Zoho Corporation Private Limited Vs DCIT (Madras High Court)
The Madras High Court considered a writ petition challenging the rejection of refund claims relating to equalisation levy paid for financial years 2016-17 and 2017-18. The petitioner, an Indian software product company, had overseas subsidiaries, including a US subsidiary that acted as a reseller of its products in the United States. The US subsidiary availed online advertising services from Google USA through the Google AdWords Program, paid Google directly, and was subsequently reimbursed by the Indian parent company for such marketing expenses. After the introduction of equalisation levy under the Finance Act, 2016, the petitioner paid substantial amounts towards levy and later sought refunds on the ground that reimbursements to its US subsidiary were not subject to equalisation levy.
The Court examined Sections 164 and 165 of the Finance Act, 2016, and observed that equalisation levy applies to consideration received by a non-resident from a resident or a non-resident having a permanent establishment in India for specified services. While online advertising services constituted specified services, the services in the present case were provided by Google USA to Zoho USA, both non-residents. The Court noted that although the Committee on Taxation of E-Commerce had specifically recommended inclusion of reimbursements within the scope of equalisation levy, Parliament did not incorporate such a provision in the Finance Act, 2016. Therefore, reimbursements could not be brought within the levy by interpretation.
