Google India Slapped with Income Tax Notice

The search engine giant Google is facing heat from Indian telecom ministry and Income tax department at the same time. Telecom Minister Kapil Sibal said to Google and other social networking sites to monitor their content and was planning to pull up Google, now the tax department has slapped Google India.

The Government of India has also requested Google to remove around 358 items off its services including YouTube and Orkut.

Google is among the few large scale Internet ventures, to be profitable in the Indian market. Ninety-nine percent of Google's revenue is derived from its advertising programs. Google India runs the Adwords programme whereby advertisements that appear on its website are sold in India to Indian business establishments.

Income tax department gave notice for Google India for not reveling correct revenues and for not producing its entire income for taxation. The profit and loss account filed by the company is not very clear to the IT department.

Tax department has questioned about paying tax on Google India’s net income which it gets from advertisements after crediting a sizeable amount as distribution fees to Google Ireland. It also built an argument on the basis of the contract between Google India and Google Ireland as Google India is conducting business and obtaining revenue from Adwords programme on its own account and the IT department wants the net income for Adwords programme only.

Tax department has estimated that in the 2008-09, Google India has admitted revenue of only 7.49 crore instead of showing the actual revenue of 167.32 crore. In addition to that tax was deducted at source (TDS) against the amount credited to Google Ireland. Based on the tax on gross income and TDS the department has made a claim of 74 crore for the year.

Google said that there is no error in accounting of revenue as it is  dealing with Google Ireland at arm’s length for which adequate documentation has been maintained.

The decision of the department is expected to be of great significance as it would be applicable for other search engines also if the revenue is generated from India, even though the platform may be based offshore.

Many IT firms like Infosys, Wipro, Mahindra Satyam has also received notice from tax department before Google India. In August 2011, the department has ordered Satyam Computer Services, currently Mahindra Satyam, to pay a tax of 2,114 crore for assessment years 2002-03 and 2007-08. The Additional Commissioner of Income Tax has sent draft of proposed assessment orders together with draft notices to the company under the Income Tax Act, 1961, for 1,037.69 crore and 1,075.73 crore for assessment years 2002-03 and 2007-08, respectively. The draft of the proposed assessment orders proposes among disallowance of tax exemptions or deductions claimed by the company.

In February 2011, the department has also slapped a tax demand of over 450 crore on software giant Infosys Technologies for wrongfully claiming tax exemption on onshore services by declaring them as software exports. Infosys rival Wipro also got an inquiry notice from the Income Tax Department in May 2011 for the assessment year 2008-09.