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Income Tax Appellate Tribunal, JAIPUR BENCHES,”A” JAIPUR
Before: DR. S. SEETHALAKSHMI, JM & SHRI RATHOD KAMLESH JAYANTBHAI, AM vk;dj vihy la-@ITA No. 305/JPR/2022
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
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.
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 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 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—
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
DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra Taxman 259 (SC) the relevant extract of the finding is reiterated here in below :
What is relevant is receipt or accrual of income, as would be evident from a plain reading of section 5(2) of the Act. The legal fiction created although in a given case may be held to be of wide import, but it is trite that the terms of a contract are required to be construed having regard to the international covenants and conventions. In a case of this nature, interpretation with reference to the nexus to tax territories will also assume significance. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle. An endeavour should, thus, be made to construe the taxability of a non-resident in respect of income derived by it. Having regard to the internationally accepted principle and DTAA, it may not be possible to give an extended meaning to the words 'income deemed to accrue or arise in India' as expressed in section 9 of the Act. Section 9 incorporated various heads of income on which tax is sought to be levied by the Republic of India. Whatever is payable by a resident to a non-resident by way of fees for technical services, thus, would not always come within the purview of section 9(1)(vii) of the Act. It must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax. Whereas a resident would come within the purview of section 9(1)(vii) of the Act, a non-resident would not, as services of a non-resident to a resident utilize in India may not have much relevance in determining whether the income of the non-resident accrues or arises in India. It must have a direct live link between the services rendered in India, when such a link is established. the same may again be subjected to any relief under DTAA. A distinction may also be made between rendition of services and utilization thereof.
Section 9(1)(vii)(c) clearly states "...where the fees are payable in respect of services utilized in a business or profession carried on by such person in India..." It is evident that section 9(1)(vii), read in its plain, same envisages the fulfilment of two conditions: services, which are source of income sought to be taxed in India must be (1) utilized in India and (ii) rendered in India. In the present case, both these conditions have not been satisfied simultaneously. Thus, it has been proved by the ld. AR of the assessee that in the present set of case neither the services are utilized in India nor rendered in India and thus the levy of EL on the particular
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/-
We have considered the rival contentions, perused the 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
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 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
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.
We have also carefully gone through the order of the ld. 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.
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.
DCIT-Circle-1, Jaipur vs.Shri Prakash Chandra Mishra
The ld. AR of the assessee has shown on the issue that 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 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.