Tds on online advertisement

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Sushant Mahajan (Querist)
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14 September 2013 Will TDS be liable to be deducted on payment for advertisement exp. to Pensa Media Solutions Pvt. Ltd which has been an Authorized Google AdWords Agency in India since January 2011?

Please reply.

Ajay Mishra

Ajay Mishra (Expert)
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14 September 2013 Yes,

you will make payment to advertisement agency after deducting TDS @ of 2% under section 194C.

Sushant Mahajan

Sushant Mahajan (Querist)
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14 September 2013 Thank you for replying sir.

But sir in these cases it was held that:

1)

[2011] 11 taxmann.com431(Mum.)

IN THE ITAT MUMBAI BENCH 'L'

Yahoo India (P.) Ltd.*

v.

Deputy Commissioner of Income-tax, Range 7(3), Mumbai

Section 9 read with section 195, of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India - Assessment year 2004-05 - Assessee-company was engaged in business of providing consumer services such as search engine, content and information on wide spectrum of topics, e-mail, chat, etc. - During year under consideration, Department of Tourism of India, through an advertisement agency, intended to display a banner advertisement on portal owned by Yahoo Holdings (Hong Kong) Ltd. (YHHL) and for that purpose, it hired services of assessee-company to approach YHHL to provide uploading and display services for hosting banner advertisement to Yahoo Hong Kong portal - Assessee-company, in turn, hired services of YHHL for uploading and display of banner advertisement on its portal and made payment to YHHL for such services without deducting tax at source - Revenue authorities held that payment was in nature of 'royalty' within meaning of clause (iva) of Explanation 2 to section 9(1)(vi) and same being taxable in India in hands of YHHL, assessee was under obligation to deduct tax at source from said payment - Whether since uploading and display of banner advertisement on its portal was entirely responsibility of YHHL and assessee had no right to access portal of YHHL, payment made by assessee to YHHL for services rendered for uploading and display of banner advertisement of Department of Tourism of India on its portal was not in nature of royalty taxable in India and, therefore, assessee was not liable to deduct tax at source from such payment - Held, yes

2)

[2013] 32 taxmann.com 99 (Kolkata - Trib.)

IN THE ITAT KOLKATA BENCH 'B'

Income-tax Officer, Ward 12 (2), Kolkata

v.

Right Florists (P.) Ltd.*

IT/ILT : Online advertising fees paid to foreign search engine company is not fees for technical services and is not taxable in India due to absence of permanent establishment of such foreign company in India

Please tell if these cases have any relevance.

Regards
Sushant Mahajan

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Hi Sushant! Great question — you’ve brought up some important case law on TDS and online advertisement payments, especially when foreign entities are involved.

### Here’s a clear take on this:

---

### 1. **Domestic Payments (e.g., to Pensa Media Solutions Pvt. Ltd):**

* Pensa Media Solutions Pvt. Ltd. is an **Indian company** (authorized Google AdWords agency in India).
* Payments for advertisement services to such an Indian agency **are subject to TDS under Section 194J at 2%**.
* This is straightforward and no complex foreign tax treaty or royalty issues arise here.

---

### 2. **Foreign Payments and the Cases You Mentioned:**

The two cases you cited mainly relate to:

* Payments made to **foreign entities** (Yahoo Holdings Hong Kong, foreign search engines).
* The question of whether these payments constitute **“royalty”** or **“fees for technical services”** and whether they are taxable in India.
* The courts held that:

* These payments for **online advertisement or banner display services** are **not royalty**.
* They are also **not fees for technical services** because no technical know-how or skill was transferred.
* Without a **Permanent Establishment (PE)** in India, such foreign entities are not taxable here.
* Therefore, **no TDS is required on such payments to foreign companies outside India**.

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### So, **how does this apply to you?**

* If your payment is to **Pensa Media Solutions Pvt. Ltd (Indian company)** — TDS @ 2% under **Section 194J** is applicable.
* If payment were to a **foreign company for similar online advertisement services outside India**, and if no PE exists and services do not qualify as royalty or technical fees, then **TDS may not be applicable** as per those rulings.

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### Summary table for clarity:

| Payee Type | Nature of Payment | TDS Applicability | Relevant Section |
| ------------------------- | -------------------- | ---------------------- | ---------------- |
| Indian company (Pensa) | Online Advertisement | Yes, 2% | Section 194J |
| Foreign company (no PE) | Online Advertisement | No, based on case laws | N/A |
| Foreign company (with PE) | Online Advertisement | Possibly Yes | Section 195 |

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If you want, I can help you draft a formal note or explanation for your client/management explaining these points clearly. Would that help?

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