India: Payments for digital advertising facilitated through automated technology taxed as consideration for advertising, not fees for technical services (tribunal decision)
Use of sophisticated algorithms and technology by the platform, in the absence of human intervention, did not amount to rendering technical services.
The Hyderabad Bench of the Income Tax Appellate Tribunal held that the payments made by an Indian company to another Indian company for use of an online advertising platform that lets businesses create and manage targeted ads constituted consideration for advertising, and were thus subject to withholding tax (deduction of tax at source) at a 2% rate under section 194C of the Income-tax Act, 1961, and not as fees for technical services at a 10% rate under section 194J.
The tribunal found that the platform was a standard automated, self-service platform, and that the use of sophisticated algorithms and technology by the platform in the absence of human intervention did not amount to rendering technical services.
In addition, the tribunal concluded that the reduced 2% rate under section 194J, though technically only effective from April 1, 2020, also applied to earlier years since it was introduced to reduce litigation over the characterization of payments and the consequent applicability of sections 194C and 194J of the 1961 Act.
The case is: DCIT v. Head Digital Works Private Limited (ITA 279/Hyd/2025)
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