Saturday, 28 August 2021

Payment for online advertising not tax taxable as Royalty .

 In a relief to Urban Ladder Home Décor Solutions, the Bangalore ITAT ruled that Payments made for online advertising and marketing to non-resident payees such as Facebook, Amazon Web Services (AWS) for advertising, marketing does not tantamount to payment of ‘Royalty’ under the relevant tax treaties.

ITAT relying on the SC’s dictum in ‘Engineering Analysis Centre of Excellence Private Limited’ held that beneficial DTAA provisions are to be considered for determining the taxability of income. On perusal of agreements with the non-resident payees, ITAT observed that mere usage of facility provided by Facebook or Rocket Science does not render the payment as ‘Royalty’, as copyright attached to the facility is not parted with. In the case of AWS, the payment is made only for using information technology infrastructure facilities on a rental basis. Hence the question of transferring the copyright over those facilities does not arise at all. Thereby, concluding that payments made to non-residents do not give rise to any income chargeable in India, and thus there was no requirement to deduct tax at source u/s 195. The judgement brings with it good tidings for the non-resident recipient companies, as erstwhile it was becoming challenging for the companies to claim credit in their home country, if tax was perceived as wrongly withheld in the source country (in this case India). The ruling would also go a long way in reinstating the foreign investors’ confidence in the taxation & legislative prowess of the country.

1 comment:

Bishan said...

Allowability can be challenged for non deduction. Option is to apply equalization levy.

CBDT issues second round of frequently asked questions in relation to Direct Tax Vivad Se Vishwas Scheme, 2024

  This Tax Alert summarizes Circular No. 19/2024 dated 16 December 2024 (VSV 2- December Circular) issued by the Central Board of Direct Tax...