Toho and Tsuburaya hasn't had a close working relationship, have they.
Toho has had a love-hate relationship with Eiji Tsuburaya and his company. For one, Eiji had a lot of political power at Toho, and fought hard to allow quality special effects (which Toho ridiculously cut the budget for after his death). Also, Eiji had access to Toho's FX facilities, which were his at the time. For two, Toho felt that Eiji's TV shows were being a tough competition against their movie work.
Amongst Toho's hard feelings toward Tsuburaya is Toho's demand that Tsuburaya change the name of their company, "Tsuburaya Productions," from the original name, "Tsuburaya Special Effects Productions," in 1968, because they feel as though nobody but him could do special effects.
Also, Toho does not want to compromise their ownership of Godzilla. Because they want absolute control over him (and also charge ridiculous fees for the character). Also, for a very long time, some of their non-Godzilla productions (including
Latitude Zero and
Megaloman) were in legal limbo for this reason. Because those were co-productions with other companies.
From what I heard, it was common legend that Tsuburaya wanted a giant lizard monster for this episode, and Eiji said, "Okay, let's use a Godzilla suit!" But another Tsuburaya executive, whose name escapes me, said that Eiji and the others really wanted Ultraman to fight Godzilla! (Albeit disguised to look like another monster!)
Also, remember that the first monster from
Ultra Q, Gomess, was based on Godzilla as well! (The Mosu-Goji suit from
Mothra Vs. Godzilla.) Jirass was used from the body of the Mosu-Goji suit, and the head of the Daisensou-Goji (from
Monster Zero), the reason that latter Godzilla suit suddenly had a new head in
Godzilla Vs. the Sea Monster at the time of filming!