MasterCard, however, would be liable to equalisation levy if it wins an appeal pending before the Delhi HC in a separate case challenging its permanent establishment status, basis an order given by Delhi Authority of Advance Ruling (AAR) in 2018.
The department accepted in an affidavit filed with the court that it was bound by the AAR order in that states that the company has permanent establishment in India, and therefore the department had ‘no desire’ to collect equalisation levy. It also stated that the company was paying income tax either as advance tax or as tax deducted at source (TDS) made by its customer banks in India.
“The Respondent (revenue department) herein being bound by the Ruling of the AAR is not seeking payment of EL… the Respondent has no desire or authority of collecting the EL from the Applicant (MasterCard),” the department’s submission presented to the court was cited in the judgement issued by the bench of Justice Manmohan and Justice Sanjeev Narula said in their order.
Revenue department had however argued that in case MasterCard succeeds in the writ petition it would be eligible to receive refund along with statutory interest and at that time, MasterCard would be liable to pay the equalisation levy with statutory interest.
Singapore-based MasterCard Asia Pacific Ltd had moved the Delhi High Court seeking a stay on payment of equalization levy on digital transactions on grounds that it would lead to double taxation.
The company said that the Delhi AAR had ruled that MasterCard had a fixed place PE, service PE and dependent agent PE in India under Article 5 of the India-Singapore Double Tax Avoidance Agreement (DTAA) in respect of services while using global network and infrastructure to process card payment transactions for customers in India.
Since PE was established, as per rules laid down by the income tax department, equalisation levy would not apply.
India has begun imposing an equalisation levy of 2% on purchases through foreign ecommerce platforms having access to the Indian market, from April 1, 2020. An equalisation levy or so-called Google Tax was already being imposed on digital advertising at 6%, since 2016.
Experts say that the Delhi High Court’s decision was welcome and would provide clarity to players facing a similar situation of double taxation. It also provides clarity for tax authorities that closely monitor the activities of foreign companies to check exposure of having a permanent establishment in India.
“This would come as a relief to MasterCard as getting taxed again in the form of EL in addition to the regular tax on profits attributable to the PE would have resulted in double taxation,” said Amit Maheshwari, partner at consultancy firm AKM Global.
Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP said, “The ruling emphasises that foreign companies which are currently under the radar for creation of a permanent establishment in India and where this issue is pending for disposal, the income tax authorities should not subject them to equalization levy, in parallel, as the law is clear on this aspect.”
“Now, everything would depend upon the High Court’s ruling on Mastercard writ petition against the AAR ruling,” said Divakar Vijayasarathy, founder and managing partner, DVS Advisors LLP.
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