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EBay International AG’s profits are not taxable in India: Ruling

The Mumbai Income Tax Appellate Tribunal
has said in a ruling that EBay International AG, a Swiss tax resident, need not
pay any income-tax on the profits earned from its two India-specific websites. The
tribunal ruled that the fees received from customers for use of an online
platform cannot be characterised as Fees for Technical Services (FTS) under Income-Tax

The Mumbai Income Tax Appellate Tribunal
has said in a ruling that EBay International AG, a Swiss tax resident, need not
pay any income-tax on the profits earned from its two India-specific websites. The
tribunal ruled that the fees received from customers for use of an online
platform cannot be characterised as Fees for Technical Services (FTS) under Income-Tax
law. Such fees are in the nature of ‘business profits’, it said, reports The
Hindu BusinessLine.

The tribunal also said that EBay
International had no permanent establishment (PE) in India and, therefore, the
‘business profits’ earned here were not taxable. EBay International operates
two India-specific websites which provide an online platform to facilitate the
purchase and sale of goods and services to users in India. Both are operated
from outside India.

The Ruling said that EBay International AG
is incorporated under the law of Switzerland and is a tax resident of
Switzerland. The return of income was filed declaring Rs. NIL as total income. EBay
AG entered into a Marketing Support Agreement with eBay India Private Limited
(hereinafter referred to as `eBay India’) and eBay Motors India Private Limited
(hereinafter referred to as `eBay Motors’) which are eBay group companies, for
availing certain support services in connection with its Indian specific
websites. The assessee, eBay AG earned revenue amounting to Rs. 49,427,530/-
from the operations of its websites in India.

It was claimed that such revenue is taxable
as business profits in India as per the provisions of Article 7 of the Double
Taxation Avoidance Agreement between India and Switzerland (hereinafter
referred to as `the DTA’) only if it has a Permanent Establishment (hereinafter
also referred to as `the PE’) in India as per the provision of Article 5 of the
DTA. It was claimed that eBay AG did not have any PE in India and as such no
amount was taxable.

The Tribunal further said that eBay India
was earlier called Bazee.com India Private Limited. “The said Bazee.com was
acquired by eBay AG in the financial Year 2004-2005. EBay Motors came into
existence for the first time in the previous year relevant to assessment year
under consideration. Prior to acquisition of Bazee.com, the assessee did not
have any presence in India. It was only thereafter that it operated its Indian
specific websites www.ebay.in and www.b2bmotors.ebay.in for providing an online
platform to facilitate the purchase and sale of goods and services to users
based in India.

It would be relevant to consider the modus
operandi of the transactions undertaken through the aforenoted websites
operated by the assessee. Any seller is entitled to list its products for sale
on the website. At the time of listing, the seller is required to provide
various details regarding the product that is wished to be sold through the
website, such as, photograph, description and price of the product. Any buyer
can also register himself for buying of the goods through the assessee’s
website. While registering, the buyers are required to provide information,
such as, their name, age and address.

“On the successful completion of the sale,
the assessee raises periodic invoice on the seller for the “user
fee”. The sellers are required to make payment of the user fee to eBay
India/eBay Motors for the transactions undertaken on the websites of the
assessee. After making collection from the sellers, eBay India/eBay Motors
remit the user fee, so collected, to the assessee. These two companies, namely,
eBay India and eBay Motors have entered into an agreement with the assessee for
rendering market support services. By providing a platform for doing business,
the assessee can, by no standard, be considered as having rendered any
managerial services either to the buyer or to the seller, for which it received
fee from the seller,” the ruling defined.

“In the like manner, there is no question
of considering the fees received by the assessee as a consideration for
rendering any `consultancy services’. There is no point at which the assessee
renders any consultancy, either to the buyer or to the seller, as regards the
goods to be purchased or sold. It is neither open nor possible for the buyers
to consult the assessee before making any decision as regards the product to be
purchased by them. The whole varieties of goods are displayed on the website.
Any buyer, finding a particular product displayed on the website as fulfilling
his requirement, clicks the `Buy It Now’ button. With the pressing of this
button, the transaction between the buyer and seller is concluded and the
assessee becomes entitled to its user fee. There is no consultancy whatsoever,
which is provided by the assessee at any stage, either to the buyer or the
seller.

“Thus, it can be seen that apart from making its
websites available in India on which various products of the sellers are
displayed, the assessee has no role to play in effecting the sales. The fee
received by the assessee from the sellers, in our considered opinion, cannot be
designated as a consideration for rendering managerial, technical or
consultancy service,” the Tribunal concluded.

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