Karnataka High Court
M/S Google India Private Ltd vs The Commissioner Of Income Tax on 17 April, 2021
Bench: Satish Chandra Sharma, S Vishwajith 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. 6
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 7 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 8 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 9 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 10 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?
11
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 12 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? 13
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 14 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 15 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 16 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 17 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 18 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 19 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."20
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 21 "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 22 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 23 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 24 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. 25 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. 26 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 27 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 28 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 29 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