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.