Google’s Googly to Indian IT Department

Did Google India throw a Googly at the Indian Income-Tax Department?

Indian income Tax department assumes so. The department has issued notice to Google India for not revealing correct revenues.

Google India Pvt Ltd, according to the tax office, has not offered its entire income for taxation and the profit and loss account filed by the company "does not give complete picture of the businesses".

What is the argument?

The department has questioned Google India's practice of paying tax on its 'net' income from advertisements, after crediting a sizeable amount as distribution fees to Google Ireland. Notably, Google India runs the 'Adwords' programme whereby advertisements that appear on its website and on its affiliate websites are sold in India to Indian businesses (Those who put their advertisements on Google India’s personal and affiliate properties).

Basing their argument on the basis of the contract between Google India and Google Ireland. As per this contract, Google India is conducting the business and obtaining revenue from Adwords programme "on its own account"; hence it makes Google India a separate entity that should declare its full income for tax purpose. In simple the Indian IT department’s stand is: Since both the Advertiser and the one who clicks on the ads most of the times is in India; hence there’s no logic in sending the revenue arising from India, to an entity outside India.

Google India is learnt to have told the IT department that there is "no omission in accounting of the revenue" and the transaction with Google Ireland is at arm's length and adequate documentation has been maintained to substantiate this.

Google on its part says that Google India's businesses, are "dictated by Google Ireland" and Google India "only gets a mark-up on marketing expenses in India and not any share of India generated profits from Adwords programme". What Google India deducts before paying tax in India, are these ‘distribution fees to Google Ireland’.

The Indian IT Department on contrary feels that, if Google India is made to pay the outstanding tax, then the same logic can apply to some of the other search engines.

The Year under scanner:

For the assessment year 2008-09, the order says Google India has admitted revenue of only Rs 7.49 crore instead of showing the "correct revenue of Rs 167.32 crore".

Besides, no tax was deducted at source against the amount credited to Google Ireland.

What is the outstanding tax Google owes to Indian Income Tax Department for FY 2008-09?

Based on the tax on the 'gross income' and TDS, the department has made a claim of Rs 74 crore for the year.

Google India spokesperson when reached by ET, via Text message and email, did respond. --------

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