Google India has been hit with a tax liability worth multiple crores following its appeal being dismissed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The dismissal of Google India’s appeal brings a 6 year old battle of Google India with the income tax authorities to an end.
The reason for the imposition of tax liability is because of illicit transactions between Google India and Google Ireland as advertisement revenues. According to the law, Google India is required to deduct TDS (Tax Deducted Source) for both residents and non residents. However, such payment was not made for non-residents which lead the ITAT to conclude that it was done for evading taxes.
It is interesting to note that Google along with tech giants such as Apple, Microsoft etc have their European headquarters in Ireland. Ireland serves as a vital destination for all these multinational giants. The main reason is because of the low tax rate. Ireland has a corporate tax of 12.5% which is significantly lower than United States and India.
ITAT has stated that “The intention of the assessee (Google India) as well as of the GIL (Google Ireland) is clear and conspicuous that they wanted to deduct the tax at the time of payment to GIL, no tax was deducted nor any permission was sought for paying the amount.” Google’s counter argument that the transaction involved royalties to Google Ireland and not business profit (intellectual property used by Google India are held by Google Ireland) was not accepted by ITAT who stated that “In our view, whether it is business profit or royalty, in both the circumstances, so far as the assessee is concerned, the assessee is duty-bound to deduct the TDS unless there is an adjudication by the AO to the contrary”
This post has been authored by Ravi Shankar from West Bengal National University of Juridical Sciences, Kolkata.
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