ITAT revokes default TDS order prescribed against Google India

The Bangalore Bench of the Income Tax Appeal Tribunal (ITAT) quashed the default TDS order against Google India on the grounds that it was time-barred.

The two-member bench of George George K. (judicial member) and Padmavathy S. (accounting member) observed that for the years considered, the four-year period from the end of the financial year in which the payment was made or the credit was given expired on 31.03.2012, whereas the notice was issued by the AO on 20.11.2012.

The caller/reviewer is a wholly owned subsidiary of Google International LLC, USA. It was engaged in the provision of information technology (IT) and information technology-based services (ITeS) to its group companies. The assessee has entered into a Google Adword program distribution agreement dated December 12, 2005 with Google Ireland Ltd. (GIL). As per the agreement, the assessee has been appointed non-exclusive authorized distributor of Adword programs to advertisers in India. Pursuant to the agreement, the assessee was required to pay a distribution fee to GIL.

Distribution fees were paid without withholding tax. According to the assessee, it was simply a reseller of the advertising space made available under the Adword program distribution agreement. The assessee is a distributor of advertising space with no access to or control over the infrastructure or process involved in rendering the Adword program. Consequently, the sums thus paid were not taxable under the double taxation agreement (DTAA).

There was no tax deduction on payments in the absence of primary taxation. The AO has issued a notice under section 201(1) of the Income Tax Act 1961 to the assessee as to why the distribution charge payable to GIL should not be considered royalties. Therefore, it proceeded with the withholding tax at source under Article 195. The AO proceeded to the adoption of an order dated 22.2.2013 under Articles 201( 1) and 201(1A). In the order, the AO found that the assessee was in default for failure to withhold tax at source under section 195 and made a claim.

The assessee argued that the assessment order in which it is mentioned that the procedure under article 201, paragraph 1, was initiated by the publication of a notice on 20.11.2012 asking the assessee to justify why he should be treated as assessed in default with respect to tax not withheld at source on the sums due to GIL. The opinion issued for YY 2007-08 and 2008-09 was beyond the period specified in Article 201(3), i.e. beyond 4 years from the end of the year in which the payment is made or the credit is granted. Therefore, the contributions are prescribed and subject to cancellation.

The department argued that there are time limits prescribed under subsection (3) of section 201 with respect to orders under subsection 201(1). However, there is no time limit for making orders under Section 201(1A) of the Income Tax Act.

The person being assessed argued that although there is no time limit for making an order under Section 201(1A) of the Income Tax Act, the order should be passed within a reasonable time. Where the assessee is not an assessee in default, interest under Section 201(1A) would become fruitless. As the order made under section 201(1) is barred by prescription making it void ab initio and fruitless.

The ITA noted that a notice of cause to commence proceedings under section 201(1) was issued on 20.11.2012, which was beyond four years in terms of years of taxation 2007-08 and 2008-09.

Case Title: Google India Pvt. ltd. versus the Deputy Commissioner of Income Tax

Reference: IT(IT)A Nos.1511 & 1512/Bang/2013

Date: 10.08.2022

Counsel for the Appellant: Sr. Advocate Percy Pardiwala

Counsel for the Respondent: Permanent Counsel KV Aravind

Click here to read/download the order

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