and procedures provided under the Agreement must be communicated promptly to Google by Distributor and Google will assist Distributor in determining the best solution. Google agrees that it shall provide at least the following minimum levels of service to Distributor: Customer Queries (as defined below), up to the E-Mail Escalation Limit (as defined below), shall be responded to within one (1) business day "Customer Queries" shall mean e-mails sent from Distributor to Google related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how; (d) business information, including operations, planning, marketing interests, and products; (e) the terms of any agreement entered into between the Parties and the discussions, negotiations and proposals related thereto; and (f) information acquired during any facilities tours. 3. The Party receiving Confidential Information (a "Recipient'') will only have a duty to protect Confidential Information disclosed to it by the other Party ("Discloser''): (a) if it is clearly and conspicuously marked as "confidential" or with a similar designation; (b) if it is identified by the Discloser as confidential and/or proprietary before, during. or promptly after presentation or communication; or (c) if it is disclosed in a manner in which the Discloser reasonably communicated, or the Recipient should reasonably have understood under the circumstances including without limitation those described in Section 2 above, that the disclosure should be treated as confidential whether or not the specific designation "confidential" or any similar designation is used. 4. A Recipient will use the Confidential Information only for the Purpose described above. A Recipient will use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ured Party is entitled to seek equitable relief, including injunction and preliminary injunction, in addition to all other remedies available to it. 18. The standard agreement entered into between the assessee and the advertisers is as under:- Google Advertising Agreement Customer Invoicing address Advertising third party Name and address Advertiser Advertising third party Customer will promptly notify Google of any change in address and contact name information for billing purpose. Agreement name. Agreement type Agreement Id Purchase order # Target start date End date Agreement budget Service tax Billing Method Payment Terms (payment due within the following number of days from invoice date) When applicable, Customer's purchase order number references above is required and must be provided by customer for Google Invoicing This Adwords 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 incorpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edit must first be approved by Google in order for this billing method to apply. Prepayment: Customer will pay the total agreement budget prior to any campaign launch. Acceptance and terms of prepayment are at Google's sole discretion. Prepayment does not obligate Google to deliver any Ad Words ads notwithstanding acceptance of prepayment by Google. Unused portions of prepayments will be returned to Customer after the end date to the extent that there are no amounts still due to Google. Right To Reject Advertisement: All advertisements submitted by Customer are subject to Google's approval. Google reserves the right to review, reject or remove any SA, advertisement, or URL link, except that Google will not cancel placement of an SA, advertisement, or URL link due to inventory demand for other advertisers. Customer pre-authorises Google to modify or rearrange the text elements 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anding pages which Creative links or directs viewers to, and advertised services and products (collectively "Services"). Customer shall protect any Customer passwords and takes full responsibility for Customer's own, and third party, use of any Customer accounts. Ads may be placed on (y) any content or property provided by Google ("Google Property"), and unless opted-out by Customer (z) any other content or property provided by a third party ( "Partner") upon which Google places ads ("Partner Property"). With respect to Adwords online auction-based advertising, Google may send Customer an email notifying Customer it has 72 hours ("Modification Period") to modify keywords and settings as posted. The account (as modified by Customer otherwise as initially posted) is deemed approved by Customer after the Modification Period, and Google 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 communi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... needed for Google and Partner to operate Google's advertising programs for Customer (including without limitation any rights needed to host, cache, route, transmit, store, copy, modify, distribute, perform. display, reformat. excerpt, analyze, and create algorithms from and derivative works of Creative or Targets) in connection with this Agreement ("Use"). Customer represents and warrants that LV) all Customer information is complete, correct and current; and (z) any Use hereunder and Customer's Creative, Targets, and Customer's Services will not violate or encourage violation of any applicable laws, regulations, code of conduct, or third party rights (including, without limitation, intellectual property rights). Violation of the foregoing may result in immediate termination of this Agreement or customer's account without 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 per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FAQ. Late payments bear interest at the rate of 1.5% per month (or the highest rate permitted by law, if less). Charges are exclusive of taxes, cesses or other applicable levies. Customer is responsible for paying (y) all applicable taxes, cesses and levies, government charges, and (z) reasonable expenses and attorneys fees Google incurs collecting late amounts. To the fullest extent permitted by law, Customer waives all claims relating to charges unless claimed within 60 days after the charge (this does not affect Customer's credit card issuer rights). Charges are solely based on Google's measurements for the applicable Program, unless otherwise agreed in writing. To the fullest extent permitted by law, refunds (if any) are at the discretion of Google and only in the form of advertising credit for only Google Properties. 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 purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in English and the place of arbitration will be Bangalore, India. Either party may, without waiving any remedy under this Agreement, apply to the arbitrator and/or any court having jurisdiction any interim, provisional, injunctive or conservatory relief that is necessary to protect the rights or property of that party until the arbitration award is rendered or the Dispute is otherwise resolved. Any decision rendered by the arbitrator will be final and binding on the parties, and judgment thereon may be entered by any court of competent jurisdiction, including, but not limited to, any court that has jurisdiction over either of the parties or any of their assets. The parties expressly agree that the arbitrator will be empowered to award and order equitable or injunctive relief with respect to matters brought before him, 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, discussion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but are independent contractors. In the event that these Terms or an Advertising Program expire or is terminated, Google shall not be obligated to return any materials to Customer. 11. Term: Unless terminated earlier under the terms of this Agreement This Agreement shall have a term of 1 year from the latest of the signature dates below. Customer acknowledges and agrees that if this Agreement expires or is terminated any Customer campaigns in effect as of the date of such expiration or termination or any new campaigns commenced after such expiration or termination shall run thereafter subject to Google's then standard terms and conditions for the Program." 20. Under the Distribution Agreement, the assessee acted as a distributor of online advertisement space to Indian Advertisers. The assessee was 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gibles / software of Google Ireland are admittedly not transferred to assessee. The assessee has only right to use these for rendering ITES services. Applying ratio of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited (supra), this cannot result in royalty. We proceed to examine whether the definition of 'Royalty' as per Article 12 of India- Ireland DT AA is satisfied in the present case considering the distribution agreement, services agreement and the facts on record. 23. The definition of 'Royalty' as per Article 12(3)(a) of India - Ireland DTAA is as under:- "3. (a) The term "royalties" as used in this Article means payments of any kind received as a 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, 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 fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights (including the granting of a licence) in respect of any copyright", in the context of computer software, is referable to sections 14(a), 14(b) and 30 of the Copyright Act. As has been held hereinabove, the expression "in respect of' is equivalent to "in" or "attributable to". Thus, explanation 2(v) to section 9(1)(vi) of the Income Tax Act, when it speaks of "all of any rights ... in respect of copyright" is certainly more expansive than the DTAA provision, which speaks of the "use of, or the right to use" any copyright. 72. However, when it comes to the expression "use of, or the right to use", the same position would obtain under explanation 2(v) of section 9(1)(vi) of the Income-tax Act, inasmuch as, there must, under the licence granted or sale made, be 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sons, the determination of the AAR in Citrix Systems Asia Pacific Pty. Ltd (supra) does not state the law correctly and is thus set aside. **** ******** ****** 108. Fourthly, the High Court is not correct in referring to section 9(l)(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 the Avoidance of Double Taxation and for the Prevention of Fiscal Evasion with respect to Taxes on Income And Capital Gains. ["India- Ireland DTAA'']. Article 12 of the aforesaid treaty defining "royalties" would alone be relevant to determine taxability under the DTAA, as it is more beneficial 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 res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate rights, as has been recognized in State Bank of India (supra) (see paragraph 21), former amounting to parting with copyright and the latter, in the context of no exclusive EULAs, not being so." 26. Having considered the above principles in the context of copyright royalty, we proceed to examine the applicability of the above principles to the facts of the present case particularly with reference to distribution agreement, services agreement and other facts on record. As per para 2.1 of the distribution agreement, assessee is appointed as a non exclusive authorised distributor of Google Adwords program to Advertisers. Para 2.2 of the agreement states that the distributor agrees to market and distribute Adwords program 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, dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without limitation any rights needed to host, cache, route, transmit, store, copy, modify, distribute, perform, display, reformat, excerpt, analyze, and create algorithms from and derivative works of Creative or Targets) in connection with this Agreement ("Use"). The advertiser represents and warrants that (y) all Customer information is complete, correct and current; and (z) any Use hereunder and Customer's Creative, Targets, and Customer's Services will not violate or encourage violation of any applicable laws, regulations, code of conduct, or third party rights (including, without limitation, intellectual property rights). Violation of the foregoing may result in immediate termination of this Agreement or 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 Irelan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion agreement, each party shall own all right, title and interest, including without limitation all Intellectual Property Rights, relating to its Brand Features and Google Irland grants to the assessee / distributor nonexclusive and nonsublicensable licence during the Term to display Google Brand Features solely for the purpose of distributor's marketing and distribution of AdWords Program under the terms and subject to the conditions set forth in this Agreement. It is thus evident that the trademark and other brand features are not used independently or de hors the distribution agreement but they are incidental or ancillary for the purpose of carrying out the marketing and distribution of Adword program. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alid in law can be treated as non est merely on the basis of some underlying motive supposedly resulting in some economic detriment or prejudice to the national interests, as perceived by the respondents." 34. Before concluding, it is to be mentioned that the taxability with respect to payments made for purchase of online advertisement has been decided by the following Co-ordinate Bench orders of the I.T.Act:- (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 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ues 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). 35. It is also relevant to point out that in the context of interpreting Article 12(3) of India - Ireland DTAA, it is relevant to take note of the existing international jurisprudence. The Technical Advisory Group ("TAG") set up by the Organisation for Economic Co-operation and Development ("OECD"), in its Report (2001) on treaty 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and includes any other service as may be notified by the Central Government in this behalf. Thus, online advertisement is now covered under EL. If online advertisement was already covered under definition of royalty, then bringing it as part of EL scheme would not arise. 39. In view of the aforesaid discussion and the judicial pronouncements, cited supra, we hold that the impugned payment cannot be characterized as royalty under the India-Ireland DTAA. It is ordered accordingly. 40. In the result, the appeals filed by the assessee are allowed." 9. In view of above order of Tribunal, where it is stated that 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 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al, upheld the order of the CIT(A), while observing that the decisions in Yahoo (supra) and Pinstorm (supra) were authorities in support of the proposition that payment by the Indian arm of a foreign owner of search engine portal, in connection with online advertising, is not in the nature of royalty as per section 9(1)(vi) of the Act. In this decision, the Tribunal also discussed the modalities involved in the online advertising business, in the context of Google Search Engine. (iv) Inception Business (supra): In this case the assessee was engaged in the business of brand management as well as posting advertisements in the social 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Tribunal, in second appeal, set aside the order of the CIT(A), while observing that ESPN India was merely making payment under the reseller agreement towards purchase of online advertisement space. It was also observed that a website is not a tangible property and is certainly not a high-tech equipment. It was also observed that the reliance of the AO and CIT(A) on the decision in Verizon Communications Singapore Pte Ltd. v. ITO, (2014) 361 ITR 575 (Madras High Court) was misplaced, since the same had been overruled by the Hon'ble Supreme Court in the decision in Engineering Analysis (supra). (x) Interactive 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 ..... 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