ITAT asks Google to pay Tax on Adwords Payments [Read Order]

In a major setback to Google India, the Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) held that the payments relating to Adwords made by the Company to its parent firm Google Ireland is subject to TDS provisions in India as the same constitute ‘royalty’ under the Income Tax Act as well as the Double Tax Avoidance Treaty (DTAA) between India and Ireland.

Google India was granted with the marketing and distribution rights of the Adwords programme to advertisers in India under a distribution agreement in 2005. This program enables advertisers to provide a relevant keyword. When this term is searched on the Google search engine, the ad also gets displayed. The advertiser pays if the surfers click on their ads.

Before the Tribunal, the Company contended that as the reseller of ad space, it only performs market-related activities to promote ad space sales. No rights in the intellectual property, it said, are transferred to it by Google Ireland.

Rejecting the above contentions, the Tribunal held that the advertising module works only with the help of various patented tools and software.

AdWord Program is more focused and targeted in advertisement campaign which results into more attention, engagement, delivery, and conversion which is only possible on the Google network with the access of tools of search engine and google analytics. Appellant is having the access to the wealth of data about users – including their eating habits, wearing preferences, photographs, sex, phone number, religion – and its analytics tools. It said all of this involves a huge amount of intellectual property (IP) and so Google India could not be described as just a reseller of ad space.

The bench held that “the agreement between the assessee and GIL is not only in the nature of providing the space for advertisement and display the advertisement to the consumers. If we look into the advertisement module of the AdWord Program, we will come to an irresistible conclusion that it is not merely an agreement to provide advertisement space but it is an agreement for facilitating the display and publishing of an advertisement to the targeted customers.

The ITAT has held that payments aggregating to Rs 1,457 crore made by Google India to Google Ireland between 2007-08 and 2012-13 are taxable as royalty.