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NEW DELHI-The Kolkata Income Tax Appellate Tribunal found that online advertising by Google and Yahoo for their client, an Indian florist, did not trigger a permanent establishment for the search engines given that neither has a physical presence in In-dia that can be treated as a PE. [/TO v. Right Florists, Kol-kata ITAT, No. 1336, 4/12/13]
Tax experts say that the concept of PE as it relates to websites has always been difficult, particularly if the servers are not located in the country. On precisely this issue, the Kolkata Income Tax Appellate Tribunal April 12 gave a clear verdict against the Indian tax depart-ment in a case involving Google Ireland Ltd., Overture Services Inc. U.S.A. (a Yahoo company), and their Kolkata-based client, Right Florists Private Ltd., for the financial year 2004-05.
Right Florists used advertising on Google and Yahoo to generate business. Whenever anyone did a web search on either search engine by looking for certain words or websites, the florist's advertisement would show up on the screen. For this service, Right Florists paid 3.04 million rupees ($67, 650 based on the ex-change rate in 2004-05).
The florist did not withhold tax on that payment, in-forming the tax authority's assessing officer that the payment was made to foreign entities with no fixed place of operation in India. The tax authorities argued that, since Right Florists had not withheld tax on the payment, it was not entitled to...