DCIT Vs Play Games 24×7 Private Limited (ITAT Mumbai)
Summary: The Mumbai ITAT dismissed the Revenue’s appeal for AY 2016-17 and upheld the CIT(A)’s deletion of disallowances relating to foreign advertisement expenditure and Employee Stock Option Scheme (ESOP) expenses. The assessee, Play Games 24×7 Private Limited, had incurred total advertisement expenditure of Rs.55,68,59,099/-. The Assessing Officer found that tax had not been deducted from payments aggregating to Rs.27,69,15,831/- made to Facebook Ireland Ltd. and other non-resident entities and treated those payments as royalty, resulting in disallowance under section 40(a)(i). The amount comprised Rs.26,09,19,423/- paid to Facebook Ireland and Rs.1,59,96,408/- paid to other non-resident service providers. The AO also disallowed ESOP expenditure of Rs.6,34,559/- as notional expenditure.
On the advertisement expenditure, the CIT(A) followed the Tribunal’s decision in the assessee’s own case for AY 2015-16. That decision recorded that the assessee used Facebook Ireland’s standard advertising platform, had no control over the interface or servers, had no economic or possessory rights over the servers and was not provided any dedicated equipment or installation. The server used for uploading advertisements was not located in India and, on the facts considered in that decision, there was no permanent establishment of Facebook Ireland in India. The earlier Tribunal order consequently held that use of Facebook Ireland’s advertising platform was neither royalty nor fees for technical services.
