Karnataka High Court
M/S Google India Private Ltd vs The Commissioner Of Income Tax on 17 April, 2021
Author: Satish Chandra Shetty
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 17TH DAY OF APRIL, 2021
PRESENT
THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA
AND
THE HON'BLE MR. JUSTICE S VISHWAJITH SHETTY
ITA NO.502/2018
C/W
ITA NO.503/2018, ITA NO.504/2018, ITA NO.505/2018,
ITA NO.506/2018, ITA NO.507/2018, ITA NO.549/2018,
ITA NO.550/2018, ITA NO.560/2018, ITA NO.561/2018,
ITA NO.562/2018, ITA NO.563/2018, ITA NO.564/2018,
ITA NO.879/2017, ITA NO.882/2017, ITA NO.883/2017,
ITA NO.897/2017, ITA NO.898/2017 ITA NO.899/2017,
ITA NO.125/2020
IN ITA NO.502/2018 C/W ITA NOS.503/2018, 504/2018, 505/2018,
507/2018, 549/2018, 550/2018, 560/2018, 561/2018, 562/2018,
563/2018, 564/2018, 879/2017, 882/2017, 883/2017, 897/2017,
898/2017, 899/2017
BETWEEN
M/S GOOGLE INDIA PRIVATE LTD
NO.3, RMZ INFINITY TOWER-E
4TH FLOOR, OLD MADRAS ROAD
BENGALURU-560016
PAN:AACCG0527D
...APPELLANT
(BY SRI.S.GANESH, SENIOR COUNSEL FOR (COMMON)
SRI.ANMOL ANAND A/W SMT.PRIYA THANDON, ADVOCATES
SRI.MITHUL REDDY, FOR SRI.ADITYA VIKRAM BHAT, ADVOCATE)
IN ITA NO.506/2018
M/S GOOGLE IRELAND LIMITED
C/O PRICEWATERHOUSECOOPERS PVT LTD
BUILDING NO.10, TOWER-C,
18TH FLOOR, DLF CYBER CITY,
GURGAON-122002 ...APPELLANT
(BY SRI.S.GANESH, SENIOR COUNSEL FOR
SRI.ANMOL ANAND A/W SMT.PRIYA THANDON, ADVOCATES
SRI.MITHUL REDDY, FORSRI.ADITYA VIKRAM BHAT, ADVOCATE)
2
AND
THE COMMISSIONER OF INCOME TAX
INTERNATIONAL TAXATION
7TH FLOOR, BMTC BUILDING
80 FEET ROAD
KORAMANGALA
BENGALURU
...RESPONDENT
(COMMON)
(By SRI. K.V. ARAVIND, ADVOCATE)
ITA NO.502/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 1190/BANG/2014, FOR THE ASSESSMENT
YEAR 2013-2014, VIDE ANNEXURE-A AND ETC.
ITA NO.503/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 69/BANG/2014, FOR THE ASSESSMENT
YEAR 2009-10, VIDE ANNEXURE-A AND ETC.
ITA NO.504/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 374/BANG/2013, FOR THE ASSESSMENT
YEAR 2008-2009, VIDE ANNEXURE-A AND ETC.
ITA NO.505/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 1295/BANG/2014, FOR THE ASSESSMENT
YEAR 2013-2014, VIDE ANNEXURE-A AND ETC.
ITA NO.506/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 2845/BANG/2017, FOR THE ASSESSMENT
YEAR 2007-2008, VIDE ANNEXURE-A AND ETC.
ITA NO.507/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 191/BANG/2014, FOR THE ASSESSMENT
YEAR 2009-2010, VIDE ANNEXURE-A AND ETC.
ITA NO.549/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 949/BANG/2017, VIDE ANNEXURE-A AND
ETC.
3
ITA NO.550/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 950/BANG/2017, VIDE ANNEXURE-A AND
ETC.
ITA NO.560/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 205/BANG/2015, FOR THE ASSESSMENT
YEAR 2010-2011, VIDE ANNEXURE-A AND ETC.
ITA NO.561/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 881/BANG/2016, FOR THE ASSESSMENT
YEAR 2011-2012, VIDE ANNEXURE-A AND ETC.
ITA NO.562/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 68/BANG/2015, FOR THE ASSESSMENT
YEAR 2010-2011, VIDE ANNEXURE-A AND ETC.
ITA NO.563/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THEO RDER DATED
11.05.2018 PASSED IN ITA 559/BANG/2016, FOR THE ASSESSMENT
YEAR 2011-2012, VIDE ANNEXURE-A AND ETC.
ITA NO.564/2018 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
11.05.2018 PASSED IN ITA 387/BANG/2017, FOR THE ASSESSMENT
YEAR 2012-2013, VIDE ANNEXURE-A AND ETC.
ITA NO.879/2017 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
23.10.2017 PASSED IN ITA 1511/BANG/2013, FOR THE ASSESSMENT
YEAR 2007-2008, VIDE ANNEXURE-C AND ETC.
ITA NO.882/2017 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
23.10.2017 PASSED IN ITA 1512/BANG/2013, FOR THE ASSESSMENT
YEAR 2008-2009, VIDE ANNEXURE-C AND ETC.
ITA NO.883/2017 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
23.10.2017 PASSED IN ITA 1513/BANG/2013, FOR THE ASSESSMENT
YEAR 2009-2010, VIDE ANNEXURE-C AND ETC.
ITA NO.897/2017 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT, 1961 PRAYING TO SET ASIDE THE ORDER DATED
4
23.10.2017 PASSED IN ITA 1514/BANG/2013, FOR THE ASSESSMENT
YEAR 2010-2011, VIDE ANNEXURE-C AND ETC.
ITA NO.898/2017 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
23.10.2017 PASSED IN ITA 1515/BANG/2013, FOR THE ASSESSMENT
YEAR 2011-2012, VIDE ANNEXURE-C AND ETC.
ITA NO.899/2017 IS FILED UNDER SECTION 260A OF THE
INCOME TAX ACT PRAYING TO SET ASIDE THE ORDER DATED
23.10.2017 PASSED IN ITA 1516/BANG/2013, FOR THE ASSESSMENT
YEAR 2011-2012, VIDE ANNEXURE-C AND ETC.
IN ITA NO.125/2020
BETWEEN
1. THE PR. COMMISSIONER OF INCOME TAX
CIT (A), 5TH FLOOR, BMTC BUILDING
5TH BLOCK, 80 FEET ROAD
KORAMANGALA
BENGALURU-560 095
2. THE ASST. COMMISSIONER OF INCOME TAX
RANGE -11, PRESENT ADDRESS
ADDL. CIT, SPECIAL RANGE-3
2ND FLOOR, BMTC BUILDING
6TH BLOCK, 80 FEET ROAD
KORAMANGALA
BENGALURU-560 095
...APPELLANTS
(BY SRI. K.V. ARAVIND, ADVOCATE)
AND
M/S GOOGLE INDIA PRIVATE LTD
NO.3, RMZ INFINITY TOWER-E
4TH FLOOR, OLD MADRAS ROAD
BENGALURU-560016
PAN:AACCG0527D
...RESPONDENT
(BY SRI.S.GANESH, SENIOR COUNSEL FOR
SRI.ANIND THOMAS, ADV.
SRI.DEEPAK CHOPRA, ADV.)
5
THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME TAX
ACT PRAYING TO SET ASIDE THE ORDER DATED 06.09.2019 PASSED
IN ITA NO.362/BANG/2013 FOR THE ASSESSMENT YEAR 2008-2009
AND ETC.
THESE ITAs HAVING BEEN HEARD AND RESERVED ON
09.04.2021, COMING ON FOR 'PRONOUNCEMENT OF JUDGMENT' THIS
DAY, SATISH CHANDRA SHARMA J., DELIVERED THE FOLLOWING:
JUDGMENT
Regard being had to the similitude in the controversy
involved in all these cases, they were heard analogously
together and a common judgment is being passed.
2. ITA No.879/2017 is arising out of the order passed
by the Income Tax Appellate Tribunal, dated 23.10.2017 in ITA
No.1511/Bang/2013 (between M/s Google India Private Ltd., vs.
Addl.Commissioner of Income-tax, Range-11, Bengaluru.)
3. The facts of the case reveal that the appellant -
company, Google India Private Ltd., is a company incorporated
under the Companies Act, 1956. It has been incorporated for
providing back end support services for the foreign Associated
Enterprises and as such, is engaged in the business of global
outsourced Information Technology and IT Enabled Services. It
is also a non-exclusive distributor of the online advertising space
under the 'AdWords programme' to advertisers in India.
4. In the year 2004 the appellant-company has entered
into an IT Enables Services agreement with Google Ireland
Limited and the appellant has established its IT Enabled Services
division for provision of IT Enables Services which primarily
involved rendering support services in administering the Google
editorial guidelines in relation to global advertisements and
responding to the queries from customers globally. The
appellant under the said agreement has been rendering
outsourced services for which the appellant is being separately
compensated by the Google Ireland Limited.
5. The assessing officer initiated proceedings under
Sections 201 and 201(1A) of the Income Tax Act, 1961
(hereinafter referred to as IT Act), vide notice dated 20.11.2012
for the assessment year 2007-08 and in the said notice, the
assessing officer referred to the assessment order dated
30.11.2011 under Section 143(3) of the IT Act passed in the
case of the appellant for the assessment year 2008-09 by the
Additional Commissioner of Income-tax, Range-11, wherein
disallowance under Section 40(a)(i) of the IT Act was made on
account of non-deduction of tax at source for the sums payable
by the appellant to Google Ireland under the Distribution
Agreement. The assessing officer vide common order dated
22.2.2013 for the assessment years 2007-08 to 2012-13 passed
an order under Section 201(1) and 201(1A) of the IT Act,
thereby determining the appellant as 'assessee in default' in
respect of non-deduction of tax at source for the sums payable
to Google Ireland as 'fee for distribution rights' and
consequently, attaching a tax liability of INR 7,40,47,853/- for
the assessment year 2007-08.
6. The appellant-assessee being aggrieved by the
common order dated 22.2.2013 passed by the assessing officer
for the assessment years 2007-08 to 2012-13 preferred an
appeal before the Commissioner of Income-tax (Appeals) and
the appeal was dismissed by an order dated 20.9.2013 by the
appellate authority.
7. The appellant-assessee thereafter preferred an
appeal before the Income Tax Appellate Tribunal for the
assessment year 2007-08 and the Tribunal has also dismissed
the appeal of the appellant-assessee.
8. Learned Senior Counsel Sri.Ganesh for the appellant
- assessee at the outset has argued before this Court that in
order to enable the Tribunal to decide the controversy on merits
voluminous documents were filed before the Tribunal and the
Tribunal has not looked into the documents filed by the assessee
at any point of time. He has drawn the attention of this Court
towards an affidavit filed in the appeal before the Tribunal dated
19.3.2018 sworn by Mr.Hari Raju, Director of the appellant-
company during the course of the hearing in the present appeal
as well as other connected appeals. He has also drawn the
attention of this Court towards the application preferred under
Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963 filed
before the Tribunal during the course of the hearing of
ITA.No.1190/Bang/2014 (relating to ITA No.502/2018) and has
also drawn the attention of this Court towards the extracts of
factual submissions dated 19.3.2018 filed before the Tribunal
during the course of the hearing of ITA.No.1190/Banga/2014
(relating to ITA.No.502/2018). His contention is that none of
the documents produced on record were looked into.
9. Learned Senior Counsel for the appellant has further
stated that the documents filed by the assessee were not looked
into and altogether a different approach was adopted by the
Tribunal by conducting a research and the material after
conducting the research on various platforms have been made to
be the basis of the judgment delivered by the Tribunal. His
contention is that it is a well settled proposition of law that if any
material/any document is relied upon, the same has to be given
to all the parties, otherwise it amounts to violation of principles
of natural justice and fair play. He has vehemently argued
before this Court that the material collected behind back of the
assessee was used and relied upon by the Tribunal and
therefore, the same amounts to violation of principles of natural
justice and fair play, hence, the matter should be remanded
back to the Tribunal permitting the parties to raise all possible
grounds while arguing the matter afresh. He has also
vehemently argued before this Court that a liberty be granted to
all the parties to place all documents before the Tribunal
enabling the Tribunal to decide the matter afresh on merits.
10. The learned Senior Counsel has also argued that
erroneous findings have been arrived at by the Tribunal in
paragraph 35 based upon some material which was not
furnished to the assessee and therefore, the matter be
remanded back to the Tribunal. Reliance has been placed upon
a judgment delivered by the Division Bench of Madras High
Court in the case of Ramco Industries Ltd., vs. Deputy
Commissioner of Income-tax, Corporate Circle-2, [2020]
117 taxmann.com 382 (Madras) and his contention is that the
Division Bench of the Madras High Court in similar circumstances
has set aside the orders passed by the Tribunal and the matter
was remanded back to the Tribunal for fresh adjudication.
11. Sri.Aravind, learned counsel for the Income-tax
department has argued before this Court that the material which
has been relied upon by the Tribunal is available on internet and
merely because the material which is available on internet was
not given to the assessee, it does not mean that there is
violation of natural justice and fair play. He has vehemently
opposed the prayer made by the learned Senior Counsel for the
assessee in respect of remand.
12. This Court by an order dated 15.11.2017 has
admitted the present appeal on the following substantial
questions of law;
III(1) Whether the Tribunal erred on facts and in
law in coming to the conclusion that the payments
made by the Appellate under the "Distribution
Agreement" dated 12.12.2005 to GIL constituted
"Royalty" under the provisions of Section 9(1)(vi) of the
Income-tax Act, 1961 and Article 12 of the Double
Taxation Avoidance Agreement between India and
Ireland?
III(2) Whether the impugned order of the
Tribunal is perverse in as much as the conclusions of
the Tribunal are based on assumptions, conjectures and
surmises and not on the basis of facts available on
record and as such liable to bet set aside?
III(3) Whether the Tribunal grossly erred in law
in placing reliance on unverified material available in
public domain to conclude that payments made by the
Appellant to GIL constituted 'royalty' under the
provisions of the Act and DTAA and more so since the
Appellant was not confronted with such material,
thereby violating the principles of natural justice?
III(4) Whether the Tribunal erred in ignoring
that the initiation of proceedings under section 201 of
the Act was barred by limitation?
III(5) Whether the Tribunal erred in law in
applying the amended provisions relating to limitation
in section 201 to the period under consideration given
that the limitation for completion of such proceedings
had already expired and could not be restored by
subsequent amendments?
III(7) Whether the Tribunal erred in law in not
appreciating that the amended provisions of section
201(3) as amended by Finance Act, 2012 (applicable
with retrospective effect from 1.4.2010), which
bestowed limitation in respect of resident payee's was
not applicable for the financial year under consideration
and in the absence of any limitation prescribed, a
period of 4 years was a reasonable period for initiation
of proceedings under section 201 of the Act?
13. Learned Senior Counsel for the assessee while
arguing the matter has fairly stated before this Court that
question Nos.2 and 3 are required to be decided in the present
case so far as his prayer in respect of remand is concerned and
the other questions be left open.
14. Substantial questions of law III(2) and III(3) read as
under;
III(2) Whether the impugned order of the
Tribunal is perverse in as much as the conclusions of
the Tribunal are based on assumptions, conjectures and
surmises and not on the basis of facts available on
record and as such liable to bet set aside?
III(3) Whether the Tribunal grossly erred in law
in placing reliance on unverified material available in
public domain to conclude that payments made by the
Appellant to GIL constituted 'royalty' under the
provisions of the Act and DTAA and more so since the
Appellant was not confronted with such material,
thereby violating the principles of natural justice?
15. Heard the learned counsel for the parties at length
and perused the record.
16. The basic question before this Court is whether the
Tribunal while passing the common order dated 23.10.2017 has
violated the principles of natural justice and fair play as it has
not afforded an opportunity to the appellant to rebut fresh
evidence especially when the fresh evidence was based on
Google study. The relevant paragraph of the order passed by
the Tribunal i.e., paragraph 38 reads as under;
"38. Beside filling these written submissions, no other
literature or books or documents were filed by the
assessee or by the Revenue for the benefit of the Bench so
that the Bench can appreciate the working of Google
Adword and Google analytics, as the parties have failed to
bring any tangible material except in the form of written
note mentioned herein above, the Bench, had gone
through the books available in public domain on Google
Adword and Google analytics and also gone through the
website of the Google and the Adword links therein. On the
basis of the above, our understanding of how the Google
Adword functions is as under:
i. The Google Adword gives an opportunity to the
advertiser to reach its target audience with the
advertising messages. The text based ads are displayed
on Google search results Page - 45 IT(TP)A.1511 to
1516/Bang/2013 however the Google Adwords can also
be used to message out in other forms including image,
audio and videos. Another way of advertisement is
displaying the advertisement as people browse and
engaged with the content online.
ii. The online advertising is different from the
traditional advertising like advertisement in magazine,
newspaper and Television as the online advertising is
measurable on cost per click basis (CPC) and also gives
the advantage to the advertiser to target the particular
class into age, sex, language, religion, region etc,.
iii. The online advertising (Adwords) is a patent tool
used by the advertiser in conjecture with the various
sophisticated tools and IPR's of Google. Google gives
the platform, techniques, data based, the IPR, I.P.
address and also suggest potential user/client of the
advertiser.
iv. The search advertising with the help of search
engine, allows the advertiser to target the people as
they search for key words. This technique is being used
in the search engine, enable the advertisement pop up
if the key words are searched by the people .
Advertisement would be shown to the target consumer
advertisement with the help of various tools, which
include showing of advertisement with keywords,
phrase, and broad words with generic or same
meaning.
v. The Google search engine or search based campaign
gives high conversion rate and better return of
investment then display of advertisement on television
rate, newspaper and magazine.
17. The Tribunal in the aforesaid paragraph has held that
no literature or books or documents were filed by the assessee
except some of the documents mentioned in the order of the
Tribunal and as the parties have failed to bring any tangible
material except in the form of written note, the Bench had gone
through the books available in public domain at Google Adword
or Google analytics and also gone through the website of the
Google and the Adword links and based upon the above research
carried out by the Tribunal, they have summarized the Google
Adword functions. The material on which Google Adword
functions were summarized does not find place in the order of
the Tribunal nor the material was brought to the notice of the
appellant, meaning thereby some material collected behind back
of the appellant has been used by the Tribunal and the material
brought on record through proper application has not been
looked into.
18. The Madras High Court in similar circumstances, in
the case of Ramco Industries Ltd., (supra) in paragraphs 5 to
10 has held as under;
"5. This Court paid its best attention to the rival
submissions and also perused the materials placed before
it.
6. Sub-section [6] of Section 255 of the Income Tax
Act, 1961, in turn, refers to Section 131 of the Act and
under Sub-section [1] of Section 131 of the Act, the
authorities have the same powers that are vested in a
Court under the Code of Civil Procedure, 1908 - the details
of which, have been enumerated in the earlier paragraphs.
7. Rule 29 of the Income Tax [Appellate Tribunal]
Rules, 1963 also speaks about the production of additional
evidence and Rule 30 speaks about the mode of taking
additional evidence and it is relevant to extract the same:-
Rule 29:-Production of additional evidence before the
Tribunal:- The parties to the appeal shall not be
entitled to produce additional evidence either oral or
documentary before the Tribunal, but if the Tribunal
requires any documents to be produced or any
witness to be examined or any affidavit to be filed to
enable it to pass orders or for any other substantial
cause, or, if the income-tax authorities have decided
the case without giving sufficient opportunity to the
assessee to adduce evidence either on points specified
by them or not specified by them, the Tribunal, for
reasons to be recorded, may allow such document to
be produced or witness to be examined or affidavit to
be filed or may allow such evidence to be adduced.
Rule 30-Mode of taking additional evidence:-
Such document may be produced or such witness
examined or such evidence adduced either before the
Tribunal or before such income-tax authority as the
Tribunal may direct.
8. A perusal and consideration of paragraph No.7 of
the impugned common order passed by ITAT would
disclose that the Tribunal, for reaching the conclusion to
confirm the order of the Assessing Officer, has also done
its part by doing some research on Google Study.
Admittedly, the research done by ITAT in the form of
Google study was not put either to the
appellant/assessee Company or to the said Revenue. As
already pointed out by this Court in the earlier
paragraphs, in the absence of any specific rule including
the applicability of the natural justice, it is a well settled
position of law that adherence to the principles of natural
justice, is implied in any legislation.
9. As rightly pointed out by the learned counsel for
the appellant/assessee with regard to the study or
research done by ITAT, the appellant/assessee was not
put on notice. Hence, on this sole ground, the impugned
common order warrants interference.
10. The Substantial Questions of Law Nos.1 and 2 are
answered in affirmative and in favour of the
appellant/assessee company."
19. In the considered opinion of this Court, keeping in
view Rule 29 of the Income Tax (Appellate Tribunal) Rules, 1963
and also keeping in view the fact that the material on the basis
of which the order has been passed was not furnished to the
appellant at any point time, the order passed by the Tribunal is
certainly violative of principles of natural justice and fair play as
the appellant was not afforded an opportunity to rebut fresh
evidence especially when such evidence was based on Google
study.
20. Another important aspect of the case is that details
of the material has also not been reflected in the order passed
by the Tribunal and therefore, this Court is of the opinion that as
there is a violation of principles of natural justice and fair play,
the matter deserves to be remanded back to the Tribunal for
hearing it afresh in accordance with law.
21. In light of the aforesaid, the questions are answered
in favour of the assessee and against the revenue and the other
questions are left open. Accordingly, the appeal in
ITA.No.879/2017 is allowed. The order passed by the Tribunal is
set aside. The matter is remanded back to the Tribunal for fresh
adjudication in accordance with law.
22. The parties will appear before the Tribunal on
3.5.2021 and within a period of 15 days the appellant shall be
free to file the documents/additional documents in support of his
contentions and the revenue shall also be free to file
documents/additional submissions in support of their
contentions. In case any other material is being relied upon by
the Tribunal, the same shall also be made available to the
assessee/appellant as well as to the counsel for revenue before
passing a final order. The Tribunal is requested to make all
possible endeavour to decide the matter at an earlier date.
23. In light of the order passed in ITA.No.879/2017, the
connected appeals i.e., ITA.Nos.882/2017, 883/2017, 897/2017,
898/2017 and 899/2017 are also allowed and the order passed
by the Tribunal is set aside and all the matters are remanded
back to the Tribunal to decide the appeals afresh in accordance
with law.
24. The other batch of cases i.e., ITA Nos.502/2018,
505/2018, 549/2018, 550/2018, 504/2018, 503/2018,
507/2018, 560/2018, 562/2018, 561/2018, 563/2018,
564/2018 and 506/2018 are arising out of subsequent orders
passed by the Income Tax Appellate Tribunal.
25. It is pertinent to note that in the first batch of
matters i.e., ITA 879/2017 and connected matters it was
brought to the notice of this Court that other income tax appeals
are pending before the Tribunal and this Court has directed the
Tribunal to decide the matters without being influenced by its
order dated 23.10.2017.
26. The Division Bench of this Court on 15.11.2017 has
passed the following order;
"Heard Dr.A.M.Singhvi, learned Senior Counsel appearing
for Sri Aditya Vikram Bhat, learned counsel for the
appellant. The learned Senior Counsel submits that
substantial questions of law formulated at paras III(1),
III(2), III(3), III(4), III(5) and III(7) in the appeal
memorandum require determination by this Court.
Sri.K.v.Aravind, learned Standing Counsel is directed to
take notice for the respondent and is heard.
Perused the record.
The matter requires consideration. The appeal is
admitted to consider substantial questions of law
formulated at paras III(1), III(2), III(3), III(4), III(5)
and III(7) in the appeal memorandum.
ORDER ON IA.NO.2/2017
The learned Senior Counsel appearing for the appellant
submits that IA.No.2/2017 may be disposed of by
directing the Income Tax Appellate Tribunal, Bengaluru,
to dispose of the appeals namely,
I.T.A.No.1190/Bang/2014, I.T.A.No.949/Bang/2017 and
I.T.A.No.950/Bang/2017 without being influenced by the
order dated 23.10.2017 passed in IT(TP)
A.1511/Bang/2013 which is impugned in this appeal.
We find no legal impediment to grant the aforesaid
prayer. Accordingly, we direct the Income Tax Appellate
Tribunal, Bengaluru, to dispose of the appeals in
I.T.A.No.1190/Bang/2014, I.T.A.No.949/Bang/2017 and
I.T.A.No.950/Bang/2017 in accordance with law and
without in any way being influenced by the order dated
23.10.2017 passed in IT (TP) A.1511/Bang/2013 which is
impugned in this appeal. IA.No.2/2017 stands disposed
of accordingly."
27. Inspite of the fact that an order was passed by this
Court directing the Tribunal to decide the matters without being
influenced by its earlier order, the Tribunal infact has repeated
its earlier order. The present appeal and connected appeals
were admitted on the following substantial questions of law.
28. The substantial questions of law framed in
ITA.No.502/2018 and connected appeals by this Court on
28.8.2018 read as under;
"1. Whether the Tribunal erred on facts and in law in
coming to the conclusion that the payments made by the
Appellant under the "Distribution Agreement" dated
12.12.2005 (superseded by Reseller Agreement) to GIL
constituted "Royalty" under the provisions of Section
9(1)(vi) of the Income-tax Act, 1961 and Article 12 of
the Double Taxation Avoidance Agreement between India
and Ireland?
2. Whether the Tribunal's conclusion that the ITES
and Distribution Agreements are to be read together
and that the functions under the Distribution Agreement
could only be discharged under the ITES Agreement is
perverse given that the same is contrary to facts and
material on record which would demonstrate that the two
Agreements are for separate and distinct purposes?
3. Whether the Tribunal erred in law in not
appreciating that the revenues from the Distribution
Agreement (superseded by Reseller Agreement)
constituted "business income" in the hands of GIL and in
the absence of any Permanent Establishment of GIL in
India, such receipts could not be brought to tax in India
and consequently the provisions of Section 195 and 201
of the Act had no application?
4. Whether the Tribunal completely failed to
appreciate that the rights granted under the
Distribution Agreement were in the nature of
"commercial rights" and did not partake the character
of/or grant any right to use any Intellectual Property
so as to fall within the ambit of Section 9(1)(vi) of the
Act?
5. Whether the Tribunal also erred on facts and in law
in concluding that the entire payment made by the
Appellant constituted "Royalty" under Section 9(1)(vi) of
the Act and Article 12 of the DTAA on the basis that since
the Appellant had the right to use brand features, patent,
technical know-how, IPRs, trademark, process, derivate
work, brand features etc. of GIL?
6. That without prejudice, whether the Tribunal failed
to appreciate that there could not arise any withholding
tax obligations on the Appellant for part of the payment
that was paid during AY 2014-15 and hence were taxable
income of GIL only in AY 2014-15 since "Royalty" as per
the DTAA is taxable on receipt basis?
7. Whether the Tribunal failed to appreciate that the
withholding obligations on the Appellant were integrally
linked/dependent with/on the taxability of the amounts in
the hands of GIL and in the absence of such taxability for
the period under consideration, there could be no
withholding obligations?"
29. The order passed by the Tribunal dated 11.5.2018
has been passed in a mechanical manner. It is nothing but a
cut, copy, paste order and in some of the paragraphs the earlier
order dated 23.10.2017 has been relied upon word by word.
30. The following is the comparison of extracts of order
dated 11.5.2018 vis-à-vis order dated 23.10.2017;
Order dated 11.5.2018 passed in Order dated 23.10.2017
ITA 502/2018 and subsequent impugned in the captioned
appeals. appeal.
Para 102 page 126: "It gives Para 40 page 46: "It gives the
advertiser the access to the tools of access to the advertiser the tools of
the Adword Program which can be the Adword program which can be
accessed through the gateway of accessed through the gateway of
Google India/Appellant through the Google India/appellant. Through the
use of patent technology. Adword use of patented technology with the
Program gives the advertiser to help of appellant gate way, Adword
choose the preferred time, season of platform gives the advertiser to
the year when the ads are to be choose the preferred time, season of
shown. Once advertiser accepts the the year when the ads are to be
terms, the appellant gives access to shown. In fact after advertiser
the various tools of Adwords accept the terms, thereafter assessee
Program." gives the advertiser accesses to the
various tools of Adwards program."
Para 102 page 126: "The time zone Para 41 page 47: "The time zone
and display time of the advertisement and display time of advertisement is
is identified and allocated by the identified and allocated by Appellant
appellant to the advertiser with the to the advertiser with the help of the
help of Google Adwords Program. assistance of the Google Adword
Adword Program is more focused and program. Adwords Program is more
targeted in advertisement campaign focused and targeted in
which results into more attention, advertisement campaign which
engagement, delivery and conversion results into more attention,
which is only possible on the Google engagement, delivery and
network with the access of tools of conversion, which is only possible on
search engine and google analytics." the Google network with the access
of tools of search engine and Google
analytics."
Page 102 page 126 and 27: Para 42 page 47: "
"Appellant is having the access to IP Appellant/Google is having the access
address at desktop or laptop or IP to the I.P. address of the desktop or
address of the tablet, photographs, laptop or I.P address of the tablet,
time spent on website, eating habits, photographs, time spent on a
wearing preferences. With the help website, eating habits wearing
of IP address, Google search engine preferences etc. With the help of I.P
is having access to various address, Google search engine is
information and data pertaining to having the access to various
the user of the website in the form of information and data pertaining to
name, sex, city, state, country, the user of the website in the form of
phone number, religion, etc. Besides name, sex, city, state, country,
the above basic information, Google phone number, religion etc. Besides
is also having the access of the the above basic information, the
history of the user as well as the Google is also having the access of
behaviour of the person searching in the history of the users as well as to
google engine." the behavior of the persons searching
Google engine."
Para 102 page 127 and 128: " Para 43 page 48:
Based on various inputs mentioned "Based on various inputs mentioned
above and contents of more than 2 above and contents of more than two
million website, the Appellant was million websites the appellant/ Google
able to provide the effective focus ad was able to provide the effective
campaign to the advertiser. The focused ad campaign to the
Adword Program and tools therein advertisers. The Adword programs
gives the advertiser to pick up the and tools therein give the advertiser
keywords, phrases which are similar to pick up the key words, phrases
in nature and germane, and in a which are similar in nature and
digitalized and tabulated form and germane, which are in a digitalized
grouped together. The advertiser is tabulated form/ grouped together.
having the access to this Google The advertiser is having the access to
Analytics Program through the this Google analytics programme
appellant. Whenever one particular (patented and specialized software)
keyword is searched, the targeted ad through the appellant. Whenever one
will be shown to the consumer and by particular keyword is searched, the
clicking on the ad, the consumer will targeted consumers will be shown the
be landed on a webpage. The ad and by clicking on the ad, the
selection and display of the keyword, consumers will be landed on a web
play a pivotal role in the advertising page. The selection and the display of
campaign and for this purpose the key word, play a pivotal role in
appellant has provided the the advertising campaign and for the
optimization and technique to the purpose, Appellant/Google has
advertiser. The appellant being a provided the optimization and
service provider under the agreement technique to the advertiser. Google
uses its expertise and the information (appellant as service provider under
within its domain and control, to the agreement) uses its expertise and
suggest the keywords based on the information within its domain and
recent marketing material and need control, to suggest the key words
of the advertiser. He appellant also based on the recent marketing
suggests a periodical review of the material and need of the advertiser.
website homepage, product and The appellant also suggests periodical
services which can be bundled review of the website home page,
together. It also suggests the traffic product and services which can be
forecast of the list of keywords, bundled together... It also suggests
multiple keywords placed to get the the traffic forecast of the list of key
new keyword ideas. Based on the words, multiple key word placed to
initial keywords the advertiser enters, get new key word ideas... Based on
the tools shows various keywords initial key words, the advertiser
suggestion automatically grouped into enters and the tools shows various
different adgroups. This is only key word suggestions automatically
possible if the Appellant is permitted grouped into different ad groups. This
to use information, data and is only possible as Appellant permits
keyplanner to the advertiser which is the use of information, data and key
patent and protected software of the planner to the advertisers which is
Google. The keyword planner also patent and protected software of the
suggests the suitability of the Google. The key word planner also
keywords which are useful in the suggests the suitability of the key
particular month of the year. The words which are useful in the
advertiser is able to plan its compaign particular month of the year. The
for optimization or for the purpose of advertiser is able to plan its compaign
getting more information and for optimization or for the purpose of
conversion based on keyword getting more impression and
planners. Based on this information conversion based on keyword
and forecast, the advertiser is able to planner. Based on this impression
build on the keywords." and forecast, the advertiser is able to
bid on the key words."
Para 103 page 128: "The display of Para 44 page 49: "The display of
the advertisement based on the the advertisement based on the key
keywords, is dependent upon the words, is dependent upon the auction
auction price paid by the advertiser. price paid by the advertiser. The key
The keywords bid at the highest rate word bid at highest rate by the
by the advertiser would be shown at advertiser would be shown at the top
the top of search result and of the search results and therefore, is
therefore, is likely to fetch more likely to fetch more visibility and
visibility and attention. With the help attention.. With the help of tools of
of tools of Google, the advertiser as Google, the advertiser as well as the
well as the appellant have an access appellant have an access to the
to the impact of change of keywords impact of change of key words on the
on the likely impressions of the likely impressions of the
advertisement." advertisement..."
Para 103 page 128 and 129: "With Para 45 page 49 and 50: "With the
the help of keywords matching, help of key word matching, various
various approaches are being adopted approaches are being adopted by the
by the Google AdWord Program i.e., Google Adword program i.e. broad
broad match, phrase match and exact match, phrase match and exact
match for example allows the match. The exact match for example
advertiser to focus on the allows the advertiser to focus on the
optimization phrase on the individual optimization phrase on the individual
keywords and it yields the best key words and it yield the best result
results possible. Whereas, the phrase possible. Whereas the phrase match
match is more processing than broad is more processing than the broad
match and the broad match provides match and the broad match provides
the greatest possibility of coverage of the greatest possibility of coverage of
the advertisement." the advertisement."
Para 104 page 129: "The appellant Para 46 page 50: "The Appellant
facilitates the advertisers to start the facilitate the advertisers to start the
campaign of advertising initially with campaign of advertising initially with
the help of broad match thereafter the help broad match thereafter with
with the phrase match and thereafter phrase match and thereafter with
with the exact match. With the help exact match. Now with the help of
of keyword management, the Google the key word management, the
Adword Program takes care of Google Adword program takes care of
misspelling, singular, plural, the miss spelling, singular plural
abbreviation, achronynms, stemming, abbreviation, acronyms (short word)
etc. For example, if the stemming. For example, if the
advertisement shows the formal advertisement shows the formal
shoes then the keywords are the shoes, then the key words are formal
formal plus shows. If it is broad plus shoes, if it is broad match key
match keywords then the words then the advertisement will
advertisement will show formal show formal shoe, sport shoe, black
shoes, sports shoes, black shoes, dress shoe, partly shoes etc.
party shoes, etc. However, if the However, if the advertiser had only
advertiser had only opted for exact opted for exact word match, then
word match, then search result will search result would only show a
show only a formal shoe." formal shoe."
Para 105 page 129 and 139: "The Para 47 page 50 and 51:
appellant helps the advertiser with "Appellant helps the advertiser with
the help of tools of Adword Program the help of tools of Adwards program
to include or delete various variation to include or delete various variation
of keywords in the realm of of the key words in the realm of
advertisement compaign and similarly advertisement campaign and similarly
the advertiser may with the help of the advertiser may with the help of
Google tool can avoid the Google tool can avoid the
unnecessary traffic on its website. unnecessary traffic on its website.
For example, if an advertiser does not For example, if an advertiser does not
want the visit of a surfer who is want the visit of the a surfer who is
searching the service apartment on searching the service apartment on
rent basis and only wants the person rent basis and only wants that the
surfing to buy the apartment, then person surfing and the person who is
the Appellant can help him by putting surfing to buy the apartment, then
negative words of rent in the keyword the appellant can help him by putting
search. Therefore, the only person negative words of rent in the key-
who is searching for service word search, therefore the only
apartment would be lending on the person who is searching for service
advertisers website and the person apartment would be landing on to the
who is searching for rented service advertiser's web site and the person
apartment, would not be visiting the who is searching on rented service
website of the advertiser i.e., apartment would not be visiting the
advertisement would not be displayed web site of advertiser i.e.,
to him in the searched result." advertisement would not be displayed
to him in the searched results.."
Para 105 page 130: "Likewise, if Para 48 page 51: " Likewise if the
the advertiser is selling leather cover advertiser is selling in leather cover
for iPhone, then the advertiser may for iphone then the advertiser may
not like that the person who is not like that the person who is
looking for leather cover for another looking for leather cover for another
branch or item may visit the website brand may visit the website of the
of the advertiser. For that, negative advertiser. Therefore, the negative
words can be used to avoid to words can be used to avoid to
improve the CTR (clicked through improve the CTR., with the help of
rate) with the help of tools of Google. these tools. By using these tools,
By using these tools, the Appellant Appellant had been giving various
has been giving various suggestions suggestions to the advertiser to
to the advertisers to improve various include various key words."
keywords."
Para 106 page 130: " The Google Para 49 page 51 and 52: "The
Adword Program is also having Google Adword program is also
Google Analytics which is connected having Google analytics which is
with the Google Adword Program and connected with the Google Adword
which is a potential patented tool to programme and which is a potential
target the keywords and the negative patented tool to target the key words
keywords. This is the USP of the and the negative key words. This is
Google Adword Program, which is the USP of the Google Adword
maintaining thousands of different program, which is maintaining
keywords used by people to search thousands of different key words
the website and based on this user used by the people to search the web
behaviour, the Google Analytics site and based on this user
suggests the appropriate keywords to behaviour, the Google analytics
be used by the advertiser for suggests the appropriate key words
encouraging the traffic on the to be used by the advertiser for
website. Similarly, the Google encouraging the traffic on the
Analytics also uses the same data to website. Similarly the Google
filter out the negative keywords on analytics also uses the same data to
the basis of which an unattended or filter out the negative key word on
unwarranted person have landed on the basis of which an unattended or
the website of the advertiser. The unwarranted persons have landed on
Appellant is using all these tools in the website of the advertiser.
conjucture with the advertisers at the Appellant is using all these tools in
time of granting the backhand conjectures with advertisers at the
services to advertisers, as the time of granting the back hand
Appellant is having access to all these services to the advertisers, as the
date, information, etc., Appellant is having access to all these
data, information etc."
Para 107 page 131: "If we look into Para 53 page 54: "If we look into
the advertisement module of the the advertisement module of Adword
AdWord Program, we will come to an program stated herein above, then
irresistible conclusion that it is not we will come to an irresistible
merely an agreement to provide conclusion that it is not merely an
advertisement space but it is an agreement to provide the
agreement for facilitating the display advertisement space but is an
and publishing of an advertisement to agreement for facilitating the display
the targeted customers." and publishing of an advertisement to
the targeted customer."
Page 108 page 131 Page 63 page 62: "Therefore, the
(paraphrased): " We have also services rendered under ITES
examined the obligations cast upon agreement cannot be divorced with
the appellant under the agreements the activities undertaken by the
and found the obligation cast upon assessee under the distribution
the appellant under the Google agreement. Both the agreements are
Adword distribution agreement can connected with naval chord with each
only be discharged with the help of other. The assessee was duty-bound
the ITES division. Therefore, the to provide as per the distribution
Google Adword distributor agreement agreement various ITES services,
and the service agreement are to be which the assessee had wrongly
read together as they are claimed to have been provided not
interconnected with the navel cord under the distribution agreement, but
and without resorting to the service under the service agreement. This is
agreement the terms and conditions only a design/structure prepared by
under the Google Adword Distribution the assessee to avoid the payment of
Agreement cannot be complied with. taxes."
Therefore, in order to understand the
function of Google Adword program,
we have to read both the agreements
together."
31. Sri.Aravind, learned counsel for the department has
filed written submissions also and his contention is that the
material on the basis of which the subsequent order of the
Tribunal dated 11.5.2018 was passed had been supplied to the
assessee and was also on record. He has stated that AdWord
program training material was submitted by the assessee before
the Tribunal in a paper book form and the extracts of the
learning Google AdWord and Google Analytics written by
Benjamin Mangold was submitted by the Revenue in its paper
book.
32. The fact remains that the documents which were
supplied either by the assessee or by revenue were certainly
looked into, but the research material on the basis of which the
so-called research was carried out by the Tribunal, was not
brought on record. The subsequent order is based upon the first
order passed by the Tribunal and there is word by word
repetition in some of the paragraphs. It has also been stated by
the Revenue in the written synopsis that the scope of
interference in a case where violation of principles of natural
justice are alleged unless it causes prejudice is quite limited.
33. Reliance has also been placed on a judgment
rendered by the Hon'ble Supreme Court in the case of State of
U.P vs. Sudhir Kumar Singh and Ors., Civil Appeal
No.3498/2020, decided on 16.10.2020.
34. This Court has carefully gone through the aforesaid
judgment. However, the facts of the present cases are
distinguishable. In the present cases, in the first round of
litigation the Tribunal has relied upon the material which was
never given to the assessee. It is undisputed fact that based
upon the first order dated 23.10.2018 the second order has been
passed in another batch of cases. Therefore, the proper course
of action for this Court is to remand all the cases for fresh
hearing as directed earlier.
35. In the considered opinion of this Court as the order
in the present batch of appeals has been passed by repeating
the earlier orders, complete material was not handed over to the
appellant-assessee before the Tribunal based on which the order
has been passed by the Tribunal and in light of the fact that this
Court has remanded the first batch of appeals, the second batch
of appeals are also deserve to be remanded back to the Tribunal
for deciding it afresh on merits without being influenced by its
earlier orders dated 23.10.2017 and 11.5.2018.
36. Net result is, ITA Nos.502/2018, 505/2018,
549/2018, 550/2018, 504/2018, 503/2018, 507/2018,
560/2018, 562/2018, 561/2018, 563/2018, 564/2018 and
506/2018 are allowed. The order passed by the Tribunal in the
said appeals are set aside and the matters are remanded back to
the Tribunal to decide the appeals afresh in accordance with law.
The parties will appear before the Tribunal on 3.5.2021 and
within a period of 15 days the appellant shall be free to file the
documents/additional documents in support of his contentions
and the revenue shall also be free to file documents/additional
submissions in support of their contentions. In case any other
material is being relied upon by the Tribunal, the same shall also
be made available to the assessee/appellant as well as to the
counsel for revenue before passing a final order. The Tribunal is
requested to make all possible endeavour to decide the matters
at an earlier date.
37. ITA.No.125/2020 which is in respect of assessment
year 2008-09 has been filed by the department. It relates to
penalty proceedings and therefore, as in respect of the
assessment year 2008-09 this Court has already remanded
ITA.882/2017 for fresh adjudication, the order impugned dated
6.9.2019 is set aside and the matter is remanded back to the
Tribunal to decide it afresh in accordance with law.
ITA.No.125/2020 also stands allowed accordingly.
Pending IAs, if any, in the appeals stand disposed of.
Sd/-
JUDGE
Sd/-
nd JUDGE
