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The Jaipur bench of the Income Tax Appellate Tribunal has upheld that there will be no Equalisation Levy (EL) on Google Advertisement payment where advertisers and target audience are located abroad.
The Equalisation Levy, also known as’ Google Tax’, was initially applicable to payments for digital advertisement services received by non-resident companies without a permanent establishment (PE) here, if these exceeded ₹1 lakh a year. The rate of tax was 6 per cent. The companies using these services are required to withhold the tax amount. In the 2020–21 Budget, the government widened the ambit of the levy by including e-commerce companies. The applicable tax rate is two per cent (plus a surcharge) on the amount of consideration received or receivable by an e-commerce operator.
In the said matter, Assessee who is the service provider of online advertisement, digital marketing and web designing for consultancy charges, was subjected to disallowance under Income Tax Act of ₹8.89 crore for not charging Equalisaation Levy on the AdWords charges paid to Google Singapore, which does not have a Permanent Establishment (PE) in India
The Tax Department said 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. The first level of appeal, Commissioner of Income Tax (Appeal), 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. Thus, it was held that the assessee was not liable to charge Equalisation Levy. He also observed that the statutory requirements for service recipients to be: (i) an Indian resident with a business or profession in India or (ii) a non-resident having PE in India, were not satisfied in the case at hand.
Tax dept’s appeal
The Tax Department appealed against this order in the ITAT. The tribunal observed that the only dispute in the Revenue’s appeal is whether the online advertisements which are of non-jurisdictional areas are subjected to the Equalisation Levy or not. It upheld the appellate order. It categorically held that, in substance, the assessee is only acting as a conduit for channelising the funds from the person wanting to advertise on Google. It also held that the Equalisation Levy does not get attracted in the present case since the intention of the levy is the target audience and party paying for the online advertisement, who in the present case have no relation with India.
Sandeep Sehgal, Partner-Tax, AKM Global, a tax and consulting firm, states, “This is a welcome ruling by the Hon’ble Jaipur ITAT. The purpose of the i Equalisation Levy was to target digital businesses having a sufficient user base in India but not paying any taxes due to the design of the prevalent laws. The Equalisation Levy was introduced precisely to target such incomes. In this case, since the income was being generated from foreign advertisers and the target audience was also based overseas, the application of the Equalisation Levy is far-fetched for an entity which is only acting as a conduit in India for channelising the funds.”
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