TMI Blog2024 (4) TMI 342X X X X Extracts X X X X X X X X Extracts X X X X ..... ific location since these business are carried in the cyber place. The PE definition presently is based upon the physical presence criteria. Income from sale of advertisement space on a website is not taxable in India if there is no PE of the foreign enterprise in India. It was held that such income is not to be regarded as royalty or FTS. Such tax challenges is addressed by the introduction of EL. Section 165 of the Finance Act, 2016 provides for charge of EL at 6% on consideration for specified services. Section 164(i) of Finance Act, 2016 provides that specified service means online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement 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. Thus we hold that the impugned payment cannot be characterized as royalty under the India-Ireland DTAA. Payment made by the payer (GIPL) to the assessee (GIL) is not in the nature of royalty or FTS and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for reopening of the assessment. On receipt of the reasons recorded for reopening the assessment, the assessee raised its objections which were disposed by the AO. During the course of assessment proceedings the matter was referred to the Transfer Pricing Officer (TPO) and the TPO concluded that no adjustment was required to the international transactions. The assessee submitted before the AO that the order of the Tribunal dated 23.10.2017 in the case of GIPL holding that payments to GIL towards Adwords program to be royalty was set aside by the Hon ble High Court of Karnataka and remanded to the Tribunal. After the remand from High Court, the Tribunal vide its order dated 19.10.2022 in IT(TP)A Nos.1513 to 1516/Bang/2013 for AYs 2009-10 to 2012-13 decided the issue of sale of online advertising space is not liable to be taxed in India both under the Income-tax Act and DTAA. This order was followed by the coordinate Bench of the Tribunal in the case of GIPL (payer) for AYs 2013-14 to 2016-17 in IT(IT)A No.1190/Bang/2014 and connected appeals vide order dated 15.12.2022. However, the AO noted that department is in process of filing further appeal in the said cases. It was held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the material on record. The assessee in grounds of appeal has raised 35 grounds. Ground Nos. 13 to 15 relates 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o agree to certain terms and conditions including the consideration payable for the targeted Advertisements 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis. The assessee also carries out this activity under the ITES segment as per the services 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 inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghtable or copyrighted material, any modification. derivative 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: ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ieved (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 India will not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Information. 6.3 Ownership and Return of Confidential Infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 entered into as of December 12, 2005 (the Effective Date'') by and between Google Ireland L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ogle AdWords Program to Advertisers, all under and in accordance with the terms and conditions set forth in this Agreement. Distributor shall conduct its business fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reign 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 will make available to Distributor online information about Advertiser activity, on an aggregate and individual basis. which information shall contain include (i) the total number of Keywords purchased by Adverti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 public announcements or communication, 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 wai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor 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 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 ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ential 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 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 Informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er'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 NON-INFRINGEMENT, 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 Pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 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 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 elect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition 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 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 ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmine 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 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 itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 to Advertisers, according t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of Excellence Private Limited v. CIT Anr. (su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 dehors 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 know how has been transferred to the assessee company. The CIT(A) was not in agreement with the AO on the above issue without prejudice to his view in holding that the remitted amount is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved 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 the AO held the said payments to be fees for technical services ( FTS ), the CIT(A) held them to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso 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 held the payments in question to be neither royalty, nor FTS. (viii) Matrimony.com (supra): Matrimony.com in thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 non-resident 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 of the relevant DTAA. 37. Therefore, in terms of the international guidance as stated herein, the position regarding taxability of r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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