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Delhi Tribunal holds payment made for advertisement expenses not liable for TDS in the absence of PE in India
In assessment year (AY) 2012-13, Lenskart Solution Pvt. Ltd., an Indian company (Taxpayer[1]) made payment to Facebook Ireland Inc. (FBII) for advertising services. Tax authority disallowed the said expense under section (u/s.) 40(a)(i) of the Income Tax Act (ITA) on account of non-deduction of TDS qua such payment and made additions.
The Taxpayer appealed before first appellate authority. The Taxpayer contended that FBll had no permanent establishment (PE) in India. Thus, payments made to it for advertising services were not chargeable to tax in India as per Article 7 of India-Ireland double taxation avoidance agreement (DTAA) and, therefore, the Taxpayer was not required to deduct any tax at source (TDS). The Taxpayer also argued that prior to introduction of equalization levy (EL) from 1 June 2016, online advertising did not attract deduction of tax at source. It also relied on the Mumbai Tribunal decision in the case of Yahoo India Pvt. Ltd.[2] .
First appellate authority upheld the Taxpayer’s appeal and deleted the additions made by the tax authority. Aggrieved by the order, the tax authority filed the appeal before the Tribunal. Delhi Tribunal dismissed the tax authority’s appeal and upheld the first appellate authority’s order. It held that there was no tax liability on payments made for advertising services to FBII under Article 7 of India-Ireland DTAA. In this regard, Tribunal observed that:
- First appellate authority had correctly analyzed the provisions of s. 9, s. 195 and provisions of India-Ireland DTAA which provides that the profits of the foreign enterprise shall be taxable only if it carried on business in India through a PE situated therein.
- FBII has certified that it has no PE in India and is a resident of Ireland for taxation purposes.
- In the absence of PE, there was no liability of tax in the hands of the Taxpayer on payments made for advertising services to FBII
- The facts as mentioned above remain uncontroverted and there are no material reasons to take a contrary view.