According to a copy of the court ruling available on Indian Kanoon, eBay AG which was incorporated and is a tax resident of Switzerland, had entered into a marketing support agreement with its group companies eBay India and eBay Motors India to avail certain support services with respect to its India specific websites.
eBay AG had earned Rs 4.94 crore (Rs 4,94,27,530) from the operations of these subsidiaries in the country. The company had claimed that this revenue was taxable as business profits in India, only if eBay AG had a permanent establishment in India, as per the double taxation avoidance agreement between India and Switzerland. Since the company doesn’t have a permanent establishment in India yet, eBay claimed that the amount was not taxable.
During the assessment of the proceedings, the Assessment officer stated that the entire revenue earned by eBay India and eBay Motors India was through services rendered to eBay AG and both the subsidiaries were also found to be collecting the revenue for eBay AG from its Indian operations, due to which, the officer noted that the income received by eBay AG was in the form of ‘Fee for technical services’ and had taxed the company at 20% due to this reason.
While CIT (A) (Commissioner Appeals) stated that the assessing officer was not justified in terming the amount as ‘Fees for technical services’, and noted that eBay had a permanent establishment in India and therefore the revenue earned by it were taxable in the country.
The tribunal however noted that the site earns revenue from registered sellers at the completion of the sale and from sellers who intend to feature their products more prominently on the website. Therefore, the revenue earned cannot be termed as ‘Fees for technical services’ but instead as ‘business profits’.
The tribunal also noted that both eBay India and eBay Motors are dependent agents of eBay AG, since they exclusively assist eBay AG in carrying out the company’s business in India. Further, eBay India provides only marketing services for the company and makes collection from the customers to forward it to eBay AG. It has not negotiated or inked a contract for or on behalf of eBay AG till now, due to which eBay India cannot be treated as the permanent establishment for eBay AG.