Advertisers And Target Audience Are Outside India - Equalisation Levy Not Applicable On Google Ads: ITAT

The Jaipur Bench of the Income Tax Appellate Tribunal (ITAT) has held that an equalisation levy is not payable on advertising payments where advertisers or the target audience are located outside India.

The two-member bench of Dr. S. Seethalakshmi (Judicial Member) and Rathod Kamlesh Jayantbhai (Accountant Member) have observed that when the intention of the levy is related to the targeted audience and the party paying the online advertisement has no relation in India, the Equalisation Levy is not attracted.

The assessee/respondent is the proprietor of Oan Media and Web Solutions and filed his return in ITR-3, declaring total income. The case was selected for complete scrutiny under CASS for "Foreign remittance" and notice under section 143(2). The assessee is in the business of providing support services for online advertising, digital marketing, and web design and receives consultancy charges for services rendered.

It was noticed by the assessing officer that the assessee has debited a sum of Rs. 8,89,35,558 for online advertisement (adwords) charges paid to Google Singapore, a non-resident having no permanent enterprise (PE) in India.

The payment was made to a non-resident by the assessee for advertisement purposes in the digital mode on behalf of his clients and no tax was deducted as an equalisation levy on the payment made to the non-resident.

The "equalization levy" was inserted through the Finance Act, of 2016. It provides for an equalisation levy of 6% of the amount of consideration for specified services received or receivable by a non-resident not having a permanent establishment (PE) in India, from a resident in India who carries out business or profession, or from a non-resident having a permanent establishment in India.

The assessee was required to show cause as to why the provision of section 40(a)(ib) should not be invoked and the entire sum of Rs. 8,89,35,558 should not be disallowed and added to the income.

The National Faceless Appeal Centre (NFAC) deleted the addition of Rs. 8,89,35,558 made by the Assessing Officer for non-charging of equalisation levy.

The department argued that the payment for a digital advertisement was covered by Section 165 (1) of the Finance Act of 2016 and did not qualify for an exception.

Section 165 of the Finance Act, 2016 levies a tax called the equalisation levy on payments made for specified services to non-residents having no PE in India.

The assessee argued that the assessee received the money from their foreign client to act as a conduit for their advertisements, which are neither placed in Indian territory nor in their target audience as per the mandate given to Google Singapore.

The assessee stated that the payment he made to Google Singapore, a non-resident without a PE in India, will not be subject to the equalisation levy.The tax authorities do not have the jurisdiction to tax transactions as his customers from whom he received consultancy charges and the target audience of the online advertisement are located outside India and have not indicated the provisions of the Finance Act 2016 which form the basis for non-attraction of equalisation levy.

The ITAT noted that the department has failed to show how the specified services are provided to a resident in India.

The tribunal upheld the order passed by the National Faceless Appellate Centre.

Case Title: Deputy Commissioner of Income Tax Versus Prakash Chandra Mishra

Citation: ITA No. 305/JPR/2022

Date: 07/10/2022

Counsel For Appellant: CA Rajeev Sogani

Counsel For Respondent: P. R Meena

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