In a major relief to digital marketing firms having clients outside India, the Income Tax Appellate Tribunal ( ITAT ), Jaipur bench has dismissed the department’s appeal seeking disallowance from the advertiser for not charging an equalisation levy, commonly known as Google tax, on the payment made to Google Singapore on jurisdictional grounds.
The ITAT bench of Dr. S. Seethalakshmi (JM) & Shri Rathod Kamlesh Jayantbhai (AM) observed that an assessee is not liable for disallowance under Section 40(a)(ib) for not charging equalisation levy on payment made to Google Singapore for AdWords.
AdWords is an advertising system Google developed to help businesses reach online target markets.
An assessee, a service provider of online advertisement, digital marketing, and web designing for consultancy charges was subject to a disallowance of Rs 8.89 crore for not charging an equalisation levy on AdWords charges paid to Google Singapore, which does not have a permanent establishment (PE) in India.
The revenue department, however, argued that the payment made for digital advertisement fell within the ambit of Section 165(1) of the Finance Act, 2016, and did not attract the exceptions of Section 165(2).
Before ITAT , the matter went to the Commissioner of I-T (Appeals), or CIT(A), who had observed that the assessee acted as a conduit for his foreign clients where the target audience was also situated abroad and India was only the jurisdiction for fund transfer, thereby maintaining that the assessee was not liable to charge equalisation levy.
“The taxpayer here was a mere agent of Google Singapore who was acting as a conduit to channel funds, and service recipients were outside India as well. For an online advertisement, an equalisation levy will be applicable. There is a statutory requirement for a service recipient to be an Indian resident with business or profession in India or a non-resident having PE in India,” the ITAT said.
The equalisation levy of 2 percent of revenue exceeding Rs 2 crore applies to e-commerce firms that do not have a PE in India. This is in addition to a 6 percent levy on payments for digital advertisement services introduced in 2016.
Holding that in substance, the assessee is only acting as a conduit for channeling the funds from the person wanting to advertise on Google, the Tribunal concluded that “Thus, when the intention of the levy is related to the targeted audience and party paying the online advertisement has no relation in India, EL is not attracted in the set of present facts and circumstance placed before us and we see no reason to interfere in the reasoned findings given by the ld. National Faceless Appeal Center as revenue did not controvert any of the factual aspects related to this case. Therefore, the order passed by the learned National Faceless Appellate Center could not be found faulty, and therefore, we see no reason to intervene in the findings of the learned National Faceless Appellate Center. Based on these facts we hold the view of the learned National Faceless appeal Centre as correct and appeal of the revenue is dismissed.”
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