Mumbai, Dec 8: The Income Tax department has sent a notice to the Indian arm of Google saying it has not given the complete picture of the businesses showing its entire income for taxation, reports The Economic Times.
Around the same time Telecom Minister Kapil Sibal was planning to pull up Google,the Income-Tax Department was giving the final touches to a tax demand on the Indian arm of the global search engine company.
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.
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.
Google India runs the Adwords programme whereby advertisements that appear on its website are sold in India to Indian business establishments.
According to a tax professional ,the decision may have a wider impact and apply to some of the other search engines.The earnings will come under tax net if the revenue is generated from India,even though the platform may be based offshore, said the person.
The assessing officer said, there has been a need for advertisers to advertise their services so that they appear on the first or second page of the specified search result page.
This increases the chances of the advertiser to be seen in the crowded market.In almost all these cases,it is seen that both advertiser as well as the service receiver are based out of India.To this extent,the entire or at least a substantially large portion of the revenue is generated in India only.
The order,therefore,observes that the income of Google Ireland has accrued as well as arisen in India itself.
Pointing out certain aspects of the search engine business and the contracts entered into by Google India,the department said Google India would be deemed to be acting on behalf of Google Ireland and the permanent establishment status for Google Ireland would thus be established.
An entity with a permanent establishment status comes under the purview of local tax authorities.
Google Indias businesses,according to the order,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.