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K. VAITHEESWARAN ADVOCATE & TAX CONSULTANT
‘VENKATAGIRI’
Flat No.8/3 & 8/4, Ground Floor,
No.8 (Old No.9), Sivaprakasam Street,
T. Nagar, Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
E-mail : [email protected] [email protected]
www.vaithilegal.com
The growth of e-commerce and digital economy has created MNCs who operate from different jurisdictions and are not discharging tax on income generated in a country as they do not have a permanent establishment and advantages are taken through multiple treaties.
Article 7 dealing with business profits requires a PE. What constitutes a PE in digital economy has been a matter
of debate. BEPS(Base Erosion and Profit Shifting) are guidelines issued
by the OECD to put a check on tax evasion on digital transactions and to ensure that income earned anywhere in the world, must be taxed once.
The new law provides for an equalisation levy of 6% on the amount of consideration received, or receivable on specified services carried on by a non-resident not having a permanent establishment in India.
The levy is effective from 01.06.2016.
Under Section 165 of the Finance Act, 2016, an equalisation levy of 6% shall be charged on the amount of consideration for any specified service, received or receivable by a person, being a non resident from-
A person residing in India and carrying on business or profession.
A non-resident having permanent establishment in India.
Specified services means:- 1. Online advertisement; 2. 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 on this behalf.
Where the non-resident providing the specified service has a permanent establishment in India which is effectively connected with the specified service.
If, the aggregate amount of consideration for specified services received or receivable by a non-resident from a resident in India and carrying on business or profession or from a non-resident having a permanent establishment in India, does not exceed one lakh rupees in any previous year.
Where the payment is not for the purposes of carrying out business or profession.
The person liable to deduct equalization levy from the amount paid or payable to the non-resident in respect of the specified service at the rate specified in Section 165 where the aggregate consideration for specified service in a previous year exceeds Rs.1 lakh.
The amount deducted during any calendar month shall be paid to the credit of the Central Government by the 7th day of the month immediately following the said calendar month.
Payment shall be by way of remittance into the RBI, or in any branch of the SBI, or any authorised Bank accompanied by an equalisation levy challan.
Every assesse shall within the prescribed time, prepare and deliver, or cause to be delivered to any authority authorised by the Board in this behalf, a statement as per the particulars prescribed, in respect of all specified services during such financial year. ([Section 167(1)]
An assessee who has not furnished the statement within the time prescribed, or having furnished it notices any omission or wrong, may furnish a revised statement at any time before the expiry of 2 years from the end of the financial year in which the specified service was provided.
The statement of specified services required under sub-section (1) of s.167 may be furnished in the manner namely :- (i) Electronically under digital signature; or (ii) Electronically through electronic verification code.
If the assessee fails to furnish the statement under (1) within the time specified, the Assessing Officer may serve a notice upon such assessee requiring him to furnish the statement in the prescribed form, verified in the prescribed manner and setting forth such particulars, within such time, as may be be prescribed.
The statement shall be processed under Section 168 and the equalisation levy shall be computed after making adjustment for any arithmetical errors.
Interest if applicable shall be computed. Amount payable or amount of refund shall be determined
after adjusting amounts paid. Intimation shall be prepared and generated determining the
amount payable or amount of refund due and the refund due shall be granted.
No intimation after expiry of one year from the end of the financial year in which the statement is furnished.
Provision for rectification of mistake.
Under Section 170, every assessee who fails to credit the equalisation levy or any part thereof as required under S.166 shall pay simple interest at 1% of such levy for every month or part of a month by which such crediting of the tax is delayed.
If an assessee fails to furnish the statement within the guidelines under sub-section(1) or sub-section(3) of S.167, he shall be liable to pay a penalty of one hundred rupees for each day during which the failure continues.
Any assessee who fails to deduct the levy in addition to paying the levy, or interest, if any, in accordance with Section 170 shall also pay a penalty equal to the amount of equalisation levy that he failed to deduct.
Any assessee having deducted the levy, fails to pay such levy to the Government shall be liable in addition to the levy / interest a penalty of Rs.1,000/- for every day during which the failure continues. However, this penalty shall not exceed the amount of equalisation levy that he failed to pay.
Where an assessee fails to furnish the statement, he shall be liable to pay penalty of Rs.100/- for each day during which the failure continues.
Section 173 provides that notwithstanding Section 171 or 172, no penalty shall be imposable for any failure if the assessee proves to the satisfaction of the assessing officer that there was a reasonable cause for the said failure.
A person aggrieved against an order imposing penalty may appeal to the CIT(A) within a period of 30 days from the date of receipt of the order and the provisions of Section 249 to Section 251 of the Income Tax Act shall apply. – Section 174.
Second appeal to Tribunal. Commissioner can also direct an assessing officer to appeal
to the Tribunal against the order of the CIT(A). Section 253 to 255 of the IT Act shall apply.
If a person makes a false statement in any verification under this chapter, or delivers an account or a statement which is false, and which he knows or believes to be false, or does not believe to be true, he shall be punishable with imprisonment for a term which may extend to three years and with fine. (S.176)
Under S.177, no prosecution shall be instituted against any person for any offence under S.176, except with the previous sanction of the Chief Commissioner.
The provisions of sections 120, 131, 133A, 138, 156, Chapter XV, 220-227, 229, 232, 260A, 261, 262, 265-269, 278B, 280A, 280B, 280C, 280D, 282 and 288-293 of the Income-tax Act shall so far as may be, apply in relation to equalisation levy, as they apply in relation to income-tax.
Section 10(50) of the Income Tax Act provides for an exemption in respect of any income arising from any specified service which is chargeable to equalisation levy.
Objective of the levy is to provide neutrality so that a company in India is not at a disadvantage with a company outside India but carrying on business in India digitally.
Objective will be defeated when the levy is passed on to the advertiser by the platform directly or indirectly which will increase cost.
EL is not a levy under the Income Tax Act and is a distinct and separate levy under the Finance Act, 2016.
This clearly is a structured first move to tax digital commerce and seeks to surpass the concept of PE; characterization issues as well as DTAA.
It is likely that the provisions would also be tested in Courts since the provisions adopt the language which is identical to the language adopted in Section 66B of the Finance Act, 1994 which imposes service tax.
K.VAITHEESWARAN ADVOCATE & TAX CONSULTANT
‘VENKATAGIRI’
Flat No.8/3 & 8/4, Ground Floor,
No.8 (Old No.9), Sivaprakasam Street,
T. Nagar, Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : [email protected] [email protected]
www.vaithilegal.com
