|CORAM:||Jason P. Boaz (AM), Laliet Kumar (JM)|
|SECTION(S):||195, 201, 9(1)(vi), Article 12|
|CATCH WORDS:||Business profits, Google Adwords, royalty|
|DATE:||October 23, 2017 (Date of pronouncement)|
|DATE:||October 28, 2017 (Date of publication)|
|AY:||2007-08 to 2012-13|
|FILE:||Click here to download the file in pdf format|
|Royalty u/s 9(1)(vi) & Article 12: The Google Adwords advertisement module is not merely an agreement to provide advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer using Google's patented algorithm, tools and software. Google Adwords uses data regarding the age, gender, region, language, taste habits, food habits, etc of the customer so as to maximize the impression and conversion to the ads of the advertisers. Consequently, the payments to Google Ireland are taxable as "royalty" and the assessee ought to have deducted TDS thereon u/s 195|
(i) If we look into the advertisement module of Adword program stated herein above, then we will come to an irresistible conclusion that it is not merely an agreement to provide the advertisement space but is an agreement for facilitating the display and publishing of an advertisement to the targeted customer. If we look into the submission made by the learned AR, it is clear that the advertiser, selects some key words and on the basis of key words, the advertisement is displayed on the website or along with the search result as and when the customer selects the key words relatable to the advertisement. The module as suggested does not merely work by providing the space in the Google search engine, but it works only with the help of various patented tools and software. As we have analyzed detailed functioning of Adword program, it is clear that with the help of the search tool/software / data base, the Google is able to identify the targeted consumer/person as per the requirement of the advertiser. If only service rendered by the assessee was for providing the space then there is no occasion of either directing/ channelizing the targeted consumers to the advertisement of the advertiser. In our view truncated search results are displayed keeping in mind the commercial needs of the advertisers. The Assessee / Google, is having the access to various data with respect to the age, gender, region, language, taste habits, food habits, cloth preference, the behavior on the website etc. and it uses this information for the purposes of selecting the ad campaign and for maximizing the impression and conversion of the customers to the ads of the advertisers. Thus the activities of the assessee are not merely restricting to display of advertisement but is extended to various other facets as mentioned herein above. In other words, by using the patented algorithm, appellant decides which advertisement is to be shown to which consumer visiting millions of website / search engine. Therefore, in our view, it is not the advertisement or selling of the space rather it is focused targeted marketing for the product/ services of the advertiser by the Assessee/Google with the help of technology for reaching the targeted persons based on the various parameters information etc,. Had it been merely providing the space then the other features as deliberated and discussed hereinabove would not be required. Moreover in our view, the space on search engines / websites are readily available and therefore there was no occasion to market and sell it. Any person with the help of buying the static IP addresses can upload the data/ advertisement in the endless web world. Therefore, in our view, the agreement entered between the assessee and the Google India is not merely for providing the advertisement space but was in the nature of providing the services for displaying and promoting of the advertisement to the targeted consumers.
(ii) As recorded herein above the Google is working on various platforms and the said platforms uses various customer data for targeted ads campaign. The files of these customer data are shared for running the campaign by the Appellant with the advertisers. The popular ad campaigns of Google is “like- alike ad”, “customer audience ads”, etc where details of like-set of users are provided by the Appellant for running the targeted campaign. Similarly target marketing campaigns are done with the help of customer audience (where the client of advertiser is having its own data and wish to advertise to them). Like, if ice cream vendor wanted to go for launching of new ice cream product, it may approach Appellant /Google to share data with similar user profile or liking for ice-cream, the Appellant in possession of such data shares this data with the advertiser – ice-cream produce manufacturer. Based on this ice cream manufacturer formulates its marketing campaign with the help of Appellant and other channel partners .
(iii) In our view IP of Google vests in the search engine technology, associated software and other features, and hence use of these tools for performing various activities mentioned herein above, including accepting advertisements, providing before or after sale services, clearly fall within the ambit of “Royalty”. Therefore, contention of the assessee is not correct when the assessee is alleging that the user of the search engine is end user and not the Appellant or the advertisers and therefore it will not fall within the ambit of “Royalty”.
(iv) Clause 1.5 of the agreement dt.12.12.2005 provides Google Brand features. As per the said clause, the appellant was permitted to use tradename trademarks, service marks, domains or other distinctive brand features of Google solely for the use under the distribution agreement. Further, clause 6 of the agreement provides the brand feature like IPRs relating to brand features, the said IPRs were granted by the Google to the appellant on a non-exclusive and non-sub-licenceable basis for the purposes of marketing and distribution of Adword programme, subject to the condition mentioned therein. If we look into the activities of the assessee, for the purpose marketing and distribution of Adword programme, then, it is not possible for the appellant to undertake these activities, without the use of the Google, trademark and other brand features. Further, for marketing and distribution of Google Adword programme, the use of the Google trademark is essential and pivotal for doing the business of the advertisement on the search engine and the websites. In the absence of the Google trademark, it is difficult to comprehend that Assessee would attract lot of advertisers for its advertisement space on search engine and web site . Appellant was getting lot of engagement and clientage only on account of Google trademark . It may not be possible to have this kind of business inflow of advertisements without using the trade mark of Google . The distribution agreement had not made any provision for making the payment for the Google brand features and had only made provision for making the lumpsum payment under the agreement. As per Exhibit- A. Therefore in our view, the payments made by the assessee under the agreement was not only for marking and promoting the Adword programmes but was also for the use of Google brand features.. Needless to add that the said Google brand features were used by the appellant as marketing tool for promoting and advertising the advertisement space, which is main activity of Assessee and is not incidental activities .The use of trademark for advertising marketing and booking in the case of Hotel Shereton (Supra) as well as in the case of Formula 1 were incidental activities of the assessee therein as the main activities in the cases were providing Hotel Rooms and organizing Car Racing respectively whereas in the present case the main activity of the assessee is to do marketing of advertisement space for Google Adwords Programme. Therefore, these two judgments are not applicable to the facts of the present case. Hence for this reason also the payment made by the Appellant to GIL also falls within the four corners of royalty as defined under the provisions of ACT as well as under the DTAA.
(v) We have in detail examined the working of Adwords Programme herein above and come to the conclusion that Appellant makes use of the user data /customer data ( personal information, general information like user profile, age sex, language, type of mobile, time when customer is visiting particular web site/ searching on search engine , how much time is spent on internet and on which web site etc for the purposes of targeted/ focus marketing campaign for the advertisers ) and the patented technology , with algorithm to advertise/ disseminate ads, which was not the case either before the High Powered Committee or in the matter of Right Florist P. Ltd (supra). Present case is not a case of merely displaying or exhibiting of advertisement by the advertiser on the website, case in hand is a case of use of patented technology, secret process, use of trade mark by the appellant, therefore decision of coordinate bench in the case of Right Florist Private Limited is not applicable to the facts and circumstances of the present case. In the present case the Google India has been provided access to the IPR, Google Brand features, secret process embedded in Adwords Programme as tool of the trade for generation of income. Therefore the payment made by the appellant to Google Ireland is royalty and not the business profit and therefore chargeable to tax in India.