Google Gets A Cut Of 8% Withholding Tax On Its Remittance

Google had filed a petition before the Delhi High Court challenging the certificate issued by the Assessing Officer, characterising the remittance as 'Fees for Technical Services' attracting a tax withholding liability of 10%, as opposed to 'business income' on which Google had already paid an Equalization Levy under the provisions of Finance Act, 2016. The court on January 6 issued notice to the Commissioner of Income Tax and the Assessing Officer on the plea of Google who had placed reliance on the order of the Court in the case of Sumo Logic versus the Commissioner of Income Tax [August, 2021], containing identical facts.

The Revenue Department proposed an interim tax withholding liability inclusive of surcharges and cess. However, the counsel for Google placed reliance on the Double Taxation Avoidance Agreement (DTAA) between India and Singapore, which caps the maximum withholding tax to 10% on remittances in the nature of Royalty and Fees for Technical Services. The counsel for Google argued that given the fact that it had already paid an Equalization Levy of 2% on the same amount under the Equalization Laws, an additional withholding tax of 10 % under the Income Tax Act would in effect amount to double jeopardy and violate the provisions of Double Taxation Avoidance Agreement. This 10% cap under the DTAA, said Google, is inclusive of all surcharges and cess and hence no additional surcharge or cess can be imposed.

While the Equalization laws under the Finance Act, 2016 seek to tax payments, other than royalty and fee for technical services, received by non-resident e-commerce operators for e-commerce supply and services, section 115A of the Income Tax Act, 1961 provides for tax withholding liability on dividend, royalty and technical fee payments made to foreign companies by Indian concerns. Additionally, Article 12 of the DTAA between India and Singapore restricts the tax withholding liability by India at 10%. In view of Section 90 of the Income Tax, in the presence of a DTAA, the provisions of the Income Tax Act apply only to the extent they are more beneficial to the assessee than the DTAA.

The Bench, allowing the interim application of Google, directed that it was entitled to receive payment subject to a deduction of only 8%. The Bench held:

"In that view of the matter, we direct that purely as an interim measure, the Petitioner would be entitled to receive its payment from GCI subject to a deduction of 8% to be paid to the Respondent No.2 progressively. This interim arrangement is being made under the orders of this court. The deposit of 8% should not be treated as any non-compliance of the impugned order."

Case Title: Google Asia Pacific Pte Ltd Vs Commissioner of Income Tax and Another