Direct Tax Alert - Equalisation Levy not attracted if the advertisers and target audiences are located outside India


With a view to tax digital transactions, taking a cue from Base Erosion Profit Shifting (BEPS) Actions, the Finance Act, 2016 introduced Equalisation Levy (EL). The EL introduced vide Finance Act 2016 (also referred to as EL1.0) is attracted when a non-resident taxpayer provides specified servicesto an Indian resident or to a non-resident having a Permanent Establishment (PE) in India. Subsequently, Finance Act, 2020 enlarged the scope of EL by bringing e-commerce supply or services (EL 2.0) within the ambit of EL.

The Jaipur Tax Tribunal2 had an occasion to examine the applicability of EL 1.0. We, at BDO in India, have summarized the ruling of the Jaipur Tax Tribunal and provided our comments on the impact of this decision.  


The taxpayer, an individual, was in the business of providing support services for online advertisement, digital marketing and web designing. He was a premier partner of M/s Google Asia Pacific Pte. Ltd., Singapore (Google Singapore). The taxpayer received consideration from its foreign clients to place advertisements on Google. A specified part of this consideration was then paid to Google Singapore by the taxpayer and the balance was retained by the taxpayer towards his consultancy charges. At the time of making the payment to Google Singapore, the taxpayer did not withhold EL from such payment. Hence,  the Tax Officer proposed to disallow the same under section 40(a)(ib) of the Income-tax Act, 1961 (IT Act). In response to the show-cause notice issued by the Tax Officer, the Taxpayer submitted that he was an agent of Google Singapore as he granted access to his clients on the google website for the purpose of advertisement to be made on Google. He generated login credentials for his clients on the website of Google through which such clients could, on their own run advertisements on Google. Further, clients could also decide the geographical location, the target audience and for how much duration such an advertisement is to be done. The taxpayer also highlighted that the advertisements were not at all decided by him and that the complete control of various aspects of such advertisements was with the client. He only acted as a conduit for channelising the funds from the person wanting to advertise on the Google platform. The taxpayer also submitted that the provisions of the Finance Act, 2016 and IT Act are only confined to the transactions in India and since in the present case, the target audience and the person carrying out the advertisement are both outside India, no tax can be levied on such transactions. Further, since the ultimate benefit of such advertisement is not derived from him but from his clients (who are non-residents), the provisions of the Finance Act, 2016 should not apply to such payments.             

However, the tax officer rejected the taxpayer’s contention and held that the payment made for digital advertisement fell within the ambit of section 165(1)3 of the Finance Act, 2016 and does not attract the exceptions of section 165(2) of the Finance Act, 2016. The tax officer was of the view that the language of the section inter alia required that payment should be made by a resident carrying on business or profession in India. The taxpayer was additionally imputing the requirement that the services should also be used by the payer which was not a condition precedent in the section. Accordingly, the Tax Officer disallowed the same under section 40(a)(ib) of the IT Act. Aggrieved, the taxpayer filed an appeal before the First Appellate Authority who granted relief to the taxpayer and made the following observations:

  • Taxpayer’s clients who placed online ads were located outside of India
  • The entire target audience/target location of these online ads was located outside India and had no connection with India
  • The taxpayer acted only as a conduit for receiving payments from his clients from outside India and thereafter making payments to Google Singapore on behalf of his clients
  • Clients for whose benefits these online ads were run on Google and who were the ultimate beneficiaries of these online ads were neither residents of India nor non-residents, had any Permanent Establishment (PE) in India
  • Entire business related to these online ads was carried from outside of India
  • The taxpayer was working on behalf of these ultimate beneficiaries who were his clients
  • The taxpayer made payment to Google Singapore (Non-Resident) for specified services required by his clients out of the amount received by him from a non-resident having no business in India (clients of the taxpayer)
  • The Indian jurisdiction was used only for the transfer of funds

Aggrieved, the revenue authority filed an appeal before the Jaipur Tax Tribunal.              


The Jaipur Tax Tribunal upheld the decision of the First Appellate Authority and made the following observations:

  • The role of the taxpayer, in the substance being a conduit, is that of an agent of Google Singapore whereby the taxpayer is granted access for the purpose of advertisement to be made on Google. The taxpayer’s client on its own decides where the advertisement is to be run in which geographical location, who would be the targeted audience, and for how much duration such advertisement is to run. All such aspects are decided by the person running the advertisement and not by the taxpayer. The taxpayer is merely a conduit for getting the advertisement run on Google.
  • The revenue authority was unable to controvert that the person running the advertisement, the person displaying the advertisement and the person using that advertisement are all outside India. Thus, the revenue has failed to show how these specified services are provided to a resident in India.
  • When the intention of the levy is related to the targeted audience and the party paying the online advertisement has no relation in India, EL is not attracted and accordingly the view held by the First-appellate authority is correct.


This is a welcome Ruling as it clarifies that EL 1.0 is not attracted if the advertisement is placed abroad (i.e. outside India) by a non-resident. Further, it is pertinent to note that the taxpayer submitted various shreds of evidence to substantiate that the advertisements were not displayed in India. Hence, the taxpayer who wishes to rely on this decision should have sufficient documentary evidence to showcase that the advertisements were meant and consumed outside India.


The term "specified service" is defined to mean online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf

2 DCIT-1, Jaipur vs. Prakash Chandra Mishra, ITA No. 305/JPR/2022 (Jaipur Tax Tribunal)

3 Section 165(1) of the IT Act provides instance were equalisation levy on specified services shall be levied.

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