DEPUTY COMMISSIONER OF INCOME TAX,, CIRCLE-1, JAIPUR vs. PRAKASH CHANDRA MISHRA, JAIPUR

per Sec 165 of Finance Act 2016, a person resident in India or a

non-resident having a permanent establishment in India shall

deduct EL at 6% on the consideration paid to non-resident

towards specified services. Here the consideration and contract is

between the foreign client and Google Singapore and the assesse

is merely a conduit and agent so the provision is required to be

looked into considering that aspects of the case as it is proved

44 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra based from the FIRC, online screen shot showing the name of

client and the area of advertisement displayed along the number

of hits that has been generated from that targeted audience and

thus, the provision of section 165 is not applicable in the present

of the case. Here the EL is to be collected on customer target

subjected to Indian targeted customer and not on the company’s

outside Indian target customer. So, looking to the facts of the case

on hand the levy is not applicable. In the present set of fact

neither the company, assessee or the Google Singapore has

digital or economic presence in India which will attract the levy.

The assessee is not carrying out any business activity in India

based on the set of facts. The levy is on the consideration and

consideration is not defined in the Act. Thus, the meaning of the

consideration is extracted from the Contract Act, the same is

extracted herein below for the sake of brevity:

‘Consideration’ means “something in return”, i.e. quid pro quo that is an essential element to find out the genuine intention of the parties of the promise to create legal relationship. Consideration is an essential component of a valid contract. Consideration is the price for the contract. An agreement without consideration is void and thus not enforceable by law except under certain circumstances. According to Sir Frederick Pollock. Consideration is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.” An agreement without consideration is a bare promise and exnudo pacto non aritio actio, i.e., cannot be held to binding on the parties.

45 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra Based on the above definition the consideration that the assessee

is paying not a valid contract flow between the Google Singapore

and the assessee, it is the customer outside India and Google

Singapore the assessee has mere acted as agent and

consideration and contract flows both with the persons having no

PE or presence in India and their advertisement target is also not

having the territory of India, so the dual condition prescribed under

the section 165 is not established and therefore, based on these

set of transaction the provision is not applicable. Thus, the EL can

be levied only if the India Government has valid jurisdiction to levy

the tax based on the PE, SEP [ significance presence ] or target

audience none of the criteria is fulfilled to tax the payment that the

assessee has made. The ld. AR of the assessee to support this

argument has relied upon the provision of section 165A of the Act.

The relevant extract is as under:

Charge of equalisation levy on e-commerce supply of services. 165A. (1) On and from the 1st day of April, 2020, there shall be charged an equalisation levy at the rate of two per cent. of the amount of consideration received or receivable by an e-commerce operator from e-commerce supply or services made or provided or facilitated by it—

(i) to a person resident in India; or (ii) to a non-resident in the specified circumstances as referred to in sub-section (3); or

46 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra (iii) to a person who buys such goods or services or both usinginternet protocol address located in India.

(2) The equalisation levy under sub-section (1) shall not be charged—

(i) where the e-commerce operator making or providing or facilitating e-commerce supply or services has a permanent establishment in India and such e-commerce supply or services is effectively connected with such permanent establishment; (ii) where the equalisation levy is leviable under section 165; or (iii) sales, turnover or gross receipts, as the case may be, of the e-commerce operator from the e-commerce supply or services made or provided or facilitated as referred to in sub- section (1) is less than two crore rupees during the previous year.

(3) For the purposes of this [section,—

(a) "specified circumstances" mean—]

(i) sale of advertisement, which targets a customer, who is resident in India or a customer who accesses the advertisement though internet protocol address located in India; and (ii) sale of data, collected from a person who is resident in India or from a person who uses internet protocol address located in India]

[(b) consideration received or receivable from e-commerce supply or services shall include—

(i) consideration for sale of goods irrespective of whether the e-commerce operator owns the goods, so, however, that it shall not include consideration for sale of such goods which are owned by a person resident in India or by a permanent establishment in India of a person non-resident in India, if sale of such goods is effectively connected with such permanent establishment. (ii) consideration for provision of services irrespective of whether service is provided or facilitated by the e- commerce operator, so, however, that it shall not

47 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra include consideration for provision of services which are provided by a person resident in India or by permanent establishment in India of a person non- resident in India, if provision of such services is effectively connected with such permanent establishment.]

Thus, it is evident that here the specific definition make clears the

intention and when the same is not expressly covered it must be

seen from the other similar provisions of the Act and a

harmonious reading of law should be made to correctly interpret

the provision of law newly introduced. Mere conduit service

payment where the income is neither accrue or arise in India and

the clear definition given in section 165A of the Finance Act, 2016

the levy is not required to be paid by the assessee as correctly

held by the ld. CIT(A) by giving a detailed finding in this case. The

ld. AR of the support his arguments further relied upon the

provision of section 9(1) Explanation I which is extracted here in

below:

Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India :— (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. Explanation 1.—For the purposes of this clause—

48 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra (a) in the case of a business [, other than the business having business connection in India on account of significant economic presence,] of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India ;

[Explanation 2A.—For the removal of doubts, it is hereby declared that the significant economic presence of a non-resident in India shall constitute "business connection" in India and "significant economic presence" for this purpose, shall mean— (a) transaction in respect of any goods, services or property carried out by a non-resident with any person in India including provision of download of data or software in India, if the aggregate of payments arising from such transaction or transactions during the previous year exceeds such amount as may be prescribed; or (b) systematic and continuous soliciting of business activities or engaging in interaction with such number of users in India, as may be prescribed: Here in this case no operation are carried out in India. Only the

services of id and wallet creation is rendered for which the

assessee has already paid the tax in India and is rendering of the

services and its reasonableness is not under dispute. Only the

payment made to Google Singapore for which there is no income

which accrue or arise in India based on the provision of section 9

and section 165 of EL. To support further the ld. AR of the

assessee relied upon the decision of the Hon’ble Supreme Court

in the case of Ishikawajma-Harima Heavy Industries Limited 158

49 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra Taxman 259 (SC) the relevant extract of the finding is reiterated

here in below :

present set of case neither the services are utilized in India nor

rendered in India and thus the levy of EL on the particular

50 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra transaction does not arise. This detailed finding is appearing on

the order of the ld. CIT(A) at page 18 to 22 and then discussing

the business model of the assessee at page 23-24 CIT

(A) has deleted the addition made by the AO u/s. 40(a)(ib) for an

amount of Rs. 8,89,35,558/-

material available on record and also gone through the findings of

the lower authorities recorded in their respective orders. The bench

noted that the only grievance of the revenue is that the assessee

has paid a sum of Rs. 8,89,35,558/- on which disallowance u/s.

40(a)(ib) is required to be made, as the assessee fails to deduct

equalization levy under the provisions of Chapter VIII of the

Finance Act, 2016. The ld. AO made the disallowance of this

amount contending that nowhere in the provisions of section 165 it

is provided that equalization levy will not be attracted if the

residential person makes a payment to non-resident for specified

service out of the amount received by him from a non-resident or

the targeted customers of the advertisement campaign are located

outside India. The assessee has merely stated that the payment

made by him to Google Singapore, a non-resident, not having a PE

51 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra in India, will not attract equalization levy and the tax authorities do

not have the jurisdiction to tax such transactions as his customers

from whom he received consultancy charges and the target

audience of the online advertisement are located outside India and

has not indicated the provisions of the Finance Act 2016 which

form the basis for non-attraction of equalization levy. It can be seen

from the notes to the Finance Act 2016 it is clearly mentioned that

to avoid interpretational issues and to provide certainty, definitions

to the terms and expressions used in the provisions relating to

Equalization Levy have been provided. The definitions provided

therein clearly indicate that the consideration paid to a non-resident

for specified services by a resident in India carrying on business or

profession is liable for equalization levy provided that the

transactions do not fall within the exceptions mentioned in Sec.

165(2) of the Finance Act 2016. So, the attempt by the assessee to

carve out an exception which is not already provided in the statute

and bring out an ambiguity is to hide his failure to deduct the

equalization levy on the payment to Google Singapore for the

specified services rendered to the assessee for running an online

advertisement campaign on behalf of his clients. In view of that

52 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra contention of the assessee that the consideration paid to Google

Singapore is not amenable to equalization levy was rejected by the

AO stating that as it is noticed from the factual matrix present in

this case that the payment has been made to a Non Resident

(Google Singapore) 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 above transaction carried out by the assessee clearly

attract the provisions of sec. 165(1) of the Finance Bill, 2016 as the

condition specified therein are clearly satisfied by the facts present

in this case. Further the assessee's case does not fall within the

exception provided u/s 165(2) of the Finance Act. Therefore, the

facts present in the assessee case clearly lead to the conclusion

that equalization levy is attracted in the payment made by the

assessee to Google Singapore. Therefore, the provisions of

Sec.40(a)(ib) of the Act which provide that "any consideration paid

or payable to non-resident for a specified service on which

equalization levy is deductible under the provisions of Chapter VIII

of the Finance Act 2016 and such levy has not been deducted or

after deduction, has not been paid on or before the due date

53 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra specified in sub section (1) of section 139 of the Act and thus he

disallowed 100 % of the sum paid to Google Singapore, a non-

resident having no PE in India.

CIT(A) who has analyzed the contentions raised by the ld. AO and

given a detailed and reasoned findings as reiterated here in above.

The role of the assessee is that of 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, the

person on its own runs advertisement on google. Such person on

its own decides where the advertisement is to be run on which

geographical location, who would be the targeted audience, for

how much duration such advertisement is to run. All such aspects

are decided by the person running the advertisement and not by

the assessee. Assessee is merely a conduit 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.

54 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra 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.

We have gone through the submission in detailed placed on

record by the assessee in the form of Screenshots w.r.t. the user

10 created for the clients to provide the client access on the

website of google, the contention of the assessee that all these

clients are of the non jurisdiction to India not only that the targeted

customers or the area has no business or ultimate relation any

business in India. This very basic facts were not disputed by the

revenue. The only dispute that the revenue carries in this appeal

that whether the online advertisement which are of non-

jurisdictional area for which the assessee has claimed the

expense are subjected to EL or not? To relates the client as well

as cluster or area of the ultimate advertisement both are

undisputedly out of India but since the assessee has made the

payment outside India and claimed as expenses the ld. AO is of

the view that the assessee is subjected to EL and since the levy is

not collected it attract disallowance u/s. 40(a)(ib) of the Act at 100

% of the payment made.

55 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra

targeted audience, the person who runs advertisement and party

who assist on displaying [ Google Singapore ] all are outside

India and on this aspect there is no dispute. The ld. CIT, DR was

specifically asked that on these facts whether the services are

rendered in India?. The ld. DR could not convert that the person

running the advertisement, person displaying the advertisement

and the person using that advertisement are all outside India. In

view of this the revenue has failed to show us that how these

specified services are provided to a resident in India. The ld. AR

of the assessee further submitted that on this issue he has not

only persuaded these facts to the CIT(A) but also to the ld. AO on

the issue and there are no contrary findings placed on record by

the revenue and the ld. DR in this proceeding. Thus, 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

56 ITA No. 305/JPR/2022 DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra 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.

Resultantly, the appeal filed by the revenue is dismissed.

Order pronounced in the open Court on 07/10/2022.

Sd/- Sd/- ¼ Mk0 ,l- lhrky{eh ½ ¼ jkBksM deys'k t;UrHkkbZ ½ (Dr. S. Seethalakshmi) (Rathod Kamlesh Jayantbhai) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member Tk;iqj@Jaipur fnukad@Dated:- 07/10/2022 *Ganesh Kr. आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- DCIT, Circle-01, Jaipur 1. izR;FkhZ@ The Respondent- Prakash Chandra Mishra, Jaipur 2. 3. vk;dj vk;qDr@ CIT vk;dj vk;qDr@ CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत. 5. xkMZ QkbZy@ Guard File {ITA No. 305/JP/2022} 6. vkns'kkuqlkj@ By order, सहायक पंजीकार@Aेेज. त्महपेजतंत