Google asked to pay tax on advt revenue sent to parent firm

In a setback to Google India, the income-tax appellate tribunal has upheld a tax dem­and on the search engine’s remittances of advertiseme­nt revenue to Google Ireland. In a 331-page order, the Bangalore bench of ITAT uph­eld the tax department’s contention that such paym­e­nts are royalty and therefore subject to withholding tax. Google India said it would challenge the ruling in the high court.

The company had filed an appeal in the ITAT agai­n­st “characterisation of the payment made by it to Go­ogle Ireland in respect of the purchase of advertisement space for resale to the advertisers in India under Google AdWords progra­m­me distribution agreements”.

For the assessment year 2012-13, the tax departme­nt had found Rs 1,114.91 crore to have been credited to Google Ireland without deduction of tax at source. And so, it issued a tax demand of Rs 258.84 crore.

In its submissions, Goo­gle India said it was a mere non-exclusive distributor/reseller of AdWords program­me to the advertisers in the country. Distribution fee pa­y­able to Google Ireland on the distribution of AdWords in India was not in relation to any ‘transfer of any right’ or ‘right to use’ any patent/ invention and so cannot be taxed as royalty.

ITAT, however, said Goo­gle India had “access to pat­e­nt, tech know-how, IPRs, trademark, the proc­ess, derivative works and brand features of the Google Ireland.”

“Therefore the payments of advertisement fees made by the assessee (Google In­dia) after retaining a particular part of it to Google Irela­nd is not the payment simpl­iciter towards the purchase of AdWord space, which may be treated as business profit in the hands of the recipient but it is a payment of royalty,” it ruled.

It said that the payment made by Google India to Google Ireland is a payment of royalty and is an income dee­med to accrue or arise in India.