India Mumbai Income Tax Appeal Tribunal Non Resident Company Ruling

Recently, the Mumbai bench of the Income Tax Appeal Tribunal (“Court”)1 on appeal filed by Play Games 24X7 Private Limited (“Taxpayer”), ruled that the payment of a banner advertisement to a non-resident company does not fall under the royalty or technical services fee and is not taxable in India.


The Taxpayer is engaged in the business of providing an online gaming platform (in particular rummy). The taxpayer incurred certain advertising expenses for the display of a banner ad on a social media website (“Website”) owned and operated by a foreign company incorporated under the laws of Ireland (“Foreign company”). The foreign company does not have a permanent establishment (“PE”) in India and also provided a certificate of tax residence to the tax authorities.

During the valuation process, both the valuation agent (“AO”) and Commissioner of Income Tax (Appeals) (“TIC(A)“) disallowed payments made by the taxpayer to the overseas company in respect of the taxpayer’s failure to withhold tax under section 40(a)(i) of the Income Tax Act 1961 Income (“ITA”).


  1. For the purpose of uploading the banner advertisement on the website, the advertisement information is displayed to the interface provided by the foreign company in the required format. After verification of the advertisements by the Foreign Company, the advertisements are put online on the Site server;

  2. When downloading the advertisement on the Site, the Taxpayer has no control over the operation of the interface provided by the Foreign Company;

  3. All operation and maintenance of the server while providing the advertising platform is under the control of the foreign company;

  4. The Taxpayer uses the standard facility that is provided to display advertising on the Site;

  5. The Taxpayer has no role to play in the maintenance or involvement in management activities with the Site;

  6. There is no dedicated equipment or any part of the equipment is not reserved/provided by the Website to the Taxpayer;

  7. The Taxpayer has no proprietary or possessory rights over the Site server and the server is not available to the Taxpayer. Taxpayer has no right to modify/modify the server in any way;

  8. The server through which the advertisement is downloaded is not located in India at all

  • The Tribunal further found that the AO and the CIT(A) ignored the facts of the present case (as mentioned above) and failed to demonstrate that the payment made by the Taxpayer to the Foreign Company constituted a royalty/fees for technical services.

  • The Court upheld the decisions in Urban Ladder Home Decor Solutions Pvt. ltd.2, Google India Pvt. ltd.3M/s Inception Business Services4Carat Lane Trading (P.) Ltd.5 and ITO c. Right Florist Pvt. ltd.6 and ruled that payment for advertising to a foreign company does not give rise to royalties or charges for technical services and is not taxable in India. In the above cases, the courts have ruled that the mere use of a standard installation does not give rise to the provision of any technical service. Furthermore, payments for the use of a standard installation do not constitute payments as “royalty payments”, since there is no separation from any “copyright” attached to such installations.

  • The Tribunal held that the obligation to withhold tax under section 195 of the ITA only exists on the payment of any amount taxable under the ITA.


The taxation of advertising payments is a frequently contentious issue. Although the Tribunal did not provide a detailed order, the Tribunal’s decision appears to be in the right direction and consistent with previous rulings. While case law on advertising payments appears to favor the taxpayer, it is important to review the taxation of advertising payments in light of the equalization levy (“EL”), significant economic presence (“SEP”) and other global developments in digital taxation.

The EL provisions (as introduced by the Finance Act 2016) provide that EL at the rate of 6% is applicable upon consideration (in excess of INR 100,000 (approximately USD 1,500)) received or to be received by non -residents for the provision of specified online services. advertising services” of Indian residents or non-residents with a PE in India. Please note that in light of the global agreement on the two-pillar solution, India and the United States have agreed to withdraw from EL once the first pillar comes into effect.7

Further, the provisions of the SEP consider the SEP of non-residents as a business connection in India. In this regard, Section 9 of the ITA provides that a non-resident establishes a SEP in India if the non-resident:

  1. engages in transactions for goods or services with any person in India, if the total payments for such transaction exceed INR 2 crore (approximately USD 2,69,000), or

  2. Systematically and continuously solicits commercial activities or engages in interaction with at least 3 lakh users

Once a non-resident sets up a SEP in India, much of the income attributable to the SEP is taxable in India. The ITA specifically exempts income attributable to EL from tax under the ITA, therefore the provisions of the SEP should not apply to such income. However, while the policy intent of the SEP and EL provisions appears to make the provisions mutually exclusive, there is no specific exemption under the EL provisions for cases where the income is subject to tax in India in due to the constitution of a non-resident MS in India. India. That said, the impact of the SEP provisions is limited only to jurisdictions with which India does not have a tax treaty. Further, by presumption of fiction, Section 9 of the ITA also provides that revenue attributable to a business relationship should also include revenue from advertisements that target customers residing in India or a customer who accesses the advertisement through an internet protocol address located in India.

The political agreement on the key components of the first and second pillar to address the tax challenges related to the digitalisation of the economy has paved the way for several changes in the international tax regime.8 The Pillar 1 proposal essentially deals with the allocation of taxing rights between jurisdictions and examines various proposals for new profit allocation (Amount A) and nexus rules. Given the ongoing work of the Organization for Economic Co-operation and Development to formalize the multilateral convention for the implementation of the first pillar, it is also important to examine the impact of the provisions of the first pillar, in particular regarding the provision of revenue from online advertising services to market jurisdictions. .

Therefore, while the Tribunal’s decision provides certainty about past transactions, given the changing tax landscape, it will be important to re-examine tax positions for advertising payments.

1 ITA No. 1533 / Mom / 2019

2 ITA No. 615-620 / Bang / 2020

3 ITA No. 503 / Kar / 2018

4 ITA No. 2674 / Chny / 2016

5 ITA No. 213 / Billion / 2017

6 25 ITR (T) 639 (Calcutta Court)

7 Please refer to our hotline for more details –

Technology%20&%20Tax%20Series/12/69/TechnologyTaxSeries/4962/1.html. The details of the agreement between India and the United States were expected to be finalized by February 1, 2022, however, to date, no update has been made in this regard.

8 OECD/G20 Project on Base Erosion and Profit Shifting: Statement on a two-pillar solution to address the tax challenges arising from the digitalisation of the economy. Available at: -economy-october-2021.pdf

Nishith Desai Associates 2022. All rights reserved.National Law Review, Volume XII, Number 127

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