Delhi High Court directs Google to withhold 8 percent tax on remittance

Delhi High Court directs Google to withhold 8 percent tax on remittance

The bench cleared that the deposit should not be treated as any non-compliance with the impugned order

Google Gets A Cut Of 8% Withholding Tax On Its Remittance

The Delhi High Court has allowed the interim application of Google LLC, directing that it was entitled to receive payment subject to a deduction of only 8 percent while making payment to the Google Asia Pacific Pte Ltd, a Singapore-based subsidiary of Google LLC.

The bench comprising Justice Manmohan and Justice Naveen Chawla reaffirmed that the order was only an interim measure and it should not be treated as non-compliance with the impugned order under the Income Tax Act, 1961.

The court ruled, "We direct that purely as an interim measure, the petitioner would be entitled to receive its payment from GCI subject to a deduction of 8 percent to be paid to the respondent. This interim arrangement is being made under the orders of this court. The deposit should not be treated as any non-compliance of the impugned order."

Google had filed a petition before the Delhi High Court challenging the certificate issued by the Assessing Officer (AO), characterizing the remittance as 'Fees for Technical Services' attracting a tax withholding a liability of 10 percent, as opposed to 'business income' on which Google had already paid an equalization levy under the provisions of the Finance Act, 2016.

Early this year, the court had issued a notice to the Commissioner of Income Tax and the AO on the plea of Google, which had placed reliance on the order of the court in the August 2021 Sumo Logic versus the Commissioner of Income Tax case, containing identical facts.

The revenue department proposed an interim tax withholding the liability inclusive of surcharges and cess. However, the counsel for Google placed reliance on the Double Taxation Avoidance Agreement (DTAA) between India and Singapore, which caps the maximum withholding tax to 10 percent on remittances in the nature of royalty and fees for technical services.

The counsel argued that given the fact that it had already paid an equalization levy of 2 percent on the same amount, an additional withholding tax of 10 percent under the IT Act would in effect amount to double jeopardy and violate the provisions of DTAA. Google maintained that the 10 percent cap was inclusive of all surcharges and cess and hence no addition could be imposed.

While the equalization laws under the Finance Act, 2016 seek to tax payments, other than royalty and fee for technical services, received by non-resident e-commerce operators for e-commerce supply and services, the IT Act provides for tax withholding liability on dividend, royalty and technical fee payments made to foreign companies by Indian concerns.

Additionally, the DTAA between India and Singapore restricts the tax withholding liability by India at 10 percent. In view of this, the provisions of the IT Act applied only to the extent that it was more beneficial to the assessee than to the DTAA.