Court seeks clarification on tax evasion by Internet companies
The Delhi High Court has sought clarification from the Union Government on the issue of tax evasion by Internet companies with regard to their business operations in the country. The Court also asked whether the recipients of services would be liable to pay tax if the service provider was outside the country.
Hearing a public interest writ petition moved by former BJP ideologue K.N. Govindacharya seeking regulation of social networking websites and recovery of taxes from them, a Division Bench of the High Court sought to know over the weekend if the sale of data and other services of facebook and Google would be covered within the definition of services.
Directions to the Centre sought
Petitioner’s counsel Virag Gupta questioned the Centre’s stand that the service tax liability was only for the companies having permanent establishment in India. He contended that if the service provider was based outside India without any office branch or agency in the country, the service tax would be paid by the recipient of service.
Mr. Gupta sought directions to the Union Government to either get the information from facebook, Google and other companies based in the U.S. and Ireland or obtain the remittance details from the Reserve Bank of India.
The counsel also said the Government’s usage of private e-mail networks, whose servers were based outside India, should be immediately stopped as it violated the Public Records Act, 1993. In this context, he cited a recent judgment of the High Court in the e-rickshaw matter, interpreting the “valid prohibition” in law.
The Bench, comprising Justice B. D. Ahmed and Justice Siddharth Mridul, asked the Union Government’s standing counsel if the Centre was alive on non-recovery of taxes from the Internet companies for their business operations in the country.
An affidavit filed by the Union Government recently had stated that the sale of space or time slots for advertisements other than the ads broadcast by radio and television was exempted from the payment of service tax, being a service listed in the “negative list of services”. However, this provision was removed in the 2014-15 Union Budget and all companies providing such services are now amenable to service tax.
The Court asked the Union Government to file its reply on the issues of inclusion of services of facebook and Google in the negative list and recovery of service tax from them. The matter was posted for further hearing on Wednesday.
