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2022 (7) TMI 1333 - AT - Income TaxTDS u/s 195 - Disallowance u/s 40(a)(i) - payment made to Facebook Ireland Limited without deduction of tax at source - payment made by it to Facebook Ireland Limited was for services rendered for uploading and display of banner advertisement - HELD THAT - Those are employees of Facebook and not the assessee herein. The assessee has merely raised an Invoice on Micromax. There is no use of facebook logo by the assessee as argued by the revenue. We hold that the assessee s ultimate income is only the commission component of 15%. If assessee is a dependent agent, then where is the question of claiming any deduction for expenditure incurred on behalf of Principal and in that case, how the provisions of section 40(a)(i) of the Act would even come into operation. Hence the reasoning given by the CIT(A) that assessee is an Agency PE cannot be accepted. We find that the entire issue in dispute is no longer res integra in view of the elaborate decision of the Co-ordinate Bench of Bangalore Tribunal in the case of Urban Ladder Home D cor Solutions Pvt Ltd 2021 (8) TMI 927 - ITAT BANGALORE . This tribunal decision has duly considered other tribunal decisions and also the decision of Hon ble Supreme Court in the case of Engineering Analysis Centre of Excellence Private Limited 2021 (3) TMI 138 - SUPREME COURT We hold that the payments made to Facebook Ireland Limited cannot be disallowed u/s 40(a)(i) of the Act in the facts and circumstances of the instant case. Ground raised by the assessee is allowed.
Issues Involved:
1. Justification of disallowance under Section 40(a)(i) of the Income Tax Act for payments made to Facebook Ireland Limited without deduction of tax at source. Detailed Analysis: 1. Justification of Disallowance under Section 40(a)(i) of the Income Tax Act: The primary issue in this case was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in confirming the disallowance made under Section 40(a)(i) of the Income Tax Act by the Assessing Officer (AO) concerning payments made to Facebook Ireland Limited without deduction of tax at source. The assessee, an internet advertising agency, placed advertisements on digital media platforms like Facebook on behalf of its clients. The AO noticed that the assessee had not deducted tax at source from payments made to Facebook Ireland Limited and disallowed the payments under Section 40(a)(i) of the Act. This action was upheld by the CIT(A). The tribunal examined the nature of the transactions and the role of the assessee, which was merely an intermediary facilitating the placement of advertisements on digital media. The tribunal noted that the assessee's revenue was derived from commissions received for these services, and the payments made to Facebook were on behalf of the clients. The AO relied heavily on various articles and decisions, including those from the Bangalore Tribunal in the case of Google India Private Limited, the Karnataka High Court in the case of Samsung Electronics Co. Ltd, and the Mumbai Tribunal in the case of Reliance Infocom Ltd. However, these decisions were either remanded, set aside, or recalled, thus weakening the AO's reliance on them. The assessee argued that the payments to Facebook Ireland Limited were for services rendered for uploading and displaying banner advertisements, which did not involve the use of any industrial, commercial, or scientific equipment or copyright. The payments were considered business income for Facebook Ireland Limited, and in the absence of a Permanent Establishment (PE) in India, these payments were not taxable in India, thereby negating the obligation to deduct tax at source under Section 195(1) of the Act. The tribunal found that the CIT(A) incorrectly concluded that the assessee had to deduct tax at source because it acted as a dependent agent of Facebook. The tribunal clarified that the assessee was an agent of Indian advertisers, not Facebook Ireland Limited, and that the payments made to Facebook were on behalf of the clients, not the assessee's expenses. The tribunal also referred to the decision in the case of Play Games 24X7 Private Limited vs. DCIT, where it was held that payments for advertisement services on platforms like Facebook did not constitute royalty or fees for technical services and were not subject to tax deduction at source. The tribunal concluded that the payments made to Facebook Ireland Limited could not be disallowed under Section 40(a)(i) of the Act. The tribunal relied on the decision of the Bangalore Tribunal in the case of Urban Ladder Home Decor Solutions Pvt Ltd vs. ACIT International Taxation, which had similar facts and concluded that such payments were not royalty and were not subject to tax deduction at source. In summary, the tribunal allowed the appeal of the assessee, holding that the payments made to Facebook Ireland Limited were not subject to disallowance under Section 40(a)(i) of the Income Tax Act. The tribunal emphasized that the payments were for services rendered outside India, did not involve the use of any copyright or equipment, and were not taxable in India due to the absence of a PE for Facebook Ireland Limited in India.
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