DCIT Vs Prakash Chandra Mishra (ITAT Jaipur)
ITAT Jaipur held that equalization levy not applicable as role of the assessee is merely conduit between the entity carrying out the advertisement and Google. The ultimate benefit of such advertisement is not desired by the assessee.
Facts- It was noticed by the assessing officer, that the assessee has debited a sum of Rs. 8,89,35,558/- being online advertisement (adwords) charges paid to M/s. Google Asia Pacific Pte. Ltd., Singapore, a non-resident having no permanent enterprise(PE) in India. Since the payment has been made to a non-resident by the assessee for advertisement purposes in the digital mode on behalf of his clients and that no tax was deducted as equalization levy on the payment made to the non-resident, the assessee was required to show cause as to why the provision of section 40(a)(ib) of the Act should not be invoked and the entire sum of Rs.8,89,35,558/- should not be disallowed and added to the income. AO confirmed the same.
Being aggrieved, assessee preferred an appeal before CIT(A) which was allowed. Accordingly, being aggrieved, revenue has preferred the present appeal.
Conclusion- The role of the assessee is merely conduit between the entity carrying out the advertisement and Google. The ultimate benefit of such advertisement is not desired by the assessee but it is derived by the advertisers, who are client of the assessee.
Held that when the intention of 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 aspect related this case. Therefore, the order passed by the learned National Faceless Appellate Center could not be found fault with 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.
FULL TEXT OF THE ORDER OF ITAT JAIPUR
This appeal is filed by the revenue aggrieved from the order of the National Faceless Appeal Centre (NFAC) [ Here in after referred as Ld. CIT(A) ] for the assessment year 2018-19 dated 13.06.2022 which in turn arises from the order passed by the National Faceless Assessment Center, New Delhi passed under Section 143(3) read with section 144B of the Income tax Act, 1961 (in short ‘the Act’) dated 23.09.2021.
2. Aggrieved form the order of the ld. NFAC the revenue has marched this appeal on the following grounds;
1. Whether on the facts and circumstances of this case, the ld. CIT(A) is justified in deleting the addition of Rs. 8,89,35,558/- made by the Assessing Officer u/s. 40(a)(ib) of the Income Tax Act, 1961 for non-charging of Equalization levy when the conditions prescribed as per the provisions of section 165 were fulfilled.
3. The brief fact as culled out from the records is that assessee is a proprietor of Oan Media and Web Solutions filed his return in ITR-3 declaring total income of Rs. 43,86,210/- on 31.10.201 8. The case was selected for complete scrutiny under CASS for “ Foreign remittance” and notice u/s. 143(2) was issued on 22.09.2019. The assessee is engaged in the business of providing support services of online advertisement, digital marketing and web designing and receives consultancy charges for such services rendered.
4. On examination of profit & loss account for the year under consideration it was noticed by the assessing officer, that the assessee has debited a sum of Rs. 8,89,35,558/- being online advertisement (adwords) charges paid to M/s. Google Asia Pacific Pte. Ltd., Singapore [ here in after referred to as Google, Singapore ], a non-resident having no permanent enterprise(PE) in India. Since the payment has been made to a non-resident by the assessee for advertisement purposes in the digital mode on behalf of his clients and that no tax was deducted as equalization levy on the payment made to the non-resident, the assessee was required to show cause as to why the provision of section 40(a)(ib) of the Act should not be invoked and the entire sum of Rs.8,89,35,558/- should not be disallowed and added to the income. A detailed draft assessment order in this regard was issued along with show cause notice dated 13/7/2021 requiring the assessee to response on or before 28/7/2021. In response to the show cause notice, the assessee requested for an oral hearing through video conferencing to make his submission in view of the complexity of facts involved in the issue. The assessee was given the opportunity of an oral hearing through video conferencing to present his case vide intimation dated 24/08/2021 posting the case for hearing on 30/08/2021 at 3.30 PM. In response AR of the assessee explained the nature of business of the assessee and more specifically the nature of transaction carried out with Google Singapore. The AR was required, during the course of hearing to submit copy of agreement entered by the assessee with Google Singapore, along with copy of authorization granted to the AR make representations on behalf of assessee. The recording of the oral hearing conducted is part of assessment, proceedings and available on file and copy of link for downloading the recording has been furnished to the assessee for his records. On examination of the reply and documents, furnished, by the assessee, AO has further requested to clarify and furnish the documents on following points:
a) Copy of sample agreement(s) entered by the assessee with his clients on whose behalf online advertisement campaign was carried out by him availing Google Singapore services.
b) Documentary evidence to establish that the assessee was an agent of Google Singapore as claimed by the assessee.
c) Establish with documentary evidence that the transaction carried out with Google Singapore feel within the exceptions mentioned in section 165 of the Finance Act and therefore, was not liable to equalization levy.
d) Clarify and explain why a sum of Rs. 8,89,35,558/- was paid to Google Singapore when as per submission already on record the export revenue received was only Rs. 7,36,79,273/-.
5. In response the assessee furnished copy of the agreements entered into by the assessee with his clients and stated that the assessee is an agent of Google Singapore whereby the assessee is granted access for the purpose of advertisement to be made on Google. On approaching the assessee, such person gets login credentials, generated by the assessee on the website of google through such credentials such person on its own runs advertisement on google. Such person on its own decides where the advertisement is to be run i.e. on which geographical location, who would be the target audience, for how much duration such advertisement is to be done. All such aspects are decided by the person running the advertisement and not by the assessee. Assessee is merely a means of getting the advertisement run on Google. The aspects as highlighted above w.r.t. the advertisements are not at all decided by the assessee. Thus, in substance assessee is only acting as a conduit for channelizing the funds from the person wanting to advertise to the platform on which such advertisement is to be done i.e. Google. Screenshots w.r.t. the user 10 created for the clients to provide the client access on the website of google through the assessee was submitted. Based on these the client of the assessee is given complete control of the various aspects of the advertisement to be run on google and the assessee has no say over it or in the other words doesn’t control it. As regards the specific query raised whether the Finance Act 2016 provided for any exception from equalization levy to transactions wherein the client of the assessee and the target market of the advertisements run by the assessee, both were residing outside India. The assessee submitted that the provisions of Finance Act, 2016 and Income Tax Act, 1961 are only confined to the transactions in India, however, in the present case the target audience of the advertisement and the person carrying out the advertisement are both outside India, resultantly Tax Authorities in India do not have the jurisdiction to tax such transactions. The role of the assessee is merely conduit between entity carrying out the advertisement and Google. The ultimate benefit of such advertisement is not desired by the assessee but it is derived by the advertisers, who are the client of the assessee. Accordingly, provisions of Finance Act, 2016 shall not be applicable on the assessee.
6. The ld. AO based on the submission made in the oral hearing as well as in the proceeding before him, he noted that the contentions of the assessee made in their submissions to establish that equalization levy is not attracted on the payment made to Google Singapore are not accepted for the detailed reasons discussed in his order and same is extracted here in below :
7. The above submissions and the submissions made so far including the submissions made during the oral hearing on 30/08/2021 and documents furnished by the assessee available on record have been given due consideration. The contentions of the assessee made in these submissions to establish that equalisation levy is not attracted on the payment made to Google Singapore are not accepted for the detailed reasons discussed in the following paragraphs.
8. Contention No.1 – Assessee is only an agent of Google Singapore
It is noticed that the assessee has made a claim that he is only an agent of Google Singapore in order to escape from the clutches of equalisation levy. However, the facts as borne out from the assessee’s case do not support such a claim. On perusal of the Google Advertising Service Agreement entered into between the assessee and the Google Singapore furnished by the assessee, it is seen that it is a contract between Google Singapore and the assessee who is stated as a customer and not an agent for the purpose of utilising Google’s Program for placing digital advertisements on his behalf or on behalf of a third party. As per the Terms & Conditions of the agreement, as per point No.1 of the terms and conditions, the customer (assessee) authorises Google or its affiliates to place customer’s advertising materials and related technology on any content or property provided by Google or its affiliates on behalf of itself or as applicable, a third party.
8A s can be noticed on perusal of the above terms and conditions of the agreement entered into by the assessee and Google Singapore, the agreement is between a Service provider (Google) and its customer (assessee). Nowhere in the agreement is it mentioned that the assessee has been nominated and will act as an agent of Google
8B Further, the terms and conditions mentioned in Point No. 12 Miscellaneous (i) is reproduced here for reference:
These Terms do not create any agency, partnership or joint venture among the parties.”
8C Further, it is noticed that the invoices are raised by the assessee on his clients for the service rendered and not by Google Singapore. Also, the assessee books the revenue received from his clients in his books of account as gross receipts and the cost connected thereto including the service fee paid to Google Singapore is booked as purchase of services. Further, there is no indication that the assessee is only receiving a commission for the services rendered by him. All these facts indicate and establish the fact that the assessee is cried out by him is and can be considered only as normal service contnning of transactions Singapore as claimed by him. Therefore, the Service provider i.e revenue is received from clients for rendering services for running of online advertisement campaign on google platform and the payment made to Google Singapore is part of the cost involved in rendering such service. In fact, as per the terms in Point No.1 of the Agreement between Google Singapore and the assessee which is reproduced here for reference:
Programs. Customer authorizes Google and its affiliates to place Customer’s advertising materials and related technology (collectively, “Ads” or “Creative”) on any content or property (each a “Property”) provided by Google or its affiliates on behalf of itself or, as applicable, a third party (“Partner”). Customer is solely responsible for all: (i) Creative, (ii) Ad trafficking or targeting decisions (e.g., keywords) (“Targets (ii) Properties to which Creative directs viewers (e.g: landing pages) along with the related URLS and redirects (“Destinations”) and (iv) Services and products advertised on Destinations (collectively, “Services”). The Program is an advertising platform on which Customer authorizes Google or its affiliates to use automated tools to format Ads. Google and its affiliates may make available to Customer certain optional Program features to assist Customer with the selection and generation of Targets and Creative. Customer is not required to authorize use of these optional Targeting and Creative features and, as applicable, may opt-in to or opt-out of usage of these features, but if Customer uses these features then Customer will be solely responsible for the Targets and Creative. Google and Partners may reject or remove a specific Ad or Target at any time for any or no reason.
8D Clearly indicates the technical aspects that are be provided by the assessee with regard to running of online advertising campaign on the google platform. This clearly establishes the nature services being provided by assessee his customers for effective running of online advertisement campaign behalf of clients which he compensated with consultancy fees.
8E summary, the contention that he only acting as conduit/agent for channelizing
funds from Advertiser (customers of assessee) to Publisher (Google Singapore) not acceptable and backed by factual evidence whatsoever.
Contention No.2 Equalisation levy is not applicable if services are provided to persons outside India and the target customers of the advertisements are also outside India
On perusal of submissions indicated para 3.2 above, it noticed that the assessee has contended that the payment Rs.8.89 crores to Google Singapore for utilising their services connection with running of online advertisement campaign on behalf of his clients does not attract equalisation levy the assessee’s customers from whom revenue is received by him for running the online advertisement campaign and the persons for whom the advertisements are targeted are located outside India. other words, it reiterated by the assessee that if transactions are carried out on behalf of persons and the target audience of online advertisement campaign are outside India then tax authorities India do not have the jurisdiction tax such transactions R
9A. The contentions of assessee have been given deep consideration. brief reference to legislative intent, the actual provisions of Finance Act 2016 relating Equalisation Levy and the provisions Sec.40(a)(i)(b) necessary examine the claim the assessee. The same are dealt with briefly hereunder for reference.
Legislative Intent:
The relevant portion of Finance Bill 2016 which introduced equalisation levy reproduced as under highlight the legislative intent behind the proposed equalisation levy brought into the… through finance 2016.
“Currently the digital domain, business may conducted without regard national boundaries and may dissolve the link between an income-producing activity and specific location. From certain perspective, business digital domain doesn’t seem occur in physical location but instead takes place the nebulous world “cyberspace.” Persons carrying business digital domain could located anywhere the world. Entrepreneurs across the world have been quick evolve their business take advantage these changes. It also made possible for businesses conduct themselves ways that did exist earlier, and given rise new business models that rely more digital and telecommunication network, do not require physical presence, and derives substantial value from data collected and transmitted from such networks.”
“These new business models have created new tax challenges. The typical direct tax issues relating to e-commerce are the difficulties of characterizing the nature of payment and establishing a nexus or link between a taxable transaction, activity and a taxing jurisdiction, the difficulty of locating the transaction, activity and identifying the taxpayer for income tax purposes. The digital business fundamentally challenges physical presence-based permanent establishment rules. If permanent establishment (PE) principles are to remain effective in the new economy, the fundamental PE components developed for the old economy i.e. place of business, location, and permanency must be reconciled with the new digital reality. . “Considering the potential of new digital economy and the rapidly evolving nature of business operations it is found essential to address the challenges in terms of taxation of such digital transactions as mentioned above. In order to address these challenges, it is proposed to insert a new Chapter titled “Equalisation Levy” in the Finance Bill, to provide for an equalisation levy of 6% of the amount of consideration for specified services received or receivable by a non resident not having permanent establishment (PE) in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India.”
