M/s. Websource Technologies Ltd., Pune V. Deputy Commissioner of Income-tax,

ITA 933/PUN/2014

• Counselvise Citation: 93324514 RSA 2014
• Duration Of Justice: 1 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-07-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 07-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI PRAKASH SHRI RAVI PRAKASH
• Assessee Lawyers: Not Found
• Keywords: Double taxation relief; Opportunity of being heard; Principle of natural justice; Retrospective amendment; Additional evidence; Permanent establishment; Wholly owned subsidiary
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , . . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI R.K. PANDA, AM . / ITA NO. 933 /PN/2014 / ASSESSMENT YEAR : 200 9 - 1 0 M/S. WEBSOURCE TECHNOLOGIES LIMITED, 1133/5, NIRANKAR APARTMENTS, F.C. ROAD, OPP. POLICE GROUNDS, PUNE 411016 . / APPELLANT PAN: AAACW3156A VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE 7, PUNE . / RESPONDENT / APPELLANT BY : SHRI KISHORE PHADKE / RESPOND ENT BY : SHRI RAVI PRAKASH / RESPOND ENT BY : SHRI RAVI PRAKASH / DATE OF HEARING : 20 .04.2015 / DAT E OF PRONOUNCEMENT: 15 .07.2015 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF CIT (A) - I I I , PUNE DATED 07 . 0 3 .20 1 4 RELATING TO ASSESSMENT YEAR 20 09 - 1 0 AGAINST ORDER PASSED UNDER SECTION 143(3) OF THE INCOME - TAX ACT , 1961 . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1 ) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT GRANTING A PROPER OPPORTUNITY OF BEING HEARD THEREBY VIOLATING THE PRINCIPLES OF NATURAL JUSTICE. ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 2 2 ) THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT ADJUDICATING THE CONTENTION OF THE APPLICABILITY OF SECTION 40(A)(IA) IN VIEW OF THE AMENDMENT MADE BY FINANCE ACT, 2012. 3 ) THE LEARNED CIT(A) HAS FURTHER ERRED IN LAW AND ON FACTS IN CONFIRMING AN ADDITION OF RS. 1,11,35,662 / - U/S 40(A)(I) FOR NON - COMPLIANCE OF THE PROVISIONS OF SECTION 195 OF THE INCOME TAX ACT, 1961 IN RESPECT OF THE FOLLOWING PAYMENTS: A ) ADVERTISEMENT EXPENSES RS. 54,18,551/ - B ) GATEWAY COMMISSION RS. 19,47,709/ - C ) WEB HOSTING CHARGES RS. 15,97,919/ - D ) TRANSACTION FEES RS. 22,01,483/ - 4 ) THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER OR MODIFY ANY OF THE GROUNDS OF APPEAL , IF DEEMED NECESSARY . 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS IN RELATION TO THE REDUCTION OF EXPENSES BY INVOKING THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF E - COMMERCE SEGMENT, WHEREIN IT GAVE ACC ESS T O TRAVEL AGENTS TO BOOK HOTELS IN REAL TIME. THE ENTIRE BUSINESS OF THE ASSESSEE WAS GENERATED THROUGH INTER NET. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED MARKETING AND BUSINESS PROMOTION I.E. ADVERTISEMENT EXPENSES TOTALLING RS. 54,18,551/ - WHICH IN TURN, WAS PAID TO GOOGLE IRELAND, WITHOUT DEDUCTING TAX AT SOURCE. THE ASSESSEE WAS ASKED TO JUS TIFY ITS CLAIM FOR THE ALLOWABILITY OF THE EXPENSES. IN REPLY, THE ASSESSEE POINTED OUT THAT IT USES GOOGLE IRELAND TO REACH OUT POTENTIAL CUSTOMERS IN US AND EUROPE. AS PER THE ASSESSEE, GOOGLE ADWORDS ALLOWS ADVERTISERS TO PLACE THEIR ONLINE MESSAGES O N THEIR SEARCH ENGINE AND WHEN A VISITOR TO GOOGLE CLICKS ON ASSESSEES MESSAGE , A CHARGE WAS INCURRED WHICH IN TURN, WAS DIRECTLY PAID TO GOOGLE IRELAND BY CREDIT CARD. THE ASSESSEE FURTHER EXPLAINED THAT NO SPECIAL SOFTWARE OR LICENSE WAS REQUIRED TO BE ABLE TO USE GOOGLE ADWORDS AND IT WAS OPEN SYSTEM. THE ASSESSEE CLAIMED THAT IT WAS IN THE BUSINESS OF TRAVEL AND HOTEL BOOKING BUSINESS THROUGH E - COMMERCE MODE AND FOR THIS PURPOSE, IT PLACES ADVERTISEMENTS ON WEBSITE OF GOOGLE LTD., IRELAND. THE ASSES SEE WAS MAKING ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 3 THE PAYMENTS FOR ADVERTISING CHARGES IN US DOLLARS BY USING CREDIT CARDS AND THUS, THE PAYMENT WAS MADE OUTSIDE INDIA. FURTHER, EXPLANATION WAS GIVE N BY THE ASSESSEE THAT THE REQUIREMENT TO DEDUCT TAX AT SOURCE BY ANY PERSON RESPONSIBLE FOR MAKING PAYMENT TO NON - RESIDENT ARISES ONLY WHERE THE SUM WAS CHARGEABLE TO TAX UNDER INCOME - TAX ACT, AS PER SECTION 195 OF THE ACT. REFERENCE WAS ALSO MADE TO ARTICLE 7 OF DTAA WITH THE IRELAND AND IT WAS POINTED OUT THAT THE BUSINESS PROFITS WERE TAXABL E IN THE COUNTRY , WHERE THE PAYEE WAS RESIDENT AND UNLESS THE PAYEE HAD PERMANENT ESTABLISHMENT (PE) IN THE PAYER COUNTRY. THE ASSESSEE FURTHER CLAIMED THAT IT WAS NOT PE OF GOOGLE, IRELAND AND IT DOES NOT ACT AS A DEPENDENT AGENT OF GOOGLE IN ANY MANNER WHATSOEVER. RELIANCE WAS PLACED BY THE ASSESSEE ON SERIES OF DECISIONS. THE ASSESSING OFFICER FURTHER REQUISITIONED THE ASSESSEE TO PROVE THAT GOOGLE, IRELAND HAS NO PE IN INDIA AND IN CASE THERE WAS NO PE IN INDIA, THEN HOW WAS IT CONDUCTING ITS BUSINES S IN INDIA AND ALSO WHAT ABOUT THE EMPLOYEES WORKING IN GOOGLE, INDIA, WHO ACT AS A AGENT OR ON BEHALF OF GOOGLE, IRELAND ON ENTERING INTO AGREEMENT WITH INDIAN COMPANIES. IN REPLY, THE ASSESSEE POINTED OUT THAT IT COULD NOT PROVE GOOGLE, IRELAND HAS NO P E IN INDIA AND IT WAS REITERATED THAT THE ENTIRE TRANSACTION WITH GOOGLE, IRELAND WAS DIRECT AND WEB BASED. IT WAS ALSO CLARIFIED THAT THERE WAS NO FORMAL WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND GOOGLE, IRELAND. THE ASSESSING OFFICER WAS OF THE VIEW T HAT THE ONUS WAS ON THE ASSESSEE TO PROVE WHETHER GOOGLE, IRELAND WAS HAVING PE IN INDIA, IN ORDER TO AVAIL THE BENEFIT OF ARTICLE 7 OF DTAA. THE ASSESSING OFFICER FURTHER WAS OF THE VIEW THAT GOOGLE, IRELAND DID HAVE A PE IN INDIA AND THAT WAS GOOGLE, IN DIA, WHICH DIRECTLY OR INDIRECTLY CARRIED OUT ITS OPERATIONS IN INDIA. THE ASSESSING OFFICER FURTHER POINTED OUT THAT MANY CORPORATE RECEIVED LETTERS FROM GOOGLE, INDIA, WHO ARE INTERESTED IN ADVERTISING ON GOOGLE, COPY OF WHICH WAS ATTACHED AS ANNEXURE A ND THE TERMS AND CONDITIONS OF THE SAID LETTER WERE SCANNED AND ATTACHED TO THE ASSESSMENT ORDER. AFTER REFERRING TO THE TERMS AND CONDITIONS AND THE MODE OF PAYMENT, ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 4 THE ASSESSING OFFICER OBSERVED THAT GOOGLE, INDIA WAS ACTING AS PE OF GOOGLE, IRELAND. REFERENCE WAS MADE TO AN ARTICLE PUBLISHED IN ECONOMIC TIMES DATED 08.12.2011 AND THE ASSESSING OFFICER CONCLUDED THAT GOOGLE RUNS AN ONLINE ADVERTISEMENT PROGRAMME CALLED ADWORDS WHEREIN ANY PERSON CAN ADVERTISE ITS PRODUCTS ON THE INTERNET. THESE ADS AR E DISPLAYED IN INDIA AND CAN BE CLICKED BY ANYONE IN INDIA. PAYMENTS ARE MADE TO GOOGLE BASED ON THE NUMBER OF IMPRESSIONS OF THE AD AND THE NUMBER OF CLICKS TO THE AD. ALL THESE PAYMENTS ARE MADE TO GOOGLE IRELAND LIMITED BY A CREDIT CARD. FURTHER, GOO GLE INDIA CARRIED OUT SALES ACTIVITIES FOR GOOGLE IRELAND. FURTHER, REFERRING TO ARTICLE 6 OF DTAA BETWEEN INDIA AND IRELAND AND ARTICLE 8 OF DTAA , THE ASSESSING OFFICER VIDE PARA 4 HELD AS UNDER: - 4. SINCE, GOOGLE INDIA CARRIES OUT MARKETING ACTIVITIES EXCLUSIVELY FOR GOOGLE IRELAND LIMITED, A COMPANY UNDER THE COMMON CONTROL WE ARE OF THE VIEW THAT GOOGLE IRELAND LIMITED IS HAVING A PE IN INDIA. FURTHER, THE ASSESSEE COULD NOT DOCUMENT THE BASIS ON WHICH IT REACHED TO A CONCLUSION THAT GOOGLE IRELAND L IMITED, THE PAYEE, DOES NOT HAVE A PE. SINCE GOOGLE IRELAND HAS A PE IN INDIA THE PAYMENTS MADE TO THE IRISH ENTITY BY AN INDIAN RESIDENT IS TAXABLE IN INDIA AND THEREFORE, THE ENTITY BY AN INDIAN RESIDENT IS TAXABLE IN INDIA AND THEREFORE, THE DEDUCTION CLAIMED ON SUCH EXPENSES SHOULD BE DISALLOWED FOR NON DEDUCTION OF IN COME TAX AT SOURCE. HENCE THE AMOUNT OF RS.54,18,551/ - IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE ASSESSEE HAD FURTHER CLAIMED GATEWAY COMMISSION OF RS. 19,47,709/ - . THE ASSESSEE WAS ASKED TO JUSTIFY THE CLAIM OF SUCH EXPENDITURE. THE PLE A OF THE ASSESSEE WAS THAT IT WAS ENGAGED IN THE BUSINESS OF E - COMMERCE AND IT HAD DEVELOPED ITS OWN WEBSITE, THROUGH WHICH HOTEL ROOM BOOKING S COULD BE DONE. THE MONEY WAS COLLECTED BY PAYMENT GATE WAYS, WHO DEDUCT COMMISSION AT AN AGREED PERCENTAGE AND R EMIT THE BALANCE MONEY TO THE ASSESSEE. ONCE THE ASSESSEE RECEIVE S THE MONEY , VOUCHER WAS ISSUED, WHICH WAS NOTHING BUT THE CONFIRMATION OF HOTEL ROOM SALE. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT WHERE THE COMMISSION IS DEDUCTED B Y THE PARTY ABROAD BEFORE REMITTING THE SAID AMOUNT TO INDIA, NO INCOME OF THE FOREIGN AGENT ACCRUES OR ARISES IN INDIA. THE ASSESSING OFFICER WAS OF THE VIEW THAT WHERE SERVICES WERE OPEN TO ALL ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 5 AND AVAILABLE ONLINE TO EVERYBODY ALL THE TIME, IT WAS IMPO SSIBLE TO BELIEVE THAT NO INCOME ACCRUES IN INDIA. IT WAS FURTHER HELD BY THE ASSESSING OFFICER THAT THE COMMISSION INCOME OF THE RECIPIENT ARISES OUT OF BUSINESS CONNECTION IN INDIA AND THEREFORE, THE SAME IS TAXABLE IN INDIA UNDER SECTION 9 OF THE INCOM E - TAX ACT AND HENCE, TDS NEEDS TO BE DEDUCTED IN INDIA. 6. THE ASSESSING OFFICER FURTHER ASKED THE ASSESSEE TO JUSTIFY THE CLAIM OF EXPENDITURE OF WEB HOSTING CHARGES OF RS. 15,67,916/ - AND TRANSACTION FEES OF RS. 22,01,483/ - . THE PLEA OF THE ASSESSEE THAT THE RECEIPTS WERE RECEIVED ABROAD AND WEB HOSTING FEES AND TRANSACTION CHARGES WERE PAID BY WEBSOURCE EUROPE LIMITED TO THE SERVICE PROVIDER ON BEHALF OF WEBSOURCE TECHNOLOGIES LTD. WHICH IN TURN, REIMBURSES THE SAME TO THE WEBSOURCE EUROPE LTD. THE ASSE SSEE CLAIMED THAT SINCE THE RECEIPTS WERE RECEIVED ABROAD ON ITS BEHALF AND THE COMMISSION ON THE SAME WAS DEDUCTED BY THE PARTY ABROAD BEFORE REMITTING THE SAME TO INDIA, NO INCOME OF THE FOREIGN AGENT ACCRUES OR ARISES IN INDIA, HENCE, NO TDS WAS REQUIRE D TO DEDUCT IN INDIA. THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSEE ON THE PREMISE THAT ONLINE SERVICES PROVIDED BY THE ASSESSEE WOULD BE EQUALLY AVAILABLE TO INDIANS ALONG WITH OTHER FOREIGN NATIONALS AND SINCE THE SAID CHARGES HAD ARISEN FROM A BUSINESS CONNECTION IN INDIA, THEREFORE, THE SAME WAS TAXABLE IN INDIA UNDER SECTION 9 OF THE INCOME - TAX ACT. IN VIEW OF THE ASSESSEE HAVING NOT DEDUCTED TAX AT SOURCE OUT OF SUCH WEB HOSTING CHARGES AND TRANSACTION FEES, THE SAID EXPENDITURE CLAIMED B Y THE ASSESSEE WAS DISALLOWED. 7. THE CIT(A) UPHELD THE ORDER OF ASSESSING OFFICER AFTER HOLDING THAT THE GOOGLE, IRELAND HAD ITS INDIA OFFICES IS PERFORMING MANY OF ITS ADWORDS RELATED ACTIVITIES IN INDIA ALSO AND IT COULD BE SAFETY CONCLUDED THAT THERE WAS INTIMATE ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 6 BUSINESS CONNECTION OF GOOGLE, IRELAND WITH GOOGLE INDIA. THE CIT(A) CONCLUDED BY HOLDING AS UNDER: - 3.3.10 ..CLEARLY, IN THE FACTS ADVERTED TO BY THE ASSESSING OFFICER AND THE UNDERSIGNED IN THE PRESENT CASE, IT IS SEEN THAT GOOGLE INDIA P VT. LTD. IS ENGAGED IN PROVIDING A HOST OF SERVICES IN CONNECTION WITH ADWORDS SERVICES OF GOOGLE SUCH AS REVIEW OF ADVERTISEMENT CONTENT SO THAT THEY ARE IN TANDEM WITH GOOGLES POLICIES, PROTECTING ONLINE SAFETY OF CLIENTS BY TACKLING WEB ABUSE, FINANCIA L FRAUD, ACCOUNT RELATED ABUSE, ETC., CREATING AND OPERATING BRANDED ADVERTISING PROGRAMS, RECEIVING PAYMENTS RELATED TO ADVERTISING IN ADWORDS AT ITS OFFICES AND EVEN OFFERING SALES SUPPORT FOR RESOLVING CUSTOMER CONCERNS. 8. THE CONCLUSION OF THE CIT(A ) WAS THAT GOOGLE INDIA WAS FUNCTIONING AS PE OF GOOGLE AND ASSESSEE WAS UTILIZING THE SERVICES OF GOOGLE INDIA FOR OPENING AN ADWORDS ACCOUNTS, REGISTERING CREDIT CARDS AND OTHER FORMS OF PAYMENTS, GETTING ADS VETTED / REVIEWED AND ALL OTHER GAMUT OF AC T IVITIES INVOLVED IN PLACING ITS ADVERTISEMENTS ON ADWORDS. THE CIT(A) THUS, HELD THAT IN VIEW OF THE PROVISIONS OF EXPLANATION 2 TO SECTION 195(1) OF THE ACT, THE ASSESSEE HAD FAILED TO FULFILL THE STATUTORY PROVISIONS MANDATED UNDER LAW AND HENCE, THE PA YMENT OF RS. 54,18,551/ - WAS DI SALLOWABLE UNDER THE PROVISIONS HENCE, THE PA YMENT OF RS. 54,18,551/ - WAS DI SALLOWABLE UNDER THE PROVISIONS OF SECTION 40(A)(I) R.W.S. 195(1) OF THE ACT. SIMILARLY, IN RESPECT OF G ATEWAY COMMISSION OF RS. 19,47,709/ - AND WEB HOSTING CHARGES OF RS. 15,97,919/ - AND TRANSACTION FEES OF RS. 22,01,483/ - PAID TO ITS SISTER CONCERN WERE HELD TO BE LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 OF THE ACT AND SINCE THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE, DISALLOWANCE OF THE SAID EXPENDITURE IN VIEW OF PROVISIONS OF SECTION 40(A)(I) OF THE ACT, WAS UPHELD BY THE CIT(A). 9. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 10. BOTH THE AUTHORIZED REPRESENTATIVES MADE ELABORATE SUBMISSIONS A ND AT THE CONCLUSION OF HEARING, FILED WRITTEN SUBMISSIONS WHICH ARE PLACED ON RECORD. ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 7 11. WE HAVE HE ARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE HAVE ALSO GONE THROUGH THE WRITTEN SUBMISSIONS FILED BY BOTH THE AUTHORIZED REPRESENTATIVES. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO CERTAIN EXPENDITURE BOOKED BY THE ASSESSEE WHICH W AS DISALLOWED IN THE HANDS OF THE ASSESSEE FOR NOT DEDUCTING OF TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 195 OF THE ACT AND HENCE, DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THE ADDITION WAS MADE IN THE HANDS OF THE ASSESSE E ON ACCOUNT OF FOLLOWING PAYMENTS: - A) ADVERTISEMENT EXPENSES - RS.54,18,551/ - B) GATEWAY COMMISSION - RS. 19,47,709/ - C) WEB HOSTING CHARGES - RS. 15,97,919/ - D) TRANSACTION FEES - RS. 22,01,483/ - 12. THE ASSESSEE HAD INCURRED MARKETING AND BUSINE SS PROMOTION EXPENSES OF RS.54,18,551/ - PAID TO GOOGLE LTD., IRELAND. THE JUSTIFIABILITY OF THE SAID EXPENSES WAS EXPLAINED BY THE ASSESSEE THAT IT USES GOOGLE LTD., IRELAND TO REACH OUT TO POTENTIAL CUSTOMERS IN USA AND EUROPE . GOOGLE ADWORDS ALLOW S ADV ERTISERS TO PLACE THEIR ONLINE MESSAGES ON THEIR SEARCH ENGINE AND WHEN A VISITOR TO GOOGLE CLICKS ON THE MESSAGE OF ASSESSEE, A CHARGE WAS INCURRED , WHICH WERE DIRECTLY PAID TO GOOGLE IRELAND BY CREDIT CARD. IN ORDER TO UTILIZE THE SERVICES OF GOOGLE ADW ORDS , THE PLEA OF T HE ASSESSEE BEFORE THE AUTHORITIES BELOW WAS THAT NO SPECIAL SOFTWARE OR LICENSE WAS REQUIRED . THE SYSTEM WAS AN OPEN SYSTEM , WHEREIN AN ACCOUNT COULD BE CREATED ONLINE BY ANYONE AND ONCE THE ACCOUNT WAS CREATED, MESSAGE WOULD BE POSTED ON GOOGLE. THE A SSESSEE WAS ENGAGED IN THE BUSINESS OF TRAVEL AND HOTEL BOOKING BUSINESS THROUGH E - COMMERCE MODE AND FOR THIS PURPOSE, IT PLACES ADVERTISEMENTS ON WEBSITE OF GOOGLE LTD., IRELAND. THE ADVERTISING CHARGES WERE PAID IN US DOLLARS BY USING CREDIT CARDS AND THE CLAIM OF THE ASSESSEE WAS THAT SINCE PAYMENT WAS MADE OUTSIDE INDIA , THE PROVISIONS OF SECTION 195 OF THE ACT WERE NOT APPLICABLE AS THE SAID PROVISIONS ARISES WHEREIN ANY SUM WAS CHARGEABLE TO TAX UNDER THE INCOME - TAX ACT. SO, IN ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 8 ORD ER TO FASTEN THE RESPONSIBILITY UPON THE ASSESSEE TO DEDUCT TAX AT SOURCE, THE FIRST THING TO BE ESTABLISHED IS WHET HER THE SAME SUM IS CHARGEABLE TO TAX IN INDIA , IN CASE IT IS NOT SO CHARGEABLE, THEN THERE IS NO REQUIREMENT FOR DEDUCTION OF TAX . REFERRI NG TO ARTICLE 7 OF DTAA BETWEEN INDIA AND IRELAND, THE ASSESSEE POINTED OUT THAT THE BUSINESS PROFITS WERE TAXABLE IN THE COUNTRY WHERE THE PAYEE WAS RESIDENT , UNLESS THE PAYEE HAD PE IN THE PAYER COUNTRY. IN REPLY TO QUERY RAISED BY THE ASSESSING OFFICER THAT GOOGLE LTD., IRELAND HAD ANY PAYEE IN INDIA OR NOT, THE ASSESSEE CLAIMED THAT IT COULD NO T PROVE THAT GOOGLE LTD., IRELAND HAD ANY PE IN INDIA. FURTHER, IT WAS THE PLEA OF THE ASSESSEE THAT THERE WAS NO FORMAL WRITTEN AGREEMENT BETWEEN THE ASSESSEE AND THE GOOGLE LTD., IRELAND. THE ASSESSING OFFICER REJECTED THE PLEA OF THE ASSESSEE BY OBSERVING THAT GOOGLE LTD., IRELAND DID HAVE A PE IN INDIA AND THAT WAS GOOGLE INDIA, WHICH DIRECTLY OR INDIRECTLY CARRIED OUT ITS OPERATIONS IN INDIA. FURTHER, REFE RENCES WERE MADE TO THE LETTER ISSUED BY GOOGLE INDIA TO PERSONS WHO WERE INTERESTED IN ADVERTISEMENT ON GOOGLE. IN VIEW OF THE SAID TERMS AND CONDITIONS, THE ASSESSING OFFICER HELD THAT WHERE GOOGLE INDIA WAS CARRYING ON MARKETING ACTIVITIES EXCLUSIVELY FOR GOOGLE LTD., IRELAND, IN SUCH CIRCUMSTANCES, GOOGLE LTD., I RELAND WAS HAVING PE IN INDIA. SINCE GOOGLE LTD., IRELAND HAD A PE IN INDIA, THE PAYMENTS MADE BY THE ASSESSEE WERE HELD TO BE TAXABLE IN INDIA AND THE EXPENDITURE CLAIMED BY THE ASSESSEE WAS DISALLOWED FOR NON - DEDUCTION OF TAX AT SOURCE, IN VIEW OF THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THE CIT(A) ELABORATELY CONSIDERED THE AFORESAID ISSUE AND REFERRED TO ARTICLE S 5 AND 7 OF DTAA BETWEEN INDIA AND IRELAND VIDE PARA 3.3.2 , 3.3.3 AND 3 .3.4 , WHICH READ AS UNDER: - 3.3.2. TO DECIDE THE ISSUE' WHETHER GOOGLE INDIA CAN BE HELD TO BE A PE OF GOO G LE IRELAND, ARTICLE 5 - O F THE DTAA BETWEEN INDIA & IRELAND WAS EXAMINED. THE TERM 'PERMANENT ESTABLISHMENT' IS DEFINED THEREIN AS UNDER: 1 . FOR THE P URPOSES OF THIS CONVENTION, THE TERM 'PERMANENT ESTABLISHMENT' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE BUSINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. 2 . THE TERM 'PERMANENT ESTABLISHMENT' INCLUDES 'ESPECIALLY (A) A PLACE OF MANAGEMENT; ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 9 (B) A BRANCH; (C) AN OFFICE; (D) A FACTORY; (E) A WORKSHOP; (E) A WORKSHOP; (F) A MINE. AN OIL OR ' GAS WELL, A QUARRY OR ANY OTHER PLACE O F EX TRACTI O N OF EXPLORATION OF NATURAL RESOURCES; (G) AN INSTALLATION OR STRUCTURE USED FOR THE EXPLORATION OR EXPLOITATION OF NATUR AL RESOURCES; (H) A SALES OUTLET; (I) A WAREHOUSE IN RELATION TO A PERSON PROVIDING STORAGE FACILITIES FOR OTHERS ; AND (J ) A FARM , PLANTATION OR OTHER PLACE WHERE AGRICULTURAL, FORES TR Y , PLANTATION OR RELATED ACTIVITIES ARE CARRIED ON. 3. A BUILDING SIT E OR CONSTRUCTION OR ASSEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH CONSTITUTE A PERMANENT ESTABLISHMENT ONLY IF SUCH SITE, IN CONNECTION THEREWITH CONSTITUTE A PERMANENT ESTABLISHMENT ONLY IF SUCH SITE, PROJECT OR ACTIVITY LAST MORE THAN SIX MONTHS. 4. AN ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHME NT IN A CONTRACTING STATE AND TO CARRYON BUSINESS THROUGH THAT PERMANENT ESTABLISHMENT IF IT PROVIDES SERVICES OR FACILITIES IN CONNECTION WITH, OR SUPPLIES PLANT AND MACHINERY ON HIRE USED FOR OR TO BE USED IN, THE PROSPECTING FOR, OR EXTRACTION OR EXPLOI TATION OF MINERAL OILS IN THAT STATE. 5 NOTWITHSTANDING THE PREVIOUS PROVISIONS OF THIS ARTICLE , THE TERM 'PERMANENT ESTABLISHMENT' SHALL BE DEEMED NOT TO INCLUDE : ( A ) THE USE OF F ACILITIES SOLELY FOR THE PURPOSE OF STORAGE, DISPLAY OR DELIVERY OR GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE; GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE; ( B ) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF STORAGE, DISPLAY OR DELIVERY; ( C ) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRIS E SOLELY FOR THE PURPOSE OF PROCESSING BY ANOTHER ENTERPRISE; ( D ) THE MAINTENANCE OF 'A FIXED: PLACE OF BUSINESS SOLE L Y FOR THE PURPOSE OF PURCHASING GOODS OR MERCHANDISE OR OF COLLECTING INFORMATION FOR THE ENTERPRISE; ( E ) THE MAINTENANCE OF A FIXED PLACE OF BU SINESS SOLELY FOR THE PURPOSE OF CARRYING ON, FOR THE ENTERPRISE, ANY OTHER ACTIVITY OF A PREPARATORY OR AUXILIARY CHARACTER; ( F ) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR ANY COMBINATION OF ACTIVITIES MENTIONED IN SUB - PARAGRAPHS ( A ) TO (E), PROV IDED THAT THE OVERALL ACTIVITY OF THE FIXED PLACE OF BUSINESS RESULTING FROM THIS COMBINATION IS OF A ACTIVITY OF THE FIXED PLACE OF BUSINESS RESULTING FROM THIS COMBINATION IS OF A PREPARATORY OR AUXILIARY CHARACTER. 6. NOTWITHST A NDING THE PROVISIONS OF PARAGRAPHS 1 AND 2, WHERE A PERSON - OTHER THAN AN AGENT OF AN INDEPENDENT STATU S TO WHOM PARAGRAPH 8 APPLIES - IS ACTING IN A CONTRACTING STATE ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE, THAT ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE FIRST - MENTIONED CONTRACTING STATE IN RESPECT OF ANY ACTIVIT IES WHICH THAT PERSON UNDERTAKES FOR THE ENTERPRISE, IF SUCH A PERSON: ( A ) HAS AND HABITUALLY EXERCISES IN THAT S T ATE A N AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE, UNLESS TILE ACTIVITIES OF SUCH PERSON ARE LIMITED TO THESE MENTIONED IN PAR AGRAPH 5 WHICH, IF EXERCISED THROUGH A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THIS FIXED PLACE OF BUSINESS A FIXED PLACE OF BUSINESS, WOULD NOT MAKE THIS FIXED PLACE OF BUSINESS A PERMANENT ESTA B LISHMEN T UNDER THE PROVISIONS 0 F THAT PARAGRAPH; OR ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 10 ( B ) HAS NO SUCH AUTHORITY, BUT HABITUALLY MAINTAINS IN THE FIRST - MENTIONED STATE A STOCK O F GOODS OR MERCHANDISE FROM WHICH HE REGULARLY DELIVERS GOODS OR MERCHANDISE ON BEHAL F OF THE ENTERPRISE ; OR ( C ) HABITUALLY SECURES ORDERS IN THE FIRST - MENTIONED STATE, WHOLL Y OR ALMOST WHOLLY FOR T HE ENTERPRISE ITSELF OR FOR THE ENTERPRISE AND OT HER ENTERPRISES WHOLLY FOR T HE ENTERPRISE ITSELF OR FOR THE ENTERPRISE AND OT HER ENTERPRISES CONTROLLING, CONTROLLED BY, OR SUBJECT TO THE SAME CONTROL AS THAT ENTERPRISE. 3.3.3. ARTICLE 7 OF THE DTAA WHICH DEALS WITH THE INCIDENCE OF BUSINESS PROFITS READS AS UNDER: 1 . THE PROFITS OF AN ENTERPRISE OF A CONTRACTING STATE SHALL BE T AXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. IF THE ENTERPRISE CARRIES ON BUSINESS AS AFORESAID, THE PROFITS OF THE ENTERPRISE MAY ALSO BE TAXED I N TH E OTHER STATE BUT ONLY SO MUCH OF THEM AS IS ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT . ESTABLISHMENT . 2 . SUBJECT TO THE PROVISIONS OF PARAGRAPH 3 , WHERE AN ENTERPRISE OF A CONTRACTING STATE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLIS HMENT SITUATED THEREIN, THERE SHALL. IN EACH CONTRAC TING STATE HE ATTRIBUTED TO THAT PERMANENT ESTABLISHMENT THE PROFITS WHICH IT MIGHT BE EXPECTED TO MAKE IF IT WERE A DISTINCT AND SEPARATE ENTERPRISE ENGAGED IN THE SAME OR SIMILAR ACTIVITIES UNDER THE SA ME OR SIMILAR CONDITIONS AND DEALING WHOLLY INDEPENDENTLY WITH THE ENTERPRISE OF WHICH IT IS A PERMANENT E STABLISH M ENT . . 3 . IN THE DETERMINATION OF THE PROFITS OF A PERMANENT ES T ABLISHMENT, THERE SHALL BE ALLOWED AS DEDUCTIONS EXPENSES WH I CH ARE INCURRED FOR THE PURPOSES OF THE PERMANENT ESTABLISHMENT, WHETHER I N THE STATE I N WHICH THE PERMANENT PERMANENT ESTABLISHMENT, WHETHER I N THE STATE I N WHICH THE PERMANENT ESTABLISHMENT I S SITUATED OR ELSEWHERE. E XECUTIVE AND GENERAL ADMINISTRATIVE EXPENSES SHALL BE ALLOWED AS DEDUCT I ONS IN ACCORDANCE WITH THE TAXATION LAWS OF THAT STATE. NOTHING IN THIS PARAGRAPH SHALL, HOWEVER, AUTHORISE A DEDUCTION FOR EXPENSES WHICH WOULD NOT BE DEDUCTIBLE IF THE PERMANENT ESTABLISHMENT WERE A SEPARATE ENTERPRISE. 4 . NO PROFITS SHALL BE ATTRIBUTED TO A PERMANENT ESTABLISHMENT BY REASON OR THE MERE PURCHASE BY THAT PERMANENT ESTABLISHMENT OF GOODS OR MERCHANDISE FOR THE ENTERPRISE. 5 . FOR T H E PURPOSES OF TH E PRE CE DING PARAGRAPHS , THE PROFITS TO BE ATTRIBUTED TO THE PERMANENT ESTABLISHMENT SHALL BE DETERMINED BY THE SAME METHOD YEAR BY YEAR UNLESS THE RE IS GOOD AND SUFFICIENT REASON TO THE CONTRARY. YEAR UNLESS THE RE IS GOOD AND SUFFICIENT REASON TO THE CONTRARY. 6 . WHERE PROFITS INCLUDE ITEMS OF INCOME WHICH ARE DEALT WITH SEPARATELY IN OTHER ARTICLES OF THIS CONVENTION, THEN THE PROVISIONS OF THOSE ARTICLES SHALL NOT BE AFFECTED BY THE PROVISIONS OF THIS ARTICLE. 3.3.4. THUS, UNDER THE PROVISIONS OF THE DTAA BETWEEN INDIA AND IRELAND, THE PROFITS OF AN ENTERPRISE OF THE 'ST A TE' (I.E. IRELAND) SHALL BE TAXABLE ONLY IN THAT STATE UNLESS THE ENTERPRISE CARRIES ON BUSINESS IN THE OTHER C O NTRACTING S TA TE (I.E. INDIA) TH ROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN. WHEN EXAMINED I N THE LIGHT OF A RTICLE 5 DTAA , THE ASSERTION OF THE AO THAT IT IS GOOGLE INDIA THAT IS SOLICITING THE CUSTOMERS FOR GOOGLE AD WORDS IS CREDIBLE AND IS BORNE OUT FROM THE FACTS AVAILABLE ON REC ORD. A PERUSAL OF THE GOOGLE INDIA WEBSITE AT HTT PS : //PLU S G O OG IE /+ G OOGLE INDIA/ABOUT REVEALS THAT THE INDIA WEBSITE AT HTT PS : //PLU S G O OG IE /+ G OOGLE INDIA/ABOUT REVEALS THAT THE HELPCENTRE RUN BY IT OFFERS THE FOLLOWING SERVICES: ADSENSE, GOOGLE PLAY, ANDROID OS, AD WORDS, CHROMECAST, ETC. SO FAR AS ADWORDS SERVICES ARE CONCERNED, THE WEBSITE OFFERS THE SERVICES OF REGISTERING AND SETTING UP A NEW AD W ORDS ACCOUNT, CREATING AN AD CAMPAIGN, CHOICE OF WHERE AND WHEN ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 11 ADVERTISE M ENTS APPEAR, WHETHER THE AD IS RUN NING , ACCOUNT ADMINISTRATION AND SECURITY, BILLING ETC. UNDER THE CAPTION PAYMENT METHODS AND SETTINGS, A CLIENT IS OFFERED A CHOICE OF AUTOMATIC (AFTER THE ADS RUN) OR MANUAL PAYMENT OPTION (BEFORE THE AD IS RUN). THE CLIENT IS ALSO GIVEN AN ARRAY OF MODE OF PAYMENT OPTIONS SUCH AS (I) CREDIT CARD, WHICH HAS TO BE REGISTERED AFTER VERIFICATION FR OM THE BANK CONCERNED ON THIS WEBSITE TO ENSURE ONLINE SECURITY, (II) NET BANKING THE BANK CONCERNED ON THIS WEBSITE TO ENSURE ONLINE SECURITY, (II) NET BANKING OFFERED THROUGH GOOGLE INDIA'S PAYMENT PARTNER, TIMESOFMONEY, WHICH IN TURN SUPPORTS A HOST OF INDIAN BANKS, SUCH AS HOFC BANK, IDBI BANK, BANK OF MAHAR ASHTRA, J & K BANK, S BI GROUP OF BANKS, ET C . [IN THE CASE OF NET BANKING, IF IT'S BEEN OVER FIVE BUSINESS DAYS SINCE THE TRANSFER' WAS INITIATED AND THE PAYMENT IS NOT REFLEC T ED IN THE BANK ACCOUNT OF THE CLIENT, GOOGLE INDIA CAN BE .CONTACTED AT 1800 258 2554 BETWEEN 9AM TO 6PM IST, MONDAY TO FRIDAY] (III) CHEQUE OR DEMAND DRAFT PAYABLE IN FAVOUR OF GOOGLE INDIA PVT. LTD. FOLLOWED BY A 10 DIGIT REFERENCE NUMBER (CALLED VAN) TO ONE OF CITIGROUP'S OFFICES, EITHER BY COURIER OR BY PHYSICALLY DROPPING IT OFF. THE MODE AND METHOD OF REGISTERING FOR A NEW ADWORDS ACCOUNT AND THE MODE OF VERIFICATION OF CREDIT CARD PAYMENTS AS WELL OTHER MODES OF PAYMENTS CLEARLY ESTABLISH THE CASE THAT GOOGLE INDIA'S HELP CENTRE IS ACTIVELY ENGAGED IN PROVING THESE SERVICES TO IN DIAN CLIENTS. 13. THE CIT(A) FURTHER REFERRED TO THE PROCESS OF ADVERTISEMENT ON GOOGLE ADWORDS VIDE PARAS 3.3.5 WHICH READS AS UNDER: - 3.3 . 5. A REVIEW - OF THE ACTIVITIES OF THE HE LP CENTRE FURTHER SHOWS THAT WHEN THE CLIENT MAKES A NEW AD OR MAKES CHAN GES TO AN EXISTING AD, IT GOES THROUGH A PROCESS OF REVIEW BEFORE IT IS APPROVED. THE PROCESS GE N ERALLY TAKES ONE BUSINESS DAY AND IS SUBJECT TO GOOGLE POLICY RESTRICTIONS ON TRADE - MARKS, GAMBLING, ADULT CONTENT AND THE LIKE. THE REVIEW PROCEDURE UNDERTAK EN IS DESCRIBED IN THE HELP CENTRE AND WHICH IS SEEN TO BE MANA G ED B Y ITS INDIA OFFICE IN THE SUBSEQUENT PARAGRAPHS, IS DEFINED AS FOLLOWS: WE GIVE YOUR AD AN APPROVAL STATUS BOTH BEFORE AND AFTER OUR REVIEW: BEFORE REVIEW: BEFORE REVIEW: ELIGIBLE AD IS STILL BEING REVIEWED, BUT IT CAN SHOW ON GOOGLE SEARCH PAGES IN THE MEANTIME. UNDER REVIEW AD IS STILL BEING REVIEWED AND CANT SHOW UNTIL ITS BEEN APPROVED. NOT YET SERVING (VIDEO ADS) A VIDEO AD IS NOT YET APPROVED TO APPEAR ON YOUTUBE BUT IS UNDER REVIEW. AFT ER REVIEW ADS CAN RUN: APPROVED AD COMPLIES WITH OUR POLICIES, SO ITS ALLOWED TO SHOW FOR ALL AUDIENCES. APPROVED (LIMITED) AD CAN RUN, BUT NOT IN ALL SITUATIONS DUE TO POLICY RESTRICTIONS SUCH AS THOSE AROUND TRADEMARK USE AND GAMBLING ADS. APPROV ED (NON - FAMILY) AD CAN RUN, BUT NOT IN ALL SITUATIONS DUE TO APPROV ED (NON - FAMILY) AD CAN RUN, BUT NOT IN ALL SITUATIONS DUE TO RESTRICTIONS ON CONTENT THAT WE CONSIDER NON - FAMILY SAFE. APPROVED (ADULT) AD CAN RUN, BUT NOT IN ALL SITUATIONS DUE TO RESTRICTIONS ON ADULT CONTENT. SERVING (VIEW ADS) A VIDEO AD IS APP ROVED TO APPEAR ON YOUTUBE. AFTER REVIEW ADS CANNOT RUN: DISAPPROVED AD CANNOT RUN AS IT IS NOW BECAUSE IT VIOLATES ADWORDS POLICY . SITE SUSPENDED AD CANNOT RUN BECAUSE ITS WEBSITE VIOLATES ADWORDS POLICY. NOT SERVING (VIDEO ADS) ALL FORMATS (HEADL INE, DESCRIPTION, VIDEO, ETC.) OF THE VIDEO AD HAVE BEEN DISAPPROVED. WITH ISSUES (VIDEO ADS) ONE OR MORE OF A VIDEO ADS FORMATS ARE MARKED AS DISAPPROVED OR APPROVED (LIMITED). MARKED AS DISAPPROVED OR APPROVED (LIMITED). THESE ARE ALSO OTHER STATUSES THAT ARE NOT RELATED TO AD APPROVAL, SUC H PAUSED, ENDED, AND PENDING. ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 12 14. THE CIT(A) WAS OF THE VIEW THAT THE ASSESSEE LIKE OTHER INDIAN COMPANIES DID UTILIZE THE SERVICES OF GOOGLE LTD., IRELAND FOR OPENING AN ADWORDS ACCOUNT, REGISTERING CREDIT CARDS AND OTHER FORMS OF PAYMENTS, GETTING ADS VETTED / REVIEWED AND ALL OTHER GAMUT OF ACTIVITIES INVOLVED IN PLACING ITS ADVERTISEMENTS ON ADWORDS. FURTHER, THE CIT(A) REVIEWED THE JOB DESCRIPTION OF VARIOUS PERSONS EMPLOYED BY GOOGLE INDIA PVT. LTD. UNDER PARA 3.3.6 AND 3.3.7 , WHICH READ AS UNDER: - 3 . 3 . 6 . THEREFORE, IT CAN BE SEEN ON THE REVIEW OF THE SERVICES OFFERED BY GOOGLE INDIA THAT THE AP PEL LANT COMPANY, LIKE A L L OTHER INDIAN COMPANIES, DOES UTILIZE THE SERVICES OF GOO G LE IN D IA FOR OPENING AN ADWORDS ACCOUNT, REGISTERING A CREDIT CARD OR OTH ER FORMS OF PAYMENT, GETT I NG ADS VE TTED/REVIEWED A ND ALL OTHER G AMUT OF ACTIVITIES INVO L VED IN PLACIN G ITS A D VERTISEM EN TS ON A D WOR D S, IT IS SEEN THAT GOOGLE INDIA PVT . LTD WAS FOUN D ED IN THE YEAR 2004, HAS OFFICES AT SEVERAL LOCATIONS SUCH AS BANGAL O RE, G U RGAON, HYDERABAD AND MUMBAI A N D IS A SUBSIDIARY CO M PA NY OF GOOGLE I NDIA . THE INDIAN SUBSIDIARY DOES AC T AS A B A CK OFFICE FOR MANY OF THE SERVICES PROVIDED, WHICH IS PR OVIDED FROM THE VERY NATURE OF JOBS ASSIGNED TO ITS PERSONNEL IN INDIA, THE JOB - DESCRIPTI ON OF THE POST ASSOCIATE ACCOUNT STRATEGIST, HYDERABAD & MANAGER SALES SUPPORT, GURGAON, FOR EXAMPLE, IS AVAILABLE ONLINE AND READS AS UNDER: 'WORKING WITHIN THE GLOBAL CUSTOMER SERVICES ORGANIZATION, YOU H ELP THE WIDER GLOBAL BUSINESS ORGANIZATION BETTE R SERVE GOOGLE S WORLDWIDE USER BASE FOR OUR ' ADWORDS PRODUCT. THIS FAST PACED S UPPORT AND SALES TEAM QUICKLY BASE FOR OUR ' ADWORDS PRODUCT. THIS FAST PACED S UPPORT AND SALES TEAM QUICKLY IDENTIFIES AND RE SOLVES CUSTOMER CONCERNS, WHILE ALSO FOCUSING ON ADDING VALUE ON EVERY CUSTOMER CONCERNS AND CONTRIBUTES TO THE GROWTH OF OUR PRO GRAMS ' 3.3.6. 1 . THE JOB - DESCRIPTION OF THE POST OF BUSINESS ANALYST AT GOOGLE INDIA'S HYDERABAD OFFICE IS AVAILABLE ONLINE AS: 'HELP SE RV E GOOGLE'S WORLDWIDE USER BASE OF MORE THAN A BILLION PEOPLE BY WORKING WITHIN GLO BA L SMALL AND MEDIUM BUSINESSES . Y OU FOCUS ON ADWORDS, OUR SERVICE THAT LE T S BUSINESS OWNERS CREATE AND RUN ADS, QUICKLY AND SIMPLY. BUSINESS ANALYSTS PROVIDE QUANTITATIVE SUPPORT, BUSINESS UNDERSTANDING AND A STRATEGIC PERSPECTIVE TO OUR PARTNERS THROUGHOUT THE ORGANIZATION . AS A DATA LOVING MEMBER OF THE TEAM, YOU SERVE AS AN ANALYTICS EXPERT FOR YOUR PARTNERS, USING NUMBERS TO HELP THEM MAKE BETTER BUSINESS DECISIONS . YOU WE A VE STORIES WITH MEANINGFUL INSIGHT FROM DATA. YOU MAKE CRITICAL RECOMMENDATIONS FOR YOUR FELLOW GOOGLERS IN EN GINEERING AND PRODUCT MANAGEMENT. AS A SELF - STARTER, YOU RELISH TALLYING UP THE NUMBERS ONE MINUTE AND COMMUNICATING YOUR FINDINGS TO A SA L ES MANAGER THE NEXT '. 3.3.6.2. THE RESPONSIBILITIES OF PROGRAM M ANAGER, ADS REVIEW OPERATIONS AT HYDERABAD WHICH A RE DESCRIBED ONLINE ON GOOGLE INDIA WEBSITE AS FOLLOWS: EVALUATE AND IDENTIFY BUSINESS PROCESS IMPROVEMENTS TO REDUCE 'AD PENDING BIN APPROVAL', 'AD DISAPPROVAL' CONTACTS FROM ADVERTISERS, AND AD APPROVALS CONSULT RATE. DEVELOP COMPELLING AND INSIGHTFUL RECOMMENDATIONS TO DRIVE GEOGRAPHIC - SPECIFIC IMPROVEMENTS. WORK EFFECTIVELY WITH MULTIPLE CROSS - FUNCTIONAL TEAMS TO DESIGN AND INNOVATIVE SOLUTIONS TO IMPROVE ADVERTISER EXPERIENCE AND OPERATIONAL EFFICIENCY, ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 13 ENGAG E WITH SENIOR GOOGLE LEADERS AND IN - REGION TEAMS TO PROBLEM SOLVE, AND PROVIDE INSIGHTS THAT HAVE A DIRECT IMPACT ON THE FUTURE OF AD APPROVAL BUSINESS. MANAGE END TO END RESPONSIBILITY FOR PROJECTS FROM DEVELOPING SOLUTIONS TO SMOOTH EXECUTION AND CONTROL MECHANISM. 3.3 . 6.3. THE MEDIA TECHNICAL PRODUCTS SPECIALISTS AT HYDERABAD ARE ENTRUSTED THE FOLLOWING RESPONSIBILITIES: ' G OOGLE'S SALES ADVERTISING OPERATIONS TEAM IS DEVOTED TO FI N DING RELEVANT SOLUTIONS THAT MEET OUR CLIENTS' CH ANG ING ADVERTISING NEEDS. THE TECHNICAL PRODUCTION TEAM BRINGS OUR CLIENT S ADVERTISING CAMPAIGNS TO LIFE BY WORKING CLOSELY WITH SALES ACCOUNT EXECUTIVES, AGENCIES, CLIENTS AND SALES ENGINEERS TO CREATE AND OPERATE BRANDED A DVE RTI SING - PROGRAMS. YOU WI L L HANDLE PROGRAM MANAGEMENT 10 ENSURE A SMOOTH END - TO - END EXECU TION OF PROGRAMS - FROM SUPPORTING PITCH DEVELOPMENT AND COORDINATING WITH CREATIVE AGENCIES TO REPO R TING SUCCESS METRICS AND COMMUNICATING TIME LINES WITH ENGINEERING, CONSULTANTS AND MEDIA MANAGERS. YOU WILL IDENTIFY NEW CREATIVE OPPORTUNITIES BASED ON SALES AND INDUSTRY TRENDS AND CUSTOMER NEEDS. 3.3.6.4 THE BUSINESS ANALYSTS AND MANAGERS, PRODUCT QUALITY OPERATIONS AT HYDERABAD ARE ENTRUSTED WITH THE FOLLOWING RESPONSIBILITIES: GOOGLE BRANCH IS ONLY AS STRONG AS OUR USERS TRUST - AND THEIR STEADFAS T BELIEF THAT OUR GUIDING PRINCIPLES ARE WHATS BEST FOR THEM. OUR PRODUCT QUALITY OPERATIONS TEAM HAS THE CRITICAL RESPONSIBILITY OF PROTECTING GOOGLES USERS BY ENSURING ONLINE SAFETY BY FIGHTING WEB ABUSE AND FRAUD ACROSS GOOGLE PRODUCTS LIKE SEARCH, M APS, ADWORDS AND ADSENSE. ON THIS TEAM, YOURE A BIG - PICTURE THINKER AND STRATEGIC LEADER. YOU UNDERSTAND THE USERS POINT OF VIEW AND ARE PASSIONATE ABOUT USING YOUR COMBINED TECHNICAL, SALES AND CUSTOMER SERVICE ACUMEN TO PROTECT OUR USERS. YOU WORK G LOBALLY AND CROSS - FUNCTIONALLY WITH GOOGLE DEVELOPERS AND PRODUCT MANAGERS TO NAVIGATE FUNCTIONALLY WITH GOOGLE DEVELOPERS AND PRODUCT MANAGERS TO NAVIGATE CHALLENGING ONLINE SAFETY SITUATIONS AND HANDLE ABUSE AND FRAUD CASES AT GOOGLE SPEED (READ: FAST!) . HELP US PROVE THAT QUALITY ON THE INTERNET TRUMPS ALL. AS A PRODUC TION QUALITY ANALYSIS, YOU WILL BE RESPONSIBLE FOR PROTECTING THE INTEGRITY OF AT LEAST ONE OF GOOGLES KEY PRODUCTS (SUCH AS SEARCH, MAPS, ADWORDS, ADSENSE, WALLET, SHOPPING SOCIAL ) BY INVESTIGATING FINANCIAL FRAUD, ACCOUNT - RELATED ABUSE, QUESTIONABLE BUS INESS PRACTICES, VIOLATIONS OF GOOGLES POLICIES AND GENERAL MISUSE OF OUR PRODUCTS. YOU WILL BE INTRODUCED TO DYNAMIC ANALYTICAL TECHNIQUES AND LEVERAGE CUSTOM - BUILT TECHNOLOGY TO HAVE A DIRECT IMPACT ON IMPROVING THE EXPERIENCE OF MILLIONS OF GOOGLE USE RS. AS AN IDEAL CANDIDATE, YOU SUBSCRIBE TO A USER - FIRST PHILOSOPHY AND ARE INTERESTED IN IMPROVING GOOGLES USER EXPERIENCE AND PRODUCT INTEGRITY. YOU ARE CO M FORTABLE NAVIGATING AMBIGUITY, THRIVE IN A FAST - FACED, GLOBAL AND CROSS - FUNCTIONAL ENVIRONMEN T AND CAN EFFECTIVELY HARNESS YOUR ANALYTICAL AND TECHNICAL SKILLS COMBINED WITH INNOVATIVE IDEAS TO DRIVE PROCESS IMPROVEMENT AND TOOL DEVELOPMENT. 3.3.6.5 THE ASSOCIATE ST RATEGIST, AD REVIEW OPERATIONS AT HYDERABAD PERFORM THE FOLLOWING TASKS: WORKIN G WITHIN OUR ADVERTISING OPERATIONS FUNCTION, YOU HELP THE WIDER GLOBAL ADVERTISING AND PRODUCT OPERATIONS TEAM BETTER SERVE GOOGLES WORLDWIDE USER BASE FOR OUR ADWORDS PRODUCT. THIS FAST - FACED SALES AND SUPPORT TEAM QUICKLY IDENTIFIES AND RESOLVES CUSTOM ER CONCERNS AND CONTRIBUTES TO THE GROWTH OF OUR PROGRAMS. YOU CONTINUE TO HONE YOUR ACCOUNT MANAGEMENT AND RELATIONSHIP - BUILDING SKILLS, SUPPORTING SOME OF GOOGLES TOP ADVERTISERS AND AGENCIES BY PROVIDING THE BEST POSSIBLE SERVICE VIA PHONE, EMAIL, OR CHAT. YOUR RESPONSIBI L ITIES RANGE FROM MANAGING ADVERTISER ACCOUNTS, DEVELOPING COMPELLING ADVERTISING SOLUTIONS FOR BRAND ADVERTISERS, TO DEVELOPING SCALABLE SUPPORT SOLUTIONS. YOU WORK WITHIN A DIVERSE TEAM WITH ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 14 COLLEAGUES THROUGHOUT EUROPE, SHARING YO UR ADVANCED KNOWLEDGE OF GOOGLE PRODUCTS AND ADVISING CLIENTS ON THE BEST STRATEGY FOR THEM TO ACHIEVE THEIR DESIRED RESULTS. AMONG YOUR MANY ATTRIBUTES, YOU ARE COMFORTABLE WITH A RAPIDLY CHANGING ENVIRONMENT, AND YOU HAVE A STRONG DESIRE TO LEARN. YOU ALSO BOAST EXPERIENCE IN CUSTOMER SERVICE, SALES, MARKETING OR CONSULTING. THE AD REVIEW OPERATIONS (ARO) TEAM HAS THE CRITICAL RESPONSIBILITY OF PROTECTING G OOGLES USERS BY ENSURING COMPLIANCE OF ANY AD - FUNDED CONTENT. WE STRIVE TO MAINTAIN A HEALTHY A DS ECOSYSTEM, BY ADHERING TO QUALITY STANDARDS FOR THE COMPANYS EXPANDING BASE OF ADVERTISERS, PUBLISHERS AND USERS ACROSS THE GLOBE. 3.3.6.6. THE DIRECTOR OF AMERICAS , SALES SUPPORT AT HYDERABAD AND GURGAON PERFORM THE FOLLOWING TASKS: YOU WILL BE WO RKING WITHIN OUR INDIA CUSTOMER SERVICES FUNCTION, YOU HELP THE WIDER LARGE CUSTOMER SERVICES TEAM BETTER SERVE GOOGLES WORLDWIDE USER BASE FOR OUR ADWORDS PRODUCT. THIS FAST - FACED SALES SUPPORT TEAM QUICKLY IDENTIFIES AND RESOLVES CUSTOMER CONCERNS AND CONTRI B UTES TO THE GROWTH OF OUR PROGRAMS. YOU CONTINUE TO HONE YOUR ACCOUNT MANAGEMENT AND RELATIONSHIP - BUILDING SKILLS, SUPPORTING GOOGLES TOP ADVERTISERS AND AGENCIES BY PROVIDING THE BEST POSSIBLE CONSULTATION ON ADWORDS, GOOGLE DISPLAY NETWORK AND Y OUTUBE AUCTION PLATFORMS. YOUR RESPONSIBILITIES WOULD BE MANAGING ADVERTISER ACCOUNTS, MANAGING PEOPLE ON YOUR TEAM TO DEVELOP COMPELLING ADVERTISING SOLUTIONS FOR BRANCH ADVERTISERS, AND DEVELOPING SCALABLE SUPPORT SOLUTIONS. WITH A RAPIDLY GROWING ARRA Y OF SALES TEAMS, ITS IMPORTANT TO HAVE SEASONED LEADERS WHO GUIDE OUR CLIENT SALES TEAMS TO SUCCESS. YOU WILL OVERSEE COACHING OF HIGH - PERFORMING ACCOUNT TEAMS THAT USE CONSULTATIVE SALES SKILLS TO UNDERSTAND OUR ADVERTISERS NEEDS AND DELIVER MEASURABL E SOLUTIONS. YOU ALSO WORK WITH THE SALES LEADERSHIP - TEAM TO SET STRATEGIC OBJECTIVES AND RUN THE DAY - TO - DAY OPERATIONS FOR THE BUSINESS. YOU HELP SALES MANAGERS TO DRIVE THEIR TEAMS TO DELIVER AN AMBITIOUS TARGETS, AND ROLL UP THEIR SLEEVES TO PARTNER D IRECTLY WITH CLIENTS. YOU ARE AN EXCELLENT ROLL UP THEIR SLEEVES TO PARTNER D IRECTLY WITH CLIENTS. YOU ARE AN EXCELLENT COMMUNICATOR WITH A PROVEN ABILITY TO TRAIN AND MOTIVATE A LARGE TEAM, AND YOU TAKE AN ANALYTICAL APPROACH TO SALES MANAGEMENT. 3.3.7 . THE DESCRIPTION OF THE JO B PROFILES OF THE ARMY OF STAFF, SOFTWARE AND NET WORK ENGINEERS, SALES PERSONNEL, DEVELOPERS , MANAGERS THAT ARE HIRED BY GOOGLE INDIA AT ITS INDIA OFFICES CONCLUSIVELY THROWS UP CLINCHING EVIDENCE THAT GOOGLE IS PERFORMING MANY OF ITS ADWORDS - RELATED ACTIVITIES IN INDIA ALSO . THESE RANGE FROM SCREENING AND VETTING ADVERTISEMENTS SO THAT THEY ARE IN TANDEM WITH GOOGLE'S POLICIES, PROTECTING ONLINE SAFETY OF CLIENTS BY TACKLING WEB ABUSE, FINANCIAL FRAUD, ACCOUNT RELATED ABUSE, ETC., CREATING AND OPERATING BRANDED ADVERTISING PROGRAMS, RECEIVING PAYMENTS R ELATED TO ADVERTISING IN AD W ORDS AT ITS OFFICES AND EVEN OFFERING SALES SUPPORT FOR RESOLVING CUSTOMER CONCERNS. THE ASSESSING OFFICER HAS ALSO BROUGHT O N RECORD IN THE. ORDER ITSELF THE MAILERS ADDRESSED BY THE GOOGLE INDIA OFFICE TO CERTAIN INDIAN COMPAN IES OFFERING THEM THE. SERVICES OF..ADWORDS, WITH THE ADDED INCENTIVE OF CERTAIN VOUCHER OF RS . 2000/ - FOR UTILIZING THESE SERVICES OF GOOGLE AD W ORDS. FURTHER, AS BROUGHT ABOUT HEREIN BEFORE IN THE PRECEDING PART OF THIS ORDER, IT IS CONCLUSIVELY PROVED THA T SERVICES ARE PROVIDES BY THE INDIAN SUBSIDIARY EXTENSIVELY IN INDIA IN ORDER TO SUPPORT AND MANAGE THE ADWORDS PROGRAM IN INDIA. CLAUSE (I) OF SECTION 9(1) OF TH E ACT PROVIDES THAT ALL INCOME ACCRUING OR ARISING WHETHER DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY 'BUSINESS CONNECTION' IN INDIA, OR THROUGH OR FROM ANY PROPERTY IN. INDIA OR. THROU G H OR FROM ANY ASSET OR SOURCE OF INCOME IN INDIA, IT SHALL BE DE E MED TO AC C RU E OR A R ISE IN I NDIA . THEREFORE, ON AN APPRECIATION OF THE TASKS BEING UNDERTAKEN BY THE GOOGLE INDIA OFFICE, IT CAN BE SAFELY CONCLUDED THAT THERE I S INTIMATE 'BUSINESS CONNECTION' IN INDIA. 15. THE CONCLUSION OF THE CIT(A) WAS THAT THE TASK UNDERTAKEN BY GOOGLE INDIA OFFICE COULD SAFELY BE HELD TO BE INTIMATE BUSINESS CONNECTION IN IND IA OF ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 15 GOOGLE LTD., IRELAND. THE CIT(A) THEREAFTER, REFERRED TO THE CASE LAWS WHICH WERE RELIED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AND CONCLUDED BY HOLDING AS UNDER: - 3.3.10. IN THE LIGHT OF THE FACTS AVAILABLE BEFORE THE HONB LE ITAT, WHICH WERE THAT GOOGLE AND YAHOO SEARCH ENGINES HAD PRESENCE ONLY ON INTERNET OR BY WAY OF A WEBSITE, WHICH IS NOT A FORM OF PHYSICAL PRESENCE AND THEIR SERVERS ARE NOT LOCATED IN INDIA AND SINCE PRESENCE IN INDIA THROUGH THEIR WEBSITES CANNOT BE SAID TO CONSTITUTE PE IN INDIA, IT WAS HELD THAT NO PROFIT CAN BE SAID TO HAVE ACCRUED IN INDIA. FURTHER, SINCE IT WAS NOT ESTABLISHED THAT ONLINE ADVERTISING REVENUES GENERATED IN INDIA WERE NOT SUPPORTED BY, SERVICES BY OR CONNECTED WITH ANY ENTITY BASE D IN INDIA, IT WAS HELD THAT THERE IS NO BUSINESS CONNECTION IN INDIA. CLEARLY, IN THE FACTS ADVERTED TO BY THE ASSESSING OFFICER AND THE UNDERSIGNED IN THE PRESENT CASE, IT IS SEEN THAT GOOGLE INDIA PVT. LTD. IS ENGAGED IN PROVIDING A HOST OF SERVICES IN CONNECTION WITH ADWORDS ENGAGED IN PROVIDING A HOST OF SERVICES IN CONNECTION WITH ADWORDS SERVICES OF GOOGLE SUCH AS REVIEW OF ADVERTISEMENT CONTENT SO THAT THEY ARE IN TANDEM WITH GOOGLES POLICIES, PROTECTING ONLINE SAFETY OF CLIENTS BY TACKLING WEB ABUSE, FINANCIAL FRAUD, ACCOUNT RELATED ABUSE, ETC., CREATING AND OPE RATING BRANDED ADVERTISING PROGRAMS, RECEIVING PAYMENTS RELATED TO ADVERTISING IN ADWORDS AT ITS OFFICES AND EVEN OFFERING SALES SUPPORT FOR RESOLVING CUSTOMER CONCERNS. 16. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE FURNISHED HIS WRITTEN SU BMISSIONS, WHICH READ AS UNDER: - MAIN ISSUE INVOLVED IN THE APPEAL IS, DISALLOWANCE OF ADVERTISEMENT PAYMENTS MADE TO GOGGLE - IRELAND U/S 40(A) ( I) OF ITA, 1961 . APPELLANT HAS FILED DETAILED PAPER - BOOKS INCLUDING COMPILATION OF RELATED CASE - LAW IN THIS RE SPECT. APPELLANT SUBM I TS SUMMARY OF VARIOUS PROPOSITIONS RAISED BEFORE THE HONORABLE ITAT FOR THE SAKE OF COMPLETENESS . 1.FACTS IN BRIEF - APPELLANT IS ENGAGED IN E - COMMERCE BUSINESS OF TRAVEL MANAGEMENT & HOTEL BOOKING. APPELLANT HAD CREATED A WEB - SITE CALLED AS ROOMSXML.CO M AND THE SAID WEB - SITE WAS HOSTED ON A UK BASED COMPANY'S SERVER . THE SAID WEB - SITE WAS ADVERTISED EXTENSIVELY THROUGH GOOGLE SEARCH ENGINES . FOR THE SAID ADVERTISEMENTS, APPELLANT PAYS ADVERTISEMENT CHARGES TO GOOGLE - IRELAND DIRECT LY . IN THE PROCESS OF PLACING ADVERTISEMENTS ON GOOGLE OR IN MAKING PAYMENTS TO GOOGLE - IRELAND, AT NO POINT OF TIME, APPELLANT ASSESSEE INTERACTS WITH GOOGLE - INDIA . SIMILAR TO ADVERTISEMENT CHARGES, APPELLANT ALSO INCURS OTHER EXPENSES SUCH AS WEB - HOSTING CHARGES, GATEWAY COMMISSION & TRANSACTION FEES, ALL OF WHICH ARE PAID TO NON - RESIDENTS. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE LEARNED A O DISALLOWED THESE EXPENSES ON THE ANALOGY, THAT APPELLANT OUGHT TO HAVE MADE TDS ON THESE PAYMENTS. LEARNED A O HAS HELD THAT INCOME ACCRUES TO THE NON - RESIDENTS IN INDIA VIS - A - VIS ALL THESE ABOVE PAYMENTS. IN PARTICULAR REFERENCE TO ADVERTISEMENT PAYMENTS TO GOOGLE - IRELAND, THE LEARNED A O HELD THAT GOOGLE - IRELAND HAS A DEPENDENT AGENT PERMANENT A O HELD THAT GOOGLE - IRELAND HAS A DEPENDENT AGENT PERMANENT ESTABLISHMENT (DAPE) IN INDIA IN THE FORM OF GOOGLE'S SUBSIDIARY COMPANY IN INDIA. A O ALSO HELD THAT THE APPELLANT DID NOT DISPROVE ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 16 EXISTENCE OF GOOGLE'S DAPE IN INDIA . AS SUCH, THE LEARNED A O MADE VARIOUS ADDITIONS REFERRED TO ABOVE, TO THE APPELLANT'S TAXABLE INCOME . APPEL LANT CONTESTED THE SAID DECISION OF THE LEARNED A O BEFORE THE LEARNED CIT(A ) . UNFORTUNATELY, THE APPEAL WAS DISMISSED AND HENCE, THE PRESENT APPEAL BEFORE THE HONORABLE ITAT . THE PRESENT APPEAL BEFORE THE HONORABLE ITAT . 2.ADVERTISEMENT PAYMENTS TO GOOGLE - APPELLANT TAKES A VIEW THAT FOR THE FOLLOWI NG VARIOUS REASONS, THE ADVERTISEMENT PAYMENTS TO GOOGLE - IRELAND DO NOT ACCRUE IN INDIA. APPELLANT IS ALSO RAISING TECHNICAL OBJECTIONS RELATING TO THE SAID ISSUE. A) NO ADEQUATE OPPORTUNITY BY CIT(A) - A PERUSAL OF THE LEARNED CIT(A)'S ORDER REVEALS THAT THE LEARNED CIT(A) SOUGHT FOR EXPLANATION OF THE APPELLANT AS REGARDS EXISTENCE OR OTHERWISE OF THE DAPE . AFTER APPELLANT SUBMITTED IT'S SAY , THE LEARNED CLT(A) REFERRED TO SOME EXCERPTS AVAILABLE IN THE GOOGLE WEB - SITE. DEPENDING ON THESE EXCERPTS, THE LE ARNED CIT(A) HELD THAT, DEPENDING ON THESE EXCERPTS, THE LE ARNED CIT(A) HELD THAT, GOOGLE IRELAND HAS A DAPE IN INDIA. LEARNED CIT(A) ALSO HELD THAT GOOGLE - IRELAND HAS A BUS I NESS CONNECTION IN INDIA IN THE FORM OF THE INDIAN SUBSIDIARY COMPANY. WHILE SO HOLDING, THE LEARNED CIT(A) OUGHT TO HAVE GRANTED PROPER OPPO RTUNITY TO THE APPELLANT FOR SUBMITTING IT'S SAY IN THE MATTER. THE EXCERPTS DOWNLOADED FROM THE GOOGLE WEBSITE OUGHT TO HAVE PUT TO THE APPELLANT AND DETAILED SUBMISSIONS TAKEN ON RECORD. WITHOUT ADHERING TO THESE MODALITIES, THE LEARNED CIT(A) STRAIGHTLY REACHED THE RESPECTIVE INFERENCES. TO THIS EXTENT, APPELLANT FEELS, THE PROCESS IS UNJUST I FIED AND A BREACH OF PRINCIPLE OF NATURAL JUSTICE HAS TAKEN PLACE . B ) I SSUE OF PAID V. PAYABLE - THERE EXISTS SOME CONFLICT OF VIEWS AFTER THE ITAT SPECIAL BENCH DE CISION IN THE CASE OF MERILYN SHIPPING - 136 ITD 23 AND THE VARIOUS SUBSEQUENT COURT RULINGS. APPELLANT SUBMITS, IF TWO VIEWS EXIST ON A SUBJECT MATTER, A VIEW WHICH IS MORE FAVORABLE TO THE ASSESSEE OUGHT TO BE ADOPTED. NOW, IN THE PRESENT CASE, ALL THE D ISALLOWANCES RELATE TO SUCH EXPENSES, WHICH WERE NOT ' OUTSTAND I NG ' / ' PAYABLE ' ON THE YEAR - END DATE . THUS , A FAVORABLE VIEW OF THE MATTER OF VERY APPLICABILITY OF SECTION 40(A)( I ) I S INVOLVED HEREIN . APPELLANT SUBMITS, A FAVORABLE VIEW OF THE MATTER MAY PL EASE BE TAKEN AND DISALLOWANCE MADE BY THE I - T AUTHORITIES MAY PLEASE BE DELETED . C) RETROSPECTIVE AMENDMENT IN SECTION 40(A)(IA) & EFFECT OF THE NON - DISCRIMINATION CLAUSE IN DTAA - IT IS SUBMITTED, THE 2012 AMENDMENT IN SECTION 40(A)(IA) IS RETROSPECTIVE AS HELD IN THE DECISION OF ITAT AGRA BENCH I N THE CASE OF RAJEEV KUMAR AGRAWAL - 40 CCH 340 . THE RELATED AMENDMENT VIDE PROVISO TO SAID SECTION STIPULATES THAT IF THE PAYEE HAS OFFERED THE RELATED INCOME TO INCOME - TAX, THEN THE PAYER SHOULD NOT BE SUBJECT ED TO A DISALLOWANCE U/S 40(A)(IA) . NOW, IN SECTION 40(A)(I ) I . E. PAYMENTS TO NON - RESIDENTS, SUCH PROVISO IS NOT INSERTED ON A SIMULTANEOUS BASIS. AS SUCH, A NON - R ESIDENT PAYEE AND TO THAT EXTENT, A RESIDENT PAYER, IS SUBJECTED TO SOME EXTRA ADVERSITIES CO MPARED TO A SCENARIO OF PAYMENT TO A RESIDENT. SUCH SITUATION CO MPARED TO A SCENARIO OF PAYMENT TO A RESIDENT. SUCH SITUATION GIVES RISE TO A DISCRIMINATION WHEREIN PAYMENT IS MADE TO A NON - RESIDENT PAYEE. AS PER THE NON - DISCRIMINATION CLAUSES IN ARTICLE 24 OF THE DTAA [ESPECIALLY CLAUSE 24(4) ] A RESIDENT PAYER SHOULD BE PLACED IN THE SAME SITUATION AS IF PAYMENT IS MADE TO A ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 17 RESIDENT PAYEE FOR DECID I NG ANY ALLOWANCE (& DISALLOWANCE) FOR COMPUTING TAXABLE PROFIT. A SIMILAR VIEW WAS ADOPTED IN THE CASE OF HERBALIFE INTERNATIONAL INDIA P LTD V. CIT - 103 T T J 78 (DELHI) . I F CONSIDERED FROM THIS PERSPECTIVE , THE DISALLOWANCE OF ADVERTISEMENT PAYMENT TO GOOGLE - IRELAND IS UNCALLED FOR . D) ONUS ON THE I - T AUTHORITIES NOT ADEQUATELY DISCHARGED - IT IS A TRITE LAW THAT PRIMARY ONUS OF ESTABLISHING EXISTENCE OF A DAPE OF A NON - RE SIDENT REMAINS ON THE REVENUE. IN THE PRESENT CASE , THE LEARNED AO DID NOT DISCHARGE THIS ONUS AT ALL . ON THE CONTRARY , THE LEARNED AO WENT ON TO HOLD THAT THE APPELLANT DID NOT DISPROVE THE EXISTENCE OF A DAPE. THE LEARNED C I T(A) D I D ATTEMPT TO DEMONSTRAT E THAT THERE EXISTS DAPE . WHILE SO DECIDING, THE LEARNED CIT(A) DID NOT ESTABLISH ANYWHERE IN THE APPELLATE ORDER, THE SATISFACTION OF ONE OF THE THREE KEY TESTS OF EXISTENCE OF A DAPE . THESE THREE TESTS ARE SUMMARIZED AS FOLLOWS. (I) THAT THE AGENT HAS AUTHORITY TO CONCLUDE CONTRACTS . . (I I ) THAT THE AGENT DELIVERS STOCKS OR MERCHANDISE TO C USTOMERS . .. (III) THAT THE AGENT SECURES ORDERS FOR THE NON - RESIDENT . . . IT IS WELL UNDERSTOOD THAT , EVEN IF ONE OF THE CLAUSES ARE SATISFIED , A DAPE IS TRIG GERED AS PER THE DTAA CLAUSES AND AS PER THE OECD INTERPRETATION. HOWEVER, THE LEARNED C I T(A) HAS NOT DEMONSTRATED AS TO HOW AND WHERE, ANY OF THE THREE CRUCIAL TESTS FOR FORMATION OF A DAPE ARE SATISFIED . THE LEARNED CIT(A) HAS REPRODUCED VARIOUS EXCERPTS FROM THE GOOGLE WEBSITE, HOWEVER , NOWHERE , THESE EXCERPTS ARE LINKED TO ANY OF THESE CRUCIAL TESTS NOWHERE , THESE EXCERPTS ARE LINKED TO ANY OF THESE CRUCIAL TESTS FOR FORMATION OF A DAPE. IT TRANSPIRES, THE LEARNED CIT(A) UPHELD EXISTENCE OF A DAPE IN AN INCHOATE MANNER AND WITHOUT ANY CONCLUSIVE DELIBERATION . IN THE ABSENCE OF ANY SATISFACTION OF ANY OF THE THREE CRUCIAL TESTS, THE ONUS OF ESTABLISHING OF A PE REMAINED TO BE DISCHARGED EVEN BY THE LEARNED CIT(A). AS SUCH, BOTH THE I - T AUTHORITIES ERRED IN OVER - REACHING EXISTENCE OF A DAPE . HENCE, RELATED DISALLOWANCE OF EXPENDITURE ON ACCOUNT OF ADVERTISEMENT PAYMENTS TO GOOGLE - IRELAND WAS INCORRECT . E) ACTIVITIES OF GOOGLE - INDIA - A LOT OF DELIBERATION IS CARRIED OUT BY THE LEARNED CIT(A) REGARDING THE ROLES & RESPONSIBILITIES OF THE STAFF OF GOOGLE - INDIA. FROM THE D ESCRIPTION OF THEIR JOB - PROFILES, IT IS ATTEMPTED TO HOLD THAT THE ROLES OF THESE STAFF MEMBERS ARE IS ATTEMPTED TO HOLD THAT THE ROLES OF THESE STAFF MEMBERS ARE IMPORTANT / CRITICAL . AS SUCH, IT WAS INFERRED THAT THERE EXISTS A DAPE IN SUCH A SCENARIO. HOWEVE R, FROM A CRITICAL REVIEW OF THE VERY SAME JOB - PROFILES RE PRODUCED IN THE CIT(A) ORDERS TRANSPIRES THAT ALL THESE JOB - PROFILES LEAD TO SUCH SERVICES WHICH ARE OF AUXILIARY / PREPARATORY NATURE. AS PER ARTICLE 5(5) OF THE DTAA BETWEEN IRELAND & INDIA , ALL THOSE ACTIV I TIES WHICH ARE OF AUXILIARY OR PREPARATORY NATU RE DO NOT LEAD TO FORMATION OF A PE IN THE STATE OF SUCH ACTIVITIES. THE FOLLOWING ANALYSIS WILL REVEAL THE MOOT POINT. ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 18 PARA NO. POST JOB PROFILE DISCUSSED LOGICAL OF DISCUSSED CATEGORIZATION CIT(A) ORDER ORDER 3 . 3.6.1 BUSINESS HELP SERV E GOOGLE'S WORLDWIDE SUPPORT / BACK - ANALYST USER BASE OFFICE 3 . 3 . 6.2 PROGRAM EVALUATE & I DENTIFY IMPROVEMENTS SUPPORT / BACK - MANAGER FOR AD - WORKS OFFICE INNOVATE SOLUTIONS FOR INCREASING SUPPORT / BACK - EFFICIENCY IN ADVERTISEMEN TS OFFICE 3 . 3.6 . 3 MEDIA WORK CLOSELY WITH SALES TEAM TO ADVERTISEMENT / TECHNICAL CREATE ADVERTISING PROGRAMS. SUPPORT TECHNICAL CREATE ADVERTISING PROGRAMS. SUPPORT PRODUCT SPECIALIST COORDINATING WITH THE CREATIVE SUPPORT AGENCIES, ENGINEERS, MEDIA CONSULTANTS ETC 3 . 3 . 6 . 4 BUSINESS RESPONSIBLE FOR PROTECTING INTEGRITY REGULATORY / ANALYST OF AT LEAST ONE PRODUCT OF THE SUPPORT PRODUCT GOOGLE WORLDWIDE . QUALITY WORK GLOBALLY WITH GOOGLE REGULATORY / DEVELOPERS AND MANAGERS TO FOR SUPPORT O NLINE SAFETY, HELP ON FRAUD CASES 3 . 3 . 6.5 ASSOCIATES PROVIDING BEST POSSIBLE SERVICES VIA ADVERTISEMENT / STRATEGIST - PHONE EMAIL OR CHAT TO THE SUPPORT AD REV I EW GOOGLE'S TOP ADVERTISERS OPERATIONS DEVELOPING SCALABLE SUPPORT SOL UTIONS, ADVERTISING SOLUTIONS . RESPONSIBLE FOR MAINTAINING HEALTHY ADS ECOSYSTEM SUPPORT REGULATORY / SUPPORT 3.3.6.6 DIRECTOR OF HELP WIDER LARGE CUSTOMER SERVICES SUPPORT AMERICAS TEAMS ACROSS THE GLOBE SALES SUPPORT WORK WITH SALES LE ADERSHIP TEAM TO SUPPORT SET STRATEGIC OBJECTIVE AND RUN DAY TO DAY OPERATIONS FOR THE BUSINESS. TO DAY OPERATIONS FOR THE BUSINESS. AT THIS STAGE, I T WILL BE IMPERATIVE TO CONSTRUE THE MEANING OF AUXILIARY & PREPARATORY SERVICES. THE DICTIONARY MEANINGS OF THESE TWO TERMS ARE AS FOLLOWS . AUXILIARY DICTIONARY.REFERE NCE.COM 1. ADD I T I ONAL: SUPPLEMENTARY; RESERVE: AN AUXILIARY POLICE FORCE. 2.USED AS A SUBSTITUTE OR RESERVE IN CASE OF NEED: THE HOSPITAL HAS AN AUXILIARY POWER SY STEM IN CASE OF A BLACKOUT. STEM IN CASE OF A BLACKOUT. 3.( OF A BOAT ) HAVING AN ENGINE THAT CAN BE USED TO SUPPLEMENT THE SAILS : AN AUXILIARY YAWL. 4.GIVING SUPPORT ; SERVING AS AN AID; HELPFUL ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 19 DICT I ONARY - SECONDARY OR SUPPLEMENTARY - SUPPORTING REVERSE. NET - A PERSON OR THING THAT SUPPORTS OR SUPPLEMENTS; SUBORDINATE OR ASSISTANT OXFORD PROVIDING SUPPLEMENTARY OR ADDITIONAL HELP AND SUPPORT: OXFORD PROVIDING SUPPLEMENTARY OR ADDITIONAL HELP AND SUPPORT: DICTIONARY BLACK ' S LAW AIDING OR SUPPORTING OR SUBSIDIARY LEXICON PREPARATORY THE FREE SERV I NG TO MAKE R EADY O R PREPARE ; INTRODUCTORY DICTIONARY DI CTIONARY REFER SERVING OR DESIGNED TO PREPARE: PREPARATORY ARR A NGEMENTS. DI CTIONARY REFER SERVING OR DESIGNED TO PREPARE: PREPARATORY ARR A NGEMENTS. ENCE . COM PRELIMINARY; INTRODUCTORY: PREPARATORY REMARKS. OXFORD SERVING AS OR CARRYING OUT PREPARATION FOR A TASK OR UNDERTAKING : DICTIONARY NOW, GOOGLE - INDIA'S ACTIVITIE S ARE NOT RELATED TO CARRYING OUT THE CORE ACTIVITY O F GOOGLE - I RELAND / GOOGLE - USA. THE WORD / TERM GOOGLE , IN NORMAL COMMERCIAL PARLANCE MEANS THE COMBINED EXISTENCE OF FOLLOWING ASPECTS. (I) POWERFUL SEARCH ENGINE & RELATED PROGRAMS (II) MASSIVE DATA ST ORAGE ON SERVERS (II) MASSIVE DATA ST ORAGE ON SERVERS (III) STRONG PASS - WORD PROTECTED ACCESS SYSTEMS (IV) AVAILABILITY OF PRODUCTS SUCH AS YOUTUBE, MAPS, GMAIL, ANDROID, ETC. ' GOOGLE ' IS RECOGNIZED FOR THE MASSIVE INFORMATION WHICH IS MADE AVAILABLE TO ANY PERSON WHO ACCESSES THE SAME. T HE ACTIVITIES DEMONSTRATED BY THE LEARNED C I T(A) DO NOT LEAD TO A CONVICTION THAT EITHER THE SEARCH ENGINE OR ANY OF IT'S PRODUCTS OR THE LARGE DATABASES / SERVERS ARE LOCATED IN INDIA. ONCE THE CORE FUNCTIONS AND KEY RECOGNITION ASPECTS OF GOOGLE ARE NOT OBSERVED IN GOOGLE - INDIA, IT INFERS THAT THE GOOGLE - INDIA FUNCTIONS OBSERVED IN GOOGLE - INDIA, IT INFERS THAT THE GOOGLE - INDIA FUNCTIONS A R E OF A SUPPORT / AUXILIARY NATURE . AS LAID DOWN IN THE DTAA ITSELF , SUCH AUXILIARY / PREPARATORY / SUPPORT / ADVERTISEMENT FUNCTIONS DO NOT LEAD TO A PE PER SE . HENCE, IT TRANSPIRES, THE LEARNED AO AND THE LEARNED CIT(A) ERRED IN INFERRING A DAPE I N INDIA ON THE BASIS OF A MERE EXISTENCE OF THE SUBSIDIARY COMPANY IN INDIA AND / OR THE JOB PROFILES OF INDIAN EXECUTIVES. THE ANALOGY OF THE I - T AUTHORITIES IN THIS RESPECT IS INCORRECT . F) AL LEGED UTILIZATION OF SERVICES OF GOOGLE - INDIA - LEARNED AO & CIT(A) HAS OBSERVED THAT THE APPELLANT COMPANY HAS USED THE SERVICES OF GOOGLE - INDIA. THE SAID STATEMENT IS FACTUALLY INCORRECT SINCE , APPELLANT COMPANY HAS NEVER EVER USED THE INCORRECT SINCE , APPELLANT COMPANY HAS NEVER EVER USED THE SERVICES OF GOOGLE - INDIA. THE LEARNED I - T AUTHORITIES HAVE MERELY ASSUMED PROVISION OF SERVICES BY GOOGLE - INDIA TO THE APPELLANT . SUCH AN ASSUMPTION AND RELATED INFERENCES MERELY BECOME ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 20 SURMISES / CONJECTURES AND NOT ANY FINDING - OF FACT. AS SUCH, EVEN ON THIS COUNT, THE CON CLUSIONS OF THE LEARNED I - T AUTHORITIES ARE INCORRECT . G) REGULATORY ACTIVITIES OF GOOGLE INDIA IN ADVERTISEMENTS - THE LEARNED CIT(A) HAD MADE REFERENCE TO VARIOUS REGULATORY LEARNED CIT(A) HAD MADE REFERENCE TO VARIOUS REGULATORY ACTIVITIES PERFORMED BY GOOGLE - INDIA BEFORE AND AFTER RELEASE OF ANY ADVERTISEM ENT ON GOOGLE. THESE REGULATORY ACTIVITIES ARE TO ENSURE THAT THERE ARE NO WEB - ABUSES , NO FRAUDS, NO VIOLATION OF LAWS, ETC. IN DEMONSTRATING AN ADVERTISEMENT ON THE WEB. NOW, THESE ACTIVITIES ARE BY THEMSELVES, MERELY SUPPORT FUNCTIONS AND AUXILIARY ACTIV ITIES . CONCLUSIONS DRAWN BY THE LEARNED C I T(A) AS TO EXISTENCE OF A DAPE, BASED ON SUCH REGULATORY FUNCTIONS, IS CLEARLY ILLOGICAL . H) PAYMENTS RECEIVED BY GOOGLE INDIA - WHILE DECIDING THE APPEAL, THE LEARNED CIT(A) HAS ALSO OBSERVED THAT GOOGLE I NDIA, RE CEIVES PAYMENTS FOR ADVERTISEMENTS ON THE WEB. FIRSTLY, THIS RE CEIVES PAYMENTS FOR ADVERTISEMENTS ON THE WEB. FIRSTLY, THIS REFERENCE IS IRRELEVANT IN THE PRESENT CASE SINCE, ALL PAYMENTS ARE MADE BY THE APPELLANT D I RECTLY TO GOOGLE - IRE L AND. SECONDLY, MERE RECEIVING PAYMENT CAN'T CONCLUDE EXISTENCE OF A DAPE IN ANY CA SE. RELIANCE IS PLACED IN THIS RESPECT ON THE DECISION IN THE CASE OF WESTERN UNION FINANCIAL SERVICES INC. V . ADIT - 101 T TJ 56 (DEL) & OTHER RELATED DECISIONS FILED IN PAPER - BOOK - II . IT IS SUBMITTED, RECEIVING PAYMENT FOR THE MAIN ACTIVITY IS ALSO A MERE SUPPORT SERVICE AND NOTHING MORE . I ) OFFICIAL POSITION OF GOOGLE AS REGARDS DAPE - IT WILL BE RELEVANT TO NOTE THAT GOOGLE HAS CLARIFIED THAT, IT HAS NO PE IN INDIA. THIS CLARIFICATION WAS GIVEN TO THE APPELLANT BY GOOGLE - INDIA VIDE A CLARIFICATION WAS GIVEN TO THE APPELLANT BY GOOGLE - INDIA VIDE A SPECIFIC EMAIL , COP Y OF WHICH IS FILED AS ADDITIONAL EVIDENCE . APPELLANT HAS ALSO FILED A NEWSPAPER EXCERPT RELATING TO A WRIT PETITION FILED BEFORE HONORABLE DELHI HIGH COURT, WHEREIN, GOOGLE APPEARS TO HAVE FILED AN AFFIDAVIT TO THIS EFFECT . AS SUCH , OFFICIAL POSITION OF G OOGLE IS, THAT THERE IS NO PE IN INDIA . IF APPELLANT HAS ASSUMED A SIM I LAR STANCE, APPELLANT CAN ' T BE FURTHER SADDLED WITH A BURDEN TO DEMONSTRATE THAT THERE IS NO PE (OR DAPE) IN SUCH SITUATION. AS SUCH, IT REVEALS, PERSPECT I VE OF THE I T AUTHORITIES IS CL EARLY INCORRECT . J) NO OCCASION TO MAKE TDS IN PAYMENT TO GOOGLE - IRELAND - AS PER THE NORMAL BUSINESS PROCESS , APPELLANT MAKES PAYMENTS TO PER THE NORMAL BUSINESS PROCESS , APPELLANT MAKES PAYMENTS TO GOOGLE - IRELAND THROUGH CREDIT CARDS . IN THIS ENTIRE PROCESS, THERE IS NO OCCASION TO EFFECT TD S . ABSENCE OF SPECIFIC REGULATORY CLARIFICATIONS IN THIS REGARD LEADS TO A PROPOSITION THAT, FAULT, I F ANY, CAN'T BE ASCRIBED TO THE APPE L LANT . K) EXISTENCE OF WHEREWITHAL FOR DECIDING A DAPE - AN IMPORTANT ISSUE IS INVOLVED HEREIN, WHERE , THE APPELLANT, I . E . A NORMAL BUS I NES S ENTERPRISE, IS ASKED TO SUBSTANTIATE THE PRESENCE OF A DAPE OF A LARGE MNC I . E . GOOGLE . AS COMPARED TO THE APPELLANT'S LIMITED RESOURCES / KNOWLEDGE, THE I - T DEPARTMENT IS POISED WITH MANY POWERS WHEREIN, EXISTENCE OF OTHERWISE OF A DAPE COULD BE ESTABLI SHED BY I - T . NO ANY DEC I SION / CASE - LAW ON THIS ASPECT IS APPARENT IN THE PUBLIC DOMAIN THAT THE I - T HAS THIS ASPECT IS APPARENT IN THE PUBLIC DOMAIN THAT THE I - T HAS TAXED GOOGLE AS A DAPE , EXCEPT THE NEWS ITEM IN ECONOMIC TIMES REFERRED TO BY THE LEARNED AO . APPELLANT I S NOT AWARE OF THE NITTY - GRITTY INVOLVED IN ES TABLISHING EXISTENCE OF A DAPE OR ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 21 OTHERW I SE , CONSIDERING COMPLEX TESTS INVOLVED THERE I N . IN THE ABSENCE OF CLEAR INFORMATION ON THIS COUNT, APPELLANT OUGHT NOT TO BE EXPECTED TO DEMONSTRATE ABSENCE OF DAPE . MOOT POINT IS , THE I - T DEPARTMENT HAS GOT THE WHE REWITHAL TO CULL OUT EXISTENCE OF A DAPE, I F IT SO EXISTS . NOTHING OF THIS SORT APPEARS IN PUBLIC DOMAIN EASILY, BY WHICH , APPELLANT CAN KNOW ABOUT THE SAME. DOMAIN EASILY, BY WHICH , APPELLANT CAN KNOW ABOUT THE SAME. APPELLANT HAS VERY LIMITED RESOURCES TO DECIDE SUCH ISSUES AS AGAINST LARGE POWERS AND RESOURCES ( I . E . WHEREWITHAL) AVAILABLE WITH THE I - T DEPARTMENT . L ) PRINCIPLE OF ATTRIBUTION - ASSUMING WITHOUT ADMITTING THAT THERE EXISTS A DAPE OF GOOGLE I N INDIA , THERE IS NO CLARITY AS TO WHETHER, ADVERTISEMENT REVENUE OF GOOGLE - IRELAND IS ATTR I BUTABLE TO GOOGL E - INDIA. APPELLANT HAS MADE ALL PAYMENTS TO GOOGLE - I RELAND . HENCE , APPELLANT IS COMPLETELY IN A DARK TO KNOW , WHETHER OR NOT , SUCH ADVERTISEMENT PAYMENTS GET ATTRIBUTED TO GOOGLE'S ALLEGED DAPE IN INDIA . ON LOGICAL REASONING, IT TRANSPIRES, ADVERTISEMENT P AYMENTS MADE TO GOOGLE - INDIA ARE TRANSPIRES, ADVERTISEMENT P AYMENTS MADE TO GOOGLE - INDIA ARE NOT PRIMA - FACIE ATTRIBUTABLE TO GOOGLE - INDIA. AS SUCH, APPELLANT'S NON - MAKING OF TDS COULD NOT BE FAULTED WITH. IN THE ABSENCE OF CLARITY ON ATTRIBUTION, THE LEANED I - T AUTHORITIES STAND OF FINDING FAULT WITH THE APPELLANT FOR THE SAME IS, INCORRECT . M) ABSENCE OF FORCE OF ATTRACTION ARTICLE IN IRELAND - INDIA DTAA - APPELLANT HAS ATTEMPTED A COMPARISON OF SOME OF THE DTAAS WHEREIN, AN ARTICLE RELATING TO FORCE OF ATTRACTION EXISTS . VIDE THIS FOA CLAUSE, EVEN THOSE ACTIVITIES WHICH ARE NOT PERFORMED BY A PE DIRECTLY , ARE INCLUDED IN THE SCOPE OF TAXABILITY OF SUCH A PE. IN AN HYPOTHETICAL CASE, ADVERTISEMENT REVENUE OF GOOGLE - IRELAND COULD HAVE BEEN INCLUDED IN SCOPE OF TAXABLE INCOME OF IRELAND COULD HAVE BEEN INCLUDED IN SCOPE OF TAXABLE INCOME OF THE ALLEGED DAPE I . E . GOOG L E - INDIA. HOWE VER, NO SUCH ARTICLE EXISTS IN IRELAND - INDIA DTAA. COPIES OF COMPARATIVE CLAUSES RELATING TO FOA CLAUSES OF DIFFERENT TREATIES ARE GIVEN IN THE PAPER - BOOK FOR AN EASY REFERENCE. EVEN ON THIS ANALOGY OF ABSENCE OF FOA CLAUSE IN THE IRELAND - INDIA DTAA, REVEN UE'S ATTEMPTS OF FORCING GOOGLE - IRELAND'S ADVERTISEMENT PAYMENTS TO THE ALLEGED DAPE APPEAR CLEARLY INCORRECT . N) CATEGORIZATION OF GOOGLE - INDIA AS BUSINESS - CONNECTION - THE LEARNED AO PASSED THE ORDER BY HOLDING THAT THE APPELLANT DID NOT DISPROVE EXISTEN CE OF DAPE. THE LEARNED CLT(A) ALSO HELD THAT GOOGLE - INDIA IS A BUSINESS CONNECTION OF GOOGLE - IRELAND . IT IS ALREADY SUBMITTED THAT THE APPELLANT WAS DENIED OPPORTUNITY TO IS ALREADY SUBMITTED THAT THE APPELLANT WAS DENIED OPPORTUNITY TO MAKE SUBMISSIONS IN THIS RESPECT . IT IS SUBMITTED, NO DATA / DETAILS ARE AVAILABLE W HEREFROM, IT COULD BE CONCLUDED THAT, BUSINESS OF GOOGLE - IRELAND OR GOOGLE - USA IS TAKING PLACE THROUGH THE OFFICE OF GOOGLE - INDIA . AS ALREADY SUBMITTED, GOOGLE - INDIA APPEARS TO BE ENGAGED IN MERELY SUPPORT FUNCTIONS / AUXILIARY ACTIVITIES . IN THE ABSENCE O F DATA / DETAILS OF ANY THIRD PARTY CUSTOMERS OF GOOGLE - INDIA, OR IN THE ABSENCE OF DATA RELATING TO ENHANCEMENT OF GOOGLE - IRELAND'S BUS I NESS FROM GOOGLE - INDIA BASE, REACHING TO A CONCLUSION OF BUSINESS CONNECTION IS UNWARRANTED . O) VARYING STANDS OF I - T D EPARTMENT REGARDING GOOGLE O) VARYING STANDS OF I - T D EPARTMENT REGARDING GOOGLE ADVERTISEMENTS - THE I - T DEPARTMENT HAS BEEN TAKING D I FFERENT STANDS TOWARDS PAYMENT OF ADVERTISEMENTS OF GOOGLE (OR FOR SUCH SIMILAR INSTANCES) . AT TIMES, IT IS CLAIMED THAT THE ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 22 ADVERTISEMENT PAYMENTS ARE IN THE NATURE OF FEES F OR TECHNICAL SERVICES, AT TIMES, ROYALTY AND AT TIMES WEB - SITE PE. IN MANY CASES OF LITIGATIONS, THE COURTS HAVE RULED THAT NEITHER OF THESE SITUATIONS OF ACCRUAL OF INCOME ARE REACHED . APPELLANT, BEING A COMMON BUSINESS - MAN , CAN'T BE EXPECTED TO PERFORM A MORE CRITICAL TASK THAN TO MAKE PRIMARY REVIEW / ENQUIRY AND LEAVE THE CRITICAL TASK THAN TO MAKE PRIMARY REVIEW / ENQUIRY AND LEAVE THE MATTER AT THAT. EXPECTING MUCH MORE FROM THE APPELLANT AND BURDENING THE LARGE TAX LIABILITY AFTER THE DISALLOWANCE U/S 40(A)(I) IS CLEARLY IMPROPER . 3. PA Y MENT FOR WEB - HOSTING CHARGE S - APPELLANT HAS HOSTED THE WEB - SITE ON THE SERVER OF THE UK COMPANY. APPELLANT PAYS CHARGES FOR THE SAID WEB - HOSTING TO TITAN - UK. CONSIDERING THE DTAA BETWEEN UK & INDIA, SUCH WEB - HOSTING CHARGES COULD BE TAXED IN IND I A ONLY IF, . EITHER MAKE - AVAILABLE CL AUSE (ARTIUCLE - 12) IS SATISFIED OR, THE PAYEE HAS A PE IN INDIA (ARTICLE - 5 & 7). NO SUCH FACTS EXIST IN THE PRESENT CASE . AS SUCH , APPELLANT HAS NOT DEFAULTED IN NOT MAKING TDS ON THIS PAYMENT . 4. PAYMENT FOR TRANSACTION FEES - APPELLANT PAYS E - COMMERCE TRANSACTION FEES FOR TRANSACTIONS TAKING PLACE ON THE SERVER OF TITAN - UK . THESE CHARGES ARE NORMAL BUSINESS SERVICE CHARGES, WHICH DO NOT LEAD TO ACCRUAL OF INCOME IN INDIA FOR THE SAME REASONS AS STATED IN POINT - 3 ABOVE. AS SUCH, APPELLANT HAS NOT DEFAULT ED IN NOT MAKING TDS ON THIS PAYMENT. 5.PAYMENT OF GATE - WAY COMMISSION - APPELLANT PAYS COMMISSION TO VARIOUS PAYMENT GATE - WAY PARTIES FOR FACILITATING PAYMENT OF TRANSACTIONS . THESE PAYMENTS ARE SIMILAR TO NORMAL E - COMMERCE CHARGES (E.G. PROCESSING FEES C HARGED BY RAILWAY, CHARGES LEV I ED BY CREDIT CARD COMPANIES, ETC.). SUCH COMMISSION / FEES / SERVICE CHARGES CREDIT CARD COMPANIES, ETC.). SUCH COMMISSION / FEES / SERVICE CHARGES COULD LEAD TO TAXATION IN INDIA UPON EXISTENCE OF A PE OF PAYEE PARTIES . 17. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ALSO FURNISHED HIS WRITTEN SUBMISSIONS, WHICH READ AS UNDER: - 1 . GOOGLE INDIA PRIVATE LIMITED ('GIPL' / 'GOOGLE INDIA') HAVING ITS REGISTERED OFFICE AT BANGALORE WAS INCORPORATED ON 16 TH DEE 2003 AS A WHOLLY OWNED SUBSIDIARY OF GOOGLE INTERNATIONAL LLC , US. GIPL IS ENG AGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY AND INFORMATION TECHNOLOGY ENABLED SERVICES TO ITS GROUP COMPANIES. INFORMATION TECHNOLOGY ENABLED SERVICES TO ITS GROUP COMPANIES. FURTHER GOOGLE IND I A ALSO ACTS AS A DISTRIBUTOR / RESELLER FOR ADWORDS PROGRAM IN INDIA . THE ASSESSEE COMPANY'S ACTIVITIES COULD BE CLASSIFIED INTO THE FOLLOWING SEGMENTS: IT SERVICES - GIPL HAS ENTERED INTO A SERVICE AGREEMENT WITH GOOGLE INC TO RENDER SOFTWARE DEVELOPMENT SERVICES . GOOGLE INDIA'S RESEARCH & DEVELOPMENT UNITS AT BENGALURU , HYDERABAD AND GURGAON PROVIDE IT SERVICES IN CLUDING APPLICATION DEVELOPMENT, MAINTENANCE AND TESTING SERVICES. FOR THESE SERVICES, GIPL IS REMUNERATED AT COST PLUS 17 . 5 %; IT ENABLED SERVICES - GIPL HAS ENTERED INTO A SERVICE AGREEMENT WITH GOOGLE IRELAND LIMITED ('GOOGLE IRELAND' OR 'GIL') TO REND ER IT ENABLED SERVICES. ITS SERVICE CENTRES AT HYDERABAD AND GURGAON ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 23 PROVIDE IT ENABLED SERVICES RELATING TO THE ADMINISTRATION OF ADVERTISEMENTS IN ACCORDANCE WITH THE GUIDELINES PROVIDED BY GOOGLE IRELAND AND PROVIDE CUSTOMER SUPPORT SERVICES. FOR THESE SERVICES, GIPL IS REMUNERATED AT COST PLUS 15 . 5%; MARKET I NG AND DISTRIBUTION SERVICES FOR THE ADWORDS PROGRAM - UNDER THE GOOGLE ADWORDS PROGRAM DISTRIBUTION AGREEMENT DATED DECEMBER 12, 2005 ('AGREEMENT') ENTERED INTO BETWEEN GIPL AND GOOGLE IRELAND , GOO GLE INDIA IS APPOINTED AS A NON - EXCLUSIVE AUTHORIZED DISTRIBUTOR / RESELLER OF ADWORDS PROGRAM TO THE ADVERTISERS IN INDIA 2 . THE GOOGLE GROUP OF COMPANIES OPERATES IN THE USA, UK, IRELAND AND A NUMBER OF OTHER COUNTRIES INCLUDING INDIA. GOOGLE INC TOGET HER WITH ITS GROUP COMPANIES COLLECTIVELY REFERRED AS 'GOOGLE' SPECIALIZES IN INTERNET SEARCH ENGINES AND RELATED ADVERTISING SERVICES GOOGLE MAINTAINS AN INDEX OF WEBSITES AND OTHER ONLINE CONTENT WHICH IS GOOGLE MAINTAINS AN INDEX OF WEBSITES AND OTHER ONLINE CONTENT WHICH IS MADE AVAILABLE THROUGH ITS SEARCH ENGINE TO ANYON E WITH AN INTERNET CONNECTION . ITS POWERFUL SEARCH TECHNOLOGY HELPS PEOPLE OBTAIN NEARLY INSTANT ACCESS TO RELEVANT INFORMATION FROM ITS ONLINE INDEX. GOOGLE DERIVES MORE THAN 97 % OF ITS TOTAL REVENUES FROM ADVERTISING SERVICES THROUGH ITS ADWORDS PROGRAM WORLDWIDE. BUSINESSES ALL OVER THE WORLD USE THE ADWORDS PROGRAM TO PROMOTE THEIR PRODUCTS AND SERVICES VIA TARGETED ADVERTISING. 3 . UNDER THE AMENDED GOOGLE ADWORDS PROGRAM DISTRIBUTION AGREEMENT DATED DECEMBER 12, 2005 ('DISTRIBUTION AGREEMENT OR AGREEM ENT') ENTERED INTO BETWEEN GIPL AND GOOGLE IRELAND, GOOGLE INDIA WAS GRANTED THE MARKETING AND DISTRIBUTION RIGHTS OF ADWORDS INDIA WAS GRANTED THE MARKETING AND DISTRIBUTION RIGHTS OF ADWORDS PROGRAM TO THE ADVERTISERS IN INDIA. GIPL HAS A DISTRIBUTION TEAM WHICH MARKETS AND DISTRIBUTES THE ADWORDS PROGRAM TO THE ADVERTI SERS IN INDIA. 4 . OVERVIEW OF INTERNET, SEARCH ENGINE AND GOOGLE ADWORDS PROGRAM . 1 BEFORE EXAMINING THE CLAIMS OF THE APPELLANT IT IS ESSENTIAL TO UNDERSTAND THE CONCEPTS RELATED TO INTERNET, GOOGLE SEARCH ENGINE, ONLINE ADVERTISING AND GOOGLE ADWOR DS PROGRAM. 2 GOOGLE IS TECHNOLOGY LEADER AND IS FOCUSED ON PROVIDING WEB - BASED SEARCH SERVICES FOR INTERNET USERS AND ADVERTISING THROUGH A WEBSITE ( WWW . GOOGLE.COM ). GOOGLE IS WIDELY RECOGNIZED AS THE WORLD'S BEST SEARCH ENGINE AND THE COMPANY RECORDS THE HIGHEST NUMBER OF SEARCHED BY ANY SEARCH ENGINE GLOBALLY. IT IS THE MOST POWERFUL SEARCH ENGINE, BECAUSE IT IS FAST, ACCURATE AND EASY TO USE. GOOGLE'S BREAKTHROUGH TECHNOLOGY AND CONTINUED INNOVATION SERVE THE COMPANY'S MISSION OF 'ORGANIZING THE WORLD'S INFORMATION AND MAKING IT UNIVERSALLY ACCESSIBLE AND USEFUL'. IT MAINTAINS A LARGE INDEX OF WEBSITES AND OTHER ONLINE CONTENT, AND ITS AUTOMATED SEARCH TECHNOLOGY HELPS PEOPLE TO OBTAIN NEARLY INSTANT ACCESS TO RELEVANT INFORMATION FROM THE VAST ONLINE INDEX . INDEX . 3 GOOGLE'S REVENUE IS (I) MAINLY FROM ADVERTISERS AND (II) FROM DATA USERS . VALUE CREATION BY GOOGLE IS BY THE PROVISION OF A ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 24 SYSTEM WHEREBY: (I) THE ADVERTISERS CAN MAKE THEIR ADVERTISEMENTS REACH THE TARGETED USERS; AND (II) INTERNET USERS CAN SEARCH THE DATA. EVERYTHING ELSE IS A COST IN THAT VALUE CREATION. GOOGLE GETS ITS MAJOR REVENUE FROM THE ADVERTISERS. BUSINESSMEN ALL OVER THE WO RLD PAY ADVERTISEMENT CHARGES TO GOOGLE. THESE MAY BE SMALL BUSINESSMEN IN REMOTE PLACES, OR LARGE CORPORATIONS. THE BEAUTY OF ONLINE/INTERNET REMOTE PLACES, OR LARGE CORPORATIONS. THE BEAUTY OF ONLINE/INTERNET ADVERTISING IS THAT EVEN SMALL BUSINESSMEN CAN ADVERTISE THEMSELVES TO THE WORLD. IF THE CUSTOMER IS ON A LOOK OUT FOR A PRODUCT ON GOOGLE, HE WILL REACH THAT SMALL BUSINESSMAN WHOSE ADVERTISEMENT IS RELEVANT TO THE CUSTOMERS. FOR GOOGLE, THE ADVERTISER IS THE MAIN CUSTOMER AND NOT THE USER OF THE WEBSITE. THE USE OF THE WEBSITE USUALLY DOESNT PAY. EVEN IF SOME USERS PAY, IT MAY BE A SMALL AMOUNT. THE REAL MARKET / REAL CUSTOMERS FOR GOOGLE ARE THE ADVERTISERS. 4. TO ATTRACT MORE ADVERTISEMENT, GOOGLE NEEDS TO ATTRACT MORE USERS. TO HAVE MORE USERS, GOOGLE HAS TO PROVIDE MORE AND MORE DATA IN MORE EFFICIENT MANNER. WHILE CONSIDERING THE TAXABILITY OF GOOGLE AS AN ASSESSEE COMPA NY, WHAT HAS TO BE CONSIDERED IS GOOGLE AS AN ASSESSEE COMPA NY, WHAT HAS TO BE CONSIDERED IS GOOGLES VALUE ADDITION, WHICH IS PROVIDING A BASE FOR ADVERTISEMENT. FOR PROVIDING THIS BASE, GOOGLE PROVIDES THE DATA ACCESS SERVICES. 5 . GOOGLE'S SEARCH ENGINE RUNS ON A DISTRIBUTED NETWORK OF THOUSANDS OF LOW - CO ST COMPUTERS AND CAN THEREFORE CARRY OUT FAST PARALLEL PROCESSING. PARALLEL PROCESSING IS A METHOD OF COMPUTATION IN WHICH MANY CALCULATIONS CAN BE PERFORMED SIMULTANEOUSLY, SIGNIFICANTLY SPEEDING UP DATA PROCESSING. 6 GOOGLE HAS THREE DISTINCT PARTS : GOOGLEBOT, A WEB CRAWLER THAT FINDS AND FETCHES WEB PAGES. T HE INDEXER THAT SORTS EVERY WORD ON EVERY PAGE AND STORES THE RESULTING INDEX OF WORDS IN A HUGE DATABASE. THE QUERY PROCESSOR, WHICH COMPARES YOUR SEARCH QUERY TO THE INDEX AND RECOMMENDS THE D OCUMENTS THAT IT CONSIDERS MOST RELEVANT . 7 GOOGLE HAS ITS MASSIVE SERVER BANKS (HARDWARE) AT SEVERAL COUNTRIES. THE CONNECTION AMONGST THE DATA BASES, USER BASES AND ADVERTISERS ARE PROVIDED BY INNUMERABLE INTERNET SERVICE PROVIDERS AND ADVERTISERS ARE PROVIDED BY INNUMERABLE INTERNET SERVICE PROVIDERS (ISPS). GOOGLE HAS INVENTED A SPECIAL ALGORITHM FOR ANTICIPATING WHAT A PARTICULAR REGULAR USER SEEKS. THEN FINDING OUT DATA FROM A VAST GLOBAL DATABASE AND ARRANGING/ DISPLAYING ON THE USER'S COMPUTER IN A PARTICULAR ORDER OF PRIORITY. THIS OPERATION GOES ON EVERY SECOND FO R NUMEROUS PEOPLE ALL OVER THE WORLD. KEY INSTRUMENT IS THE PATENTED ALGORITHM AND SOFTWARE WHICH MAKES ALL THESE ACCESSES POSSIBLE . 8 THE KEY TO G OOGLE'S SUCCESS HAS BEEN ITS STRATEGIC USE OF BOTH SOFTWARE AND HARDWARE INFORMATION TECHNOLOGIES. GOOGLE HAS BUILT A MASSIVE INFRASTRUCTURE FOR PROVIDING THE FACILITY OF ACCESSING DATA AND COMMUNICATING VIA E - MAILS. THE INFORMATION TECHNOLOGY ('IT') INFRASTRUCTURE BEHIND THE SEARCH ENGINE INCLUDES HUGE STORAGE INFRASTRUCTURE BEHIND THE SEARCH ENGINE INCLUDES HUGE STORAGE DATABASES AND NUMEROUS SERVER FARMS TO PRODUCE SI GNIFICANT COMPUTATIONAL PROCESSING POWER . THESE CRITICAL IT COMPONENTS ARE ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 25 DISTRIBUTED ACROSS MULTIPLE INDEPENDENT COMPUTERS THAT PROVIDE PARALLEL COMPUTING RESOURCES. 9 MOST WEB SEARCH ENGINES ARE COMMERCIAL VENTURES SUPPORTED BY ADVERTISING REVENUE A ND AS A RESULT, SOME EMPLOY, THE SUPPORTED BY ADVERTISING REVENUE A ND AS A RESULT, SOME EMPLOY, THE PRACTICE OF ALLOWING ADVERTISERS TO PAY MONEY TO HAVE THEIR LISTINGS RANKED HIGHER IN SEARCH RESULTS. THOSE SEARCH ENGINES WHICH DO NOT ACCEPT MONEY FOR THEIR SEARCH ENGINE RESULTS MAKE MONEY BY RUNNING SEARCH RELATED ADS A LONGSIDE THE REGULAR SEARCH ENGINE RESULTS. THE SEARCH ENGINES MAKE MONEY EVERY TIME SOMEONE CLICKS ON ONE OF THESE ADS. 10 ADWORDS PROGRAM IS GOOGLE'S CORE PRODUCT AND ACCOUNTS FOR MORE THAN 97 % OF THE COMPANY'S REVENUE. ADWORDS, A COST - PER - CLICK PRICI NG SCHEME, WAS A RESULT OF G OOGLE'S NEWLY FORMED BUSINESS MODEL IN ONLINE/INTERNET ADVERTISING . ADWORDS ALLOWS ADVERTISERS TO PAY GOOGLE ONCE VISITORS CLICK ON AN ADVERTISEMENT AFTER ENTERING A SEARCH GOOGLE ONCE VISITORS CLICK ON AN ADVERTISEMENT AFTER ENTERING A SEARCH QUERY. THEREFORE IT IS EVIDENT FROM THE ABOVE DESCRIPT ION OF THE ADWORDS PROGRAM THAT IT IS A COMPLE X COMPUTER SOFT W ARE THAT IS USED B Y THE ADVERT I SERS TO CREATE , DISPLA Y AND MAINTAIN ADVERTISEMENTS . 5. GOOG L E IRELAND LIM I TED ('GIL') HAS ENTERED INTO DISTRIBUTION AGREEMENTS WITH GO OG LE INDIA PRI V AT E LI M I T E D ( ' GIPL ' ) FO R TH E AD V ERT I SEM E NT , MARK E TING AND DISTRIBUTION O F A DW O R DS PRO G RAM IN TH E T ERR ITOR Y OF INDIA . TH E R E LEVANT PART OF THE DISTRIBUTION AGREEMENT BET WE EN GOOGL E IR E LAND AND GOOGLE INDIA I S R E PRODUC E D B E LOW FOR REFERENCE: AMENDED AND RESTATED GOOG/ E ADWORDS PROGRAM DISTRIBUTION AGREEMENT THIS AMENDED AND RESTATED GOOGLE ADWORDS PROGRAM DISTRIBUTION AGREEMENT ('AGREEMENT') IS ENTERED INTO AS OF DECEMBER 12, 2005 (THE ' EFFECTIVE DATE') BY AND BETWEEN GOOGLE IRELAND LIM I TED, WITH OFFICES AT T ' & 2 N D FLOORS GORDON HOUSE, BARROW STREET, DUBLIN 4 IRELAND ( ' GOOGLE'), AND GOOGLE ONLINE INDIA , PRIVATE LIMITED, A COMPANY INCORPORATED UNDER THE IND I AN COMPANIES ACT , 1956 AND HAV I NG ITS REGISTERED OFFICE AT 1 S T FLOOR, PRESTIGE SIGMA , NO . 3 VITTAL MALLYA ROAD , B ANGALORE 560 001 ( ' DISTRIBUTOR ' ) . WHEREAS 1. GOOGLE WISHES TO ENTER I NTO THE DISTRIBUTION AGREEMENT FOR ITS ADWORDS PROGRAM WITH DISTRIBUTOR; ITS ADWORDS PROGRAM WITH DISTRIBUTOR; 2 . WHEREAS GOOGLE LNC . , A DELAWARE CORPORATION , AND DISTRIBUTOR ENTERED INTO A GOOGLE ADWORDS PROGRAM DIST RIBUTION AGREEMENT , DATED AS OF DECEMBER 12 , 2005 (THE ' PRIOR AGREEMENT') , AND GOOGLE INC . ASSIGNED ITS RIGHTS AND OBLIGATIONS UNDER THE PRIOR AGREEMENT TO GOOGLE ; AND 3 . GOOGLE AND DISTRIBUTOR DESIRE TO TERMINATE THE PR I OR AGREEMENT AND FURTHER DES I R E THAT THIS AGREEMENT SUPERSEDE AND REPLACE THE PRIOR AGREEMENT IN ITS ENTIRELY; 2 APPOINTMENT OF TERRITORY AND DISTRIBUTOR OBLIGATIONS . ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 26 2.1 APPOINTMENT OF TERRITORY. GOOGLE APPOINTS DISTRIBUTOR AS A NON - EXCLUSIVE AUTHORIZED D I STRIBUTOR OF GOOGLE ADWORDS PROGRAM TO ADVERTISERS, ALL UNDER AND I N A C CORDANCE W I TH THE TERMS AND CONDITIONS SET FORTH IN THIS AGREEMENT. DISTRIBUTOR SHALL CONDUCT ITS BUSINESS FOR ITS OWN ACCOUNT, IN ITS OWN NAME, AND CONDUCT ITS BUSINESS FOR ITS OWN ACCOUNT, IN ITS OWN NAME, AND NOT AS AN AGENT, EMPLOYEE, PARTNER, OR FRANCHISE E OF GOOGLE . DISTRIBUTOR MAY NOT SOLICIT BUSINESS FROM, AND SHALL NOT DISTRIBUTE ADWORDS PROGRAM TO (EVEN IF UNSOLICITED), ANY ENTITY THAT DOES NOT HAVE A PRINCIPAL PLACE OF BUSINESS WITHIN THE TERRITORY. FOR THE AVOIDANCE OF DOUBT, AN ENTITY'S PRINCIPAL P LACE OF BUSINESS WILL BE DETERMINED BY THE PLACE OF SUCH ENTITY'S REGISTRATION. ALL INQUIRIES BY ANY SUCH ENTITY FOR SALE OF ADVERTISING SPACE SHALL BE REFERRED TO THE DESIGNATED GOOGLE CONTACT WITHIN THREE (3) BUSINESS DAYS OF RECEIPT BY DISTRIBUTOR OF SU CH INQUIRY. 2.2 DISTRIBUTION & MARKETING OF ADWORDS PROGRAM. DISTRIBUTOR 2.2 DISTRIBUTION & MARKETING OF ADWORDS PROGRAM. DISTRIBUTOR AGREES TO MARKET AND DISTRIBUTE ADWORDS PROGRAM TO ADVERTISERS IN THE DESIGNATED TERRITORY , WITHIN THE BROAD GUIDELINES PROVIDED BY GOOGLE, WITH ITS REASONABLE COMMERCIAL EXPERTISE A ND OWN SALES FORCE AND CUSTOMER SERVICE INFRASTRUCTURE . DISTRIBUTOR SHALL NOT SUB - CONTRACT ANY OF ITS FUNCTIONS OR OBLIGATIONS UNDER THIS AGREEMENT TO ANY THIRD PARTIES. DISTRIBUTOR SHALL PERFORM ITS OBLIGATIONS HEREUNDER IN A PROFESSIONAL AND WORKMANLIKE MANNER CONSISTENT WITH REASONABLY APPLICABLE INDUSTRY STANDARDS AND IN ACCORDANCE WITH THIS AGREEMENT . DISTRIBUTOR WILL DISTRIBUTE ADWORDS PROGRAM IN ACCORDANCE WITH THE TROINING PROVIDED BY GOOGLE . FAILURE TO DO SO WOULD CONSTITUTE A MATERIAL BREACH OF TH IS AGREEMENT AND SHALL BE GROUNDS FOR TERMINATION UNDER TH IS AGREEMENT AND SHALL BE GROUNDS FOR TERMINATION UNDER SECTION 9 . 3. 6. HENCE, THE FACTS OF THE INSTANT CASE ARE THAT G IL HAS GRANTED THE ASSESSEE COMPANY, GIP L THE RIGHT TO USE COMPUTER SOFTWARE I.E. THE ADWORDS PROGRAM. THE RIGHT TO ADVERTISE, MARKET A ND SELL THE ADWORDS PROGRAM IS ONE OF THE WAYS OF USING THE ADWORDS PROGRAM AND THESE ARE THE RIGHTS THAT HAVE BEEN GIVEN TO GIP L BY G IL UNDER THE DISTRIBUTION AGREEMENT . THEREFORE IT IS IN THIS MANNER THAT GIP L IS USING THE ADWORDS PROGRAM. GIP L GENERATES REVENUE IN INDIA BY SELLING THE LICENSE TO USE THE ADWORDS PROGRAM. GIP L IN RETURN PAYS THE SHARE OF THESE PROFITS IN THE GARB OF DISTRIBUTION FEE WHICH IS ACTUALLY CONSIDERATION ON ACCOUNT OF BEING GIVEN THE LICENSE TO USE THE ADWORDS PROGRAM IN INDIA . T HE ASSESSEE COMPANY CANNOT HIDE BEHIND THE SO CALLED 'DISTRIBUTION AGREEMENT' AND CLAIM THAT IT HAS NOT BEEN GIVEN ANY RIGHTS BY GIL . 7. THE DISTRIBUTION AGREEMENT AUTHORISES GIPL TO SELL OR TO OFFER FOR SALE OR TO COMMUNICATE TO THE PUBLIC (I.E . MARKET) THE ADWORDS PROGRAM. IN EFFECT GIL HAS GIVEN GIPL THE LICENSE TO USE THE ADWORDS PROGRAM IN INDIA WHEREIN GIPL HAS THE RIGHT TO ADVERTISE AND MARKET, THE RIGHT TO SELL OR TO OFFER FOR SALE THE ADWORDS PROGRAM TO THE ADVERTISERS. THEREFORE UNDER THE DISTRIB UTION AGREEMENT, A ) GIPL HAS BEEN GRANTED THE RIGHT TO USE THE ADWORDS PROGRAM IN A ) GIPL HAS BEEN GRANTED THE RIGHT TO USE THE ADWORDS PROGRAM IN INDIA, B ) BY OBTAINING THE LICENSE TO ADVERTISE AND MARKET, C ) BY OBTAINING THE LICENSE TO SELL TO THE ADVERTISERS IN IND I A THE RIGHT TO USE THE ADWORDS PROGRAM; ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 27 8. THEREFORE GIPL SELLS OR OFFERS FOR SALE TO THE ADVERTISERS IN INDIA, THE LICENSE TO USE THE ADWORDS PROGRAM. IT IS ALSO GIVEN THE RIGHT TO COMMUNICATE TO THE PUBLIC ABOUT THE ADWORDS PROGRAM. HERE THE LICENCE IS GRANTED TO THE GIPL BY THE COPYRIGHT HOLDER I.E. GIL IN RES PECT OF COPYRIGHT MENTIONED IN SECTION 14(A)(III) AND SECTION 14(B)(II) OF THE COPYRIGHT ACT . THAT MEANS GIPL HAS GOT THE EXCLUSIVE LICENSE TO MARKET COPYRIGHT ACT . THAT MEANS GIPL HAS GOT THE EXCLUSIVE LICENSE TO MARKET AND SELL THE ADWORDS PROGRAM. 9. HOWEVER GIPL IS NOT PERMITTED TO SUBLICENSE THE MARKETING AND DISTRIBUT ION RIGHT GIVEN BY GOOGLE. IN THE PRESENT CASE, GOOGLE IRELAND HAS NOT PARTED WITH OR DIVESTED OF ITS EXCLUSIVE RIGHT TO DO OR TO AUTHORIZE OTHERS TO DO THE ACTS SPECIFIED IN SECTION 14(A)(III) AND SEC.14(B) OF THE COPYRIGHT ACT IN RESPECT OF THE ADWORDS P ROGRAMME. ALL IT HAS DONE IS, BY EXERCISING ITS RIGHT AS THE OWNER OF COPYRIGHT IN THE ADWORDS PROGRAM, IS JUST AUTHORIZING GIPL TO SELL OR OFFER FOR SALE AND COMMUNICATE TO THE PUBLIC I.E. GIPL IS GIVEN THE LICENSE TO MARKET, DISTRIBUTE AND SELL THE RIGHT TO USE THE ADWORDS PROGRAM TO ADVERTISERS IN INDIA. RIGHT TO USE THE ADWORDS PROGRAM TO ADVERTISERS IN INDIA. 10. UNDER THE DISTRIBUTION AGREEMENT GIPL IS AUTHORIZED TO MARKET AND DISTRIBUTE THE ADWORDS PROGRAM IN INDIA. THIS DISTRIBUTION AGREEMENT IS IN THE NATURE OF A LICENSING AGREEMENT, THOUGH NOT TERMED A S SUCH. BECAUSE, AS STATED EARLIER, A LICENSE IS AN AUTHORIZATION OF AN ACT WHICH, WITHOUT SUCH AUTHORIZATION, WOULD BE AN INFRINGEMENT . THE AGREEMENT AUTHORIZES GIPL TO SELL OR OFFER FOR SALE AND TO COMMUNICATE TO THE PUBLIC I . E. MARKETING AND DISTRIBUTIO N OF THE ADWORDS PROGRAM, WHICH IS NOTHING BUT GRANTING OF LICENCE TO MARKET AND DISTRIBUTE THE SOFTWARE IN INDIA. HERE THE LICENCE IS GRANTED TO GIPL BY THE COPYRIGHT HOLDER I . E. GIL IN RESPECT OF COPYRIGHT MENTIONED IN SECTION 14(A)(III) AND SECTION 14(B )(II) . RESPECT OF COPYRIGHT MENTIONED IN SECTION 14(A)(III) AND SECTION 14(B )(II) . THAT MEANS THE GIPL HAS GOT THE LICENSE TO MARKET AND DISTRIBUTE THE ADWORDS PROGRAM; THE PROGRAM IS NOT SOLD TO GIPL . 11. GIPL IS INVOLVED IN PERFORMING BACK OFFICE FUNCTIONS FOR ADWORDS PROGRAM WHICH INCLUDE: A) RESPONSE TO THE QUERIES OF CLI ENT'S CUSTOMERS: THE QUERIES GENERATED BY THE CUSTOMERS OF GOOGLE ENTITIES FLOW FROM CUSTOMERS THROUGH A WORKFLOW BASED ON PRE - DETERMINED PARAMETERS . ON RECEIVING THE QUERY, THE TEAM RESPONDS TO THE QUERY. THE RESPONSE TO IS ROUTED THROUGH GOOGLE IRELAND; AND B) REVIEWING ADVERTISEMENTS FOR THE PURPOSE OF RUNNING THE SAME ON THE GOOGLE WEBSITE: THESE SERVICES MAINLY INVOLVE IT ENABLED DATA PROCESSING WORK. THE DATA COMES (ROM THE CUSTOMER AND IS ROUTED TO GIPL THROUGH A WORKFLOW BASED ON LANGUAGE AND TIER . ON RECEIVING THE DATA, THE TEAM REVIEWS THE ADVERTISEMENT TO ENSURE THAT THE ADVERTISEMENT CONFORMS WITH THE GOOGLE EDITORIAL GUIDELINES. IF THE ADVERTISEMENT DOES CONFORM, THE CUSTOMER'S ADVERTISEMENT CAN THEN BE VIEWED ON THE WEBSITES OF GOOGLE OR ITS PARTNERS LOCATED OUTSIDE INDIA. GIPL REVIEWS THE ADVERTISEMENT ON ACCORDANCE WITH THE COMPANY LAW AND THE LOCAL LAW REGULATION, THROUGH VARIOUS SOFTWARE . THESE ARE AUTOMATED SOFTWARE WHICH PROVIDES ASSISTANCE BY FILTERING THE CONTENT OF THE ADS WITH SPEC IFIED KEYWORDS AND HELPS GIPL IN REVIEWING THE CONTENT OF THE ADS. ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 28 12. IT IS EVIDENT FROM THE ABOVE DESCRIPTION OF ACTIVITIES THAT GIPL IS ALLOWED TO ACCESS VARIOUS FEATURES, SOFTWARE TOOLS, DATABASES WHICH ARE RUNNING ON THE SERVERS LOCATED OUTSIDE INDIA IN ORDER TO PERFORM THE VARIOUS ACTIVITIES AND TO CARRY OUT THE TASKS ASSIGNED TO IT . HENCE GIPL HAS BEEN GRANTED. A) THE RIGHT TO DISTRIBUTE TO ADVERTISERS THE LICENCE TO USE THE PROCESS OF ADWORDS PROGRAM FOR THE PURPOSE OF ONLINE ADVERTISEMENT . B ) THE R IGHT TO ACCESS THE VARIOUS FUNCTIONALITIES/ TOOLS OF THE ADWORDS PLATFORM FOR PURPOSE OF THE MAINTAINING THE ADVERTISERS ACCOUNT AND SERVICING THE ADVERTISERS. 13. HENCE GIPL IS GRANTED THE USE OF OR THE RIGHT TO USE THE PROCESS IN THE ADWORDS PLATFORM FO R THE PURPOSE OF MARKETING AND DISTRIBUTION. THEREFORE CLAUSES (I) AND (III) OF EXPLANATION 2 TO SECTION 9(1)(VI) ARE THEREFORE CLAUSES (I) AND (III) OF EXPLANATION 2 TO SECTION 9(1)(VI) ARE SATISFIED AND HENCE THE AMOUNTS PAID/PAYABLE TO GOOGLE IRELAND ARE TAXABLE UNDER SECTION 9(1)(VI) OF THE ACT . 14. PART IIC : GRANT OF DIST RIBUTION RIGHTS ALSO INVOLVES IMPARTING OF INFORMATION CONCERNING ADWORDS PROGRAM. ATTENTION IS DRAWN TO THE OTHER CLAUSES OF THE DISTRIBUTION AGREEMENT . CLAUSE 3 OF THE AGREEMENT IS SHOWN BELOW FOR REFERENCE: 3 GOOG L E OBLIGATIONS. 3 GOOG L E OBLIGATIONS. 3.1 ADVERTIS ING SPACE. GOOGLE AGREES TO PROVIDE ADVERTISING SPACE THROUGH THE ADWORDS PROGRAM FOR DISTRIBUTOR TO ADVERTISERS AS SET FORTH HEREIN. 3.2 TRAINING. GOOGLE AGREES TO TRAIN DISTRIBUTOR. 15. THEREFORE GOOGLE IRELAND IS OBLIGED TO PROVIDE ADVERTISING SPA CE TO ADVERTISERS THROUGH ITS DISTRIBUTOR/RESELLER I.E. CIPL AND IT IS ALSO OBLIGED TO TRAIN THE DISTRIBUTOR/RESLLER SO THAT CIPL CAN MARKET AND DISTRIBUTE ADWORDS PROGRAM. SUCH TRAINING ENABLES SALES TEAM OF CIPL TO EXPLAIN THE FUNCTIONS AND FEATURES OF T HE ADWORDS PROGRAM . 16. THE ADWORDS PROGRAM IS A PACKAGE WHICH CONSISTS OF A VARIETY OF APPLICATIONS THAT CAN BE USED BY AN ADVERTISER. THE ADWORDS PLATFORM AS STATED BY GOOGLE INDIA RUNS ON SERVERS LOCATED OUTSIDE INDIA . LIKE ANY OTHER WEB BASED PLATFORM HAS A FRONT - END PORTION AND A BACK - END PORTION. THE FRONT - END PORTION IS WHAT THE ADVERTISER OR THE END - USER SEES WHILE THE BACK - END PORTION IS ACCESSIBLE ONLY BY GOOGLE IRELAND AND GIPL . WITHOUT ACCESS TO THE BACK END GIPL C ANNOT P ER FORM IT S ACTIVITIES O F MARK E TIN G AND DISTRIBUTION. T HE B ACK - E ND HAS A V ARI E T Y OF F E ATUR ES I . E. S O FTWAR E TOOLS WHI C H IS US E D B Y GIP L T O DISTRIBUT E AND S E LL TH E A D WO RD S PROGRAM AN D MAINTAIN TH E A D W ORD S AC C OUNT O F TH E AD VE RTI SE R S. A P AR T FR O M PR OV IDIN G TRAINING TO THE S ALES T E AM O F GIPL REGARDING THE FUNCTION A LIT Y O F TH E INTE R F ACE WHI C H I S V ISIBL E TO TH E REGARDING THE FUNCTION A LIT Y O F TH E INTE R F ACE WHI C H I S V ISIBL E TO TH E ADVERTISERS, STAFF OF GIPL IS TRAINED TO USE TH E FEATURE S (SOFT W ARE TO O LS) F OR THE PURPO S E OF MAINT E NANC E AND R E VIEW OF TH E ACC O UNT S OF AD VE RTISER S , FOR TH E PURPOS E OF BILLING ETC . ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 29 1 7 . T H E TRAINING R E LATED TO INT E RNAL T O OLS IS GIVEN ONL Y TO STAFF OF GIPL A ND S UCH TRAINING MAT E RIAL IS NOT AVAILABLE ON TH E 'HELP ' MENU IN THE ADWORDS PROGRAM I .E THE A DVERTI SE R S D O NOT H A VE ACC E SS T O SU C H TOOLS. TH E IMPORTANC E GI V EN T O TR A ININ G I S HI G H LI G HT E D B Y THE NUMB ER O F R E F E R E NC ES TO 'T RA IN I N G' IN THE DISTRIBUTION AG RE E M E NT W HICH AR E R E PRODU CE D B E L O W F O R R E F E R E NC E : R E F E R E NC E : 2 . 2 . DISTR I BUTOR WILL DISTRIBUTE ADWORDS PROGROM IN ACCORDANCE WITH THE TRAINING PROVIDED BY GOOGLE. FAILURE TO DO SO WOULD CONSTI TUTE A MATERIAL BREACH OF THIS AGREEMENT AND SHALL BE GROUNDS FOR TERMINATION UNDER SECTION 9 . 3 . 2.6 AFTER - SALES SUPPORT . DISTRIBUTOR WILL PROVIDE AFTER - SALES SERVICES TO ADVERTISERS IN ACCORDANCE WITH THE BROAD INSTRUCTIONS, TRAINING AND STANDARDS OF GOOGLE. EXHIBIT C SERVICE LEVEL AGREEMENT ISSUES THAT CANNOT I MMEDIATELY BE RESOLVED BY DISTRIBUTOR BASED ON TRAINING AND PROCEDURES PROVIDED UNDER THE AGREEMENT MUST BE COMMUN I CATED PROMPTLY TO GOOGLE BY DISTRIBUTOR, AND GOOGLE W I LL ASSIST DISTRIBUT OR IN DETERMINING THE BEST SOLUTION . 'CUSTOMER QUERIES' SHALL MEAN E - MAILS SENT FROM DISTRIBUTOR TO GOOGLE RELATED TO ADVERTISER ISSUES, BUT EXCLUDING GENERAL COMMUNICATIONS BETWEEN DISTRIBUTOR AND GOOGLE (E . G . BILLING QUESTIONS, TRAINING INFORMATION) AND TECHNICAL ISSUES THAT ONLY QUESTIONS, TRAINING INFORMATION) AND TECHNICAL ISSUES THAT ONLY GOOGLE CAN SOLVE. 18. FURTHER IN THE SUBMISSION DATED 15 TH FEB 2013 IT WAS STATED THAT: G OOGLE IRE L AND PROVIDES TRAINING TO THE SALES TEAM OF G OOGLE INDIA ON T H E FO LL OWI N G: TRAINING ON THE ADWORDS PROGRAM AND HOW THE ADWORDS PROGRAM MAY BENEFIT THE ADVERTISERS IN INDIA TRAINING ON THE FUNCTIONALITY OF THE TOOLS AVAILABLE TO OPTIMIZE AND FO LL OW AN AD CAMPAIGN ON THE ADWORDS SYSTEM; THE NEW FEATURES / ADDITIONS MADE TO THE ADWORDS PROGRAM AND THE IMPLICATIONS FOR ADVERTISERS, ETC. CONCLUSION: 19. THEREFORE FROM THE COMPREHENSIVE DISCUSSION ABOVE AND THE ENTIRE GAMUT OF EXERCISE UNDERTAKEN BY GIPL, IT IS CLEARLY BORNE OUT THAT BUSINESS OF ADWORD OF GOOGLE IRELAND IS BEING CARRIED OUT BY GOOGLE INDIA (GIPL) AND HENCE GOOGLE INDIA CONSTITUTE A PERMANENT ESTABLISHMENT (PE) OF GOOGLE IRELAND IN INDIA. IT WAS ALSO SEEN, WITHOUT PREJUDICE, THAT THE INCOME RECEIVED BY GOOGLE IRELAND FROM ITS ADWORD PROGRAM IS IN THE NAT U RE OF ROYALTY AND HENCE CHARGEABLE TO TAX IN INDIA. THUS, THE SUM RECEIVED BY GOOGLE IRELAND FROM THE ASSESSEE SHALL SUFFER WITHHOLDING TAX AS INCOME OF GOOGLE IRELAND IS CHARGEABLE TO TAX IN INDIA. INDIA. 1 8 . THE FIRST ISSUE RAISED BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE WAS THE FAILURE OF CIT(A) TO GIV E ADEQUATE OPPORTUNITY OF HEARING TO ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 30 THE ASSESSEE, WHEREIN THE VARIOUS INFORMATION COLLECTED BY THE CIT(A) WAS NOT CONFRONTED TO THE ASSESSEE. ON THE PERUSAL OF THE ORDER OF CIT(A), WE FIND THAT CERTAIN INFORMATION WAS COLLECTED BY THE CIT(A), WHICH HAS B EEN UTILIZED BY HIM TO GIVE A FINDING THAT GOOGLE INDIA PVT. LTD. WAS IN THE NATURE OF PE OF GOOGLE LTD., IRELAND AND CONSEQUENTLY, THE PAYMENTS MADE BY THE ASSESSEE TO GOOGLE LTD., IRELAND WERE HIT BY THE PROVISIONS OF SECTION 195 OF THE ACT. HOWEVER, TH E SAID INFORMATION WAS NEVER CONFRONTED TO THE ASSESSEE. THE PRINCIPLES OF NATURAL JUSTICE DEMANDS THAT NO PERSON SHOULD BE CONDEMNED UN - HEARD. FOLLOWING THE SAID PRINCIPLES OF NATURAL JUSTICE, WE ARE OF THE VIEW THAT THE ISSUE NEEDS TO BE ADJUDICATED BY THE CIT(A) AFTER AFFORDING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE I.E. BY WAY OF CONFRONTING THE ASSESSEE WITH THE INFORMATION COLLECTED AND THEREAFTER, PROVIDING AN OPPORTUNITY OF REBUTTAL TO THE ASSESSEE. IN THE ABSENCE OF SUCH EXERCISED BEI NG CARRIED BY THE CIT(A), WE FIND NO MERIT IN THE ORDER OF CIT(A) IN THIS REGARD. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE REMIT THE ISSUE BACK TO THE FILE OF CIT(A) TO DECIDE THE SAME BOTH ON FACTS AND ON LAW , AFTER CONFRONTING THE M ATERIAL TO THE ASSESSEE AND OBTAINING THE REBUTTAL OF THE ASSESSEE IN THIS REGARD AND THEN DECIDE THE ISSUE AFTER GIVING REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DEEM IT FIT TO RESTORE THE WHOLE ISSUE OF DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT FOR NON - COMPLIANCE OF PROVISIONS OF SECTION 195 OF THE ACT , BACK TO THE FILE OF CIT(A) . THE ASSESSEE IS AT LIBERTY TO FURNISH LEGAL CASE LAWS ON THE ISSUE AND THE CIT(A) IS DIRECTED TO CONSIDER THE ASPECTS OF THE CASE AND DECIDE THE ISSUE IN LINE THEREOF ON BOTH FACTS AND IN LAW . IN VIEW OF OUR SETTING ASIDE THE MATTER , WE DO NOT ADJUDICATE THE ISSUES RAISED BY THE ASSESSEE ON MERITS OF THE ADDITIONS. THUS, THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 19. IN VIEW OF OUR SETTING ASIDE THE ISSUE OF DISALLOWANCE ON ACCOUNT OF ADVERTISEMENT EXPENSES , THE OTHER THREE ISSUES VIZ. GATEWAY COMMISSION , ITA NO. 933 /PN/20 14 M/S. WEBSOURCE TECHNOLOGIES LIMITED 31 WEB HOSTING CHARGES AND TRANSACTI ON FEES, BEING SIMILAR, SAME ARE ALSO SET - ASIDE TO THE FILE OF CIT(A) . 20 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER P RONOUNCED ON THIS 15 TH DAY OF JU LY , 201 5 . SD/ - SD/ - ( R.K. PANDA ) ( SUSHMA CHOWLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 15 TH JU LY , 2015 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLAN T ; 2. / THE RESPONDENT; 2. / 3. ( ) / THE CIT(A) - II I , PUNE ; 4. / THE CIT I V , PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE RUE COPY//