Karnataka HC refers Google case back to ITAT

In a relief to Google India, the Karnataka high court has set aside the Income Tax Appellate Tribunal (ITAT) order related to the Adwords platform (now called Google Ads). It asked the tribunal to hold a fresh hearing at the earliest.

The Adwords platform allows advertisers to create product listings and display advertisements.

The ITAT had held that payments aggregating to Rs 1,457 crore made by Google India to its parent firm Google Ireland between 2007-08 and 2012-13 are taxable as royalty. It had held that the payments constitute royalty under the Indian law, as well as under the India-Ireland Double Tax Avoidance Treaty (DTAA), and therefore are subject to withholding tax.

The court said both the parties should appear before the tribunal on May 3, and within 15 days, both the parties are free to make additional submissions and documents in support of their contentions.

The court said ITAT had not looked at all the documents placed before it, and also said the material on the basis of which it arrived at its decision was not placed before Google.

The court said “there is a violation of principles of natural justice and fair play and the matter deserves to be remanded back to the tribunal for fresh hearing in accordance with the law.” Google India declined to comment on the development.

Under a distribution agreement in 2005, Google India was granted the marketing and distribution rights of the Adwords programme to advertisers in India. This programme enables advertisers to provide a relevant keyword.

When this term is searched on the Google search engine, the ad gets displayed. The advertiser pays if those browsing click on their ads.

Google India had previously argued before the tribunal that as 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.

The ITAT had rejected these contentions by holding that the advertising module works only with the help of various patented tools and software.

It had said that Google Adwords enables advertisers to do focused and targeted campaigns because of the company’s access to a 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.