In ITA No.374 & 362/Bang/2013-ITAT- ITAT (Bangalore) holds that distribution fees paid by Google India to Google Ireland was not liable for TDS under Section 195 of the Income Tax Act
Members George George K. (Judicial) & Padmavathy S. (Accountant) [31-03-2023]

Read Order: Google India Private Ltd v. The Additional Commissioner of Income Tax, Range 11

LE Correspondent

Bangalore, April 28, 2023: The Bangalore bench of the Income Tax Appellate Tribunal (ITAT) has held that Google India Pvt. Ltd. (assessee) cannot be treated as Dependent Agent Permanent Establishment (DAPE) of Google Ireland Ltd. (GIL) and accordingly the distribution fees paid by the assessee to GIL was not liable for TDS under section 195 of the Income Tax Act and therefore no disallowance under Section 40(a)(i) was warranted.

In the present case, assessee and GIL had entered into an agreement for marketing and distribution of the AdWord programs.  The AO held that the distribution fee is chargeable to tax in India for the reason that assessee being a DAPE of GIL in terms of Article 5(6) of India-Ireland Double Taxation Avoidance Agreement. Alternatively, the AO held that the distribution fee is to be held as royalty/fees for technical services as per Article 12 of DTAA.

The Tribunal observed that pursuant to the terms of the Distribution Agreement the assessee entered into contracts with advertisers in India called ‘Google India Private Limited Advertising Program Terms’ and perusal of the sample invoice raised by the assessee on an advertiser, shows that the assessee had raised the invoice and collected payments from the advertiser in its own name and right. Further, it was observed that the Distribution Agreement between the assessee and GIL as well as Standard Contract entered into by the assessee and advertisers in India did not contain any clause that could lead to the conclusion that the assessee had any authority to bind GIL. Thus, the Tribunal held that the assessee cannot be treated as DAPE of GIL.

With regard to the attribution of additional profits in the hands of the assessee, Tribunal noticed that as per the TPO’s order for the year under consideration, all transactions of the assessee with its associated enterprises for purchase of online advertisement space had been held to be at arm’s length and therefore the Tribunal observed that no further profits could be attributed, in terms of the decisions of the Hon’ble Supreme Court in DIT(International Taxation), Mumbai v. M/S. Morgan Stanley & Co. [LQ/SC/2007/872].