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2024 (4) TMI 342 - AT - Income TaxIncome taxable in India - Royalty or FTS - PE in India or not? - taxability of payments received by the assessee from GIPL as per terms of Reseller Agreements - HELD THAT:- As decided in own case [2023 (3) TMI 1304 - ITAT BENGALURU] for AY 2007-08 in terms of the international guidance as stated herein, the position regarding taxability of receipts from sale of online advertisement space is clear. Unless the non-resident, who is engaged in sale of online advertisement space, has a PE in India, no portion of receipts earned by it from sale of online advertisement space in India can be brought to tax in India as Act read with the relevant DTAA. The above view is also supported by insertion of provisions related to Equalisation Levy (EL) by Finance Act, 2016. The root for the emergence of the EL can be traced to the dynamic business models that have the ability to transcend the link between an income producing activity and a specific location since these business are carried in the cyber place. The PE definition presently is based upon the physical presence criteria. Income from sale of advertisement space on a website is not taxable in India if there is no PE of the foreign enterprise in India. It was held that such income is not to be regarded as royalty or FTS. Such tax challenges is addressed by the introduction of EL. Section 165 of the Finance Act, 2016 provides for charge of EL at 6% on consideration for specified services. Section 164(i) of Finance Act, 2016 provides that "specified service" means 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. Thus, online advertisement is now covered under EL. If online advertisement was already covered under definition of royalty, then bringing it as part of EL scheme would not arise. Thus we hold that the impugned payment cannot be characterized as royalty under the India-Ireland DTAA. Payment made by the payer (GIPL) to the assessee (GIL) is not in the nature of royalty or FTS and consequently it cannot be brought to tax in the hands of the assessee - Decided in favour of assessee.
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