TDS is not deductable on the payment made to search engine provider (Google or yahoo) for advertisement

TDS is not deductable on the payment made to search engine provider (Google or yahoo) for advertisement or display of banner at site, as same is business income and in absence of permanent establishment in India same cannot be considered as income taxable in India.

The assessee has utilises the internet search engine such as Google, Yahoo etc. to buy space for advertising on the internet on behalf of its clients. The search engine carries out its own programme whereby the assessee books certain words called "key words". Whenever any person searches through the net for a specific "key word", the advertisement of the assessee or its client is displayed. The price charged for such booking depends on type of phrase, its popularity, usage etc. The search engine renders this service outside India through internet.

Google does such online advertising business from its office in Ireland. The search engine service is on a worldwide basis and thus is not relatable to any specific country. The entire transaction takes place through the internet and even the invoice is raised and payment is made through internet. During the year under consideration, the assessee company had made a payment of 1, 09, 35,108/- to Google Ireland Ltd. and said amount was claimed as 'advertisement expenditure'. While making the said payment, no tax at source was deducted by the assessee on the ground that the amount paid to Google Ireland Ltd. constituted business profits of the said company and since the said company did not have a permanent establishment (PE) in India, the amount paid was not chargeable to tax in India.
According to the A.O., the services rendered by the Ireland company to the assessee company was in the nature of 'technical services' and hence the assessee company was liable to deduct the tax at source form the payment made against the said services. Since no such tax at source was deducted by the assessee, the deduction claimed by the assessee on account of expenditure incurred on payment of 'advertisement charges to M/s. Google Ireland Ltd. was disallowed by the A.O. by invoking the provisions of sec.40 (a) (i).

Tribunal in the said case delete the disallowance made by the A.O. and confirmed by the Ld. CIT (A) by invoking the provisions of sec.40(a)(i) holding that the amount paid by the assessee to M/s. Google Ireland Ltd. for the services rendered for uploading and display of banner advertisement on its portal was in the nature of business profit on which no tax was deductible at source since the same was not chargeable to tax in India in the absence of any PE of Google Ireland Ltd. in India.

With Regards
The Team
Meticulous Advisory Solutions