My Indian client reimburses its overseas subsidiary for online advertising the subsidiary bought abroad. The department says the levy is payable because the money really came from India. Is a reimbursement within the charge?
It is not. The equalisation levy is charged by Chapter VIII of the Finance Act, 2016 and not by the Income-tax Act, and on a textual reading of sections 164 and 165 the charge falls on consideration for a specified service received by a non-resident FROM an Indian resident carrying on business. Where a US subsidiary bought Google advertising from Google USA and the Indian parent merely reimbursed it, the service was provided by one non-resident to another and the levy cannot be imposed on the Indian parent unless reimbursement is itself a specified service — and it is not. The Committee on Taxation of E-Commerce had expressly recommended that reimbursements be brought within the levy, and Parliament did not do it. The Court also refused to pierce the corporate veil, the subsidiary having been incorporated and reimbursed in this way long before the levy existed, and held that statements recorded in a section 133A survey could not fix the liability.
Decided by the High Court (Senthilkumar Ramamoorthy J) on 2026-06-01, reported as W.P. No. 6176 of 2022, High Court of Judicature at Madras; neutral citation 2026:MHC:1822; order reserved 27 February 2026, pronounced 1 June 2026; no law-report citation traced. It bears on section FA 2016 s.165, section FA 2016 s.164, section 133A, section 132(4) of the Income Tax Act 1961, in Refunds, Interest & Condonation and How Tax Law Is Read matters.
This is the first substantial judicial construction of the six per cent levy that I could find, and it is useful well beyond its facts. It settles three things. First, the charge is textual and the ordinary rule of strict construction of taxing statutes applies to it: if the payment is not within the four corners of sections 164 and 165, no levy. Second, the legislative-history argument runs the taxpayer's way — the E-Commerce Taxation Committee's report of February 2016 proposed at its paragraphs 135(xiii) and 193(xiii) that 'reimbursement of expenses of a nature that are included in any of the above' be a specified service, and warned at paragraph 137 about exactly the avoidance route of routing payment through a third party outside India; Parliament enacted the list without the reimbursement limb, and the Court treated that omission as decisive. Third, the Revenue's substance-over-form route was closed off: the Court held that Hyatt International and Tiger Global, both of which the Revenue relied on, dealt with treaties and the General Anti-Avoidance Rules and could not be applied out of context, and that piercing the corporate veil requires impropriety, which was absent where the group structure and the reimbursement practice predated the levy. The survey point is transportable to any levy or income-tax proceeding: a statement recorded under section 133A of the Income-tax Act carries no evidentiary value because the officer cannot administer an oath. The limits: the finding of fact that payments to Google USA came out of Zoho USA's bank accounts, albeit operated by people sitting in the Indian office, was central; on facts where the Indian entity itself pays the foreign platform, the case does not help.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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Zoho Corporation Private Limited is an Indian software product company that sells its products online. It formed overseas subsidiaries to carry on activities outside India, each acting as the primary reseller or distributor in its geography; the United States accounts for about sixty per cent of turnover. Zoho Corporation, USA resells the products in the United States for a reseller margin. The main channel for marketing the products online is Google's AdWords Program, which Zoho USA availed of under an agreement it entered into with Google dated 23 July 2010. Google invoiced Zoho USA, and Zoho USA paid Google. The Indian company then reimbursed Zoho USA for marketing costs of Rs.332 crore in financial year 2016-17 and Rs.550 crore in financial year 2017-18. For 2016-17 the Indian company paid Rs.20.17 crore of equalisation levy on the reimbursement and later claimed refund of Rs.20.12 crore on the footing that only Rs.5 lakh was payable. For 2017-18 it initially did not pay. The revenue authorities conducted a TDS survey under section 133A of the Income-tax Act at its business premises on 19 March 2019, recorded statements of employees and took copies of books and records; after the survey the company deposited Rs.36.94 crore under protest for 2017-18. Its refund claim for both years was rejected by order dated 12 October 2021, and it filed this writ petition. The Revenue's case was that the AdWords services were really provided by Google USA to the Indian company, that Zoho USA was only the ostensible recipient, that the survey had shown employees of the Indian company selecting AdWords, preparing invoices for Zoho USA and operating its bank account, and that the corporate veil should be lifted.
The writ petition was disposed of by setting aside the order dated 12 October 2021 and directing reconsideration of the refund claims for financial years 2016-17 and 2017-18 in the light of the order, with refund of the appropriate amount to be made within three months after verification and a reasonable opportunity to the petitioner, no costs (paragraph 26). On the merits the Court held that the advertising service was provided by one non-resident (Google USA) to another (Zoho USA), so that on a textual reading of sections 165 and 164 the levy could not be imposed on the Indian company unless reimbursement was itself within the scope of 'specified service' (paragraph 11); that the Finance Act 2016 did not include reimbursement of expenses within the scope of specified service notwithstanding the E-Commerce Taxation Committee's recommendation that it should, so the levy could not be imposed on that ground (paragraph 15); that the facts did not justify piercing the corporate veil (paragraphs 20, 21 and 25); and that statements recorded in the course of a section 133A survey could not be relied on to fix liability (paragraph 22).
The Court began from the text. It set out section 165 in full at paragraph 9, drew from it that the levy is charged on consideration received or receivable by a non-resident from an Indian resident carrying on business or profession or a non-resident with an Indian permanent establishment, and that the consideration must be for a specified service (paragraph 10). On the facts, Google USA provided the service to Zoho USA — non-resident to non-resident — so everything turned on whether reimbursement was a specified service (paragraph 11). It then examined the report of the Committee on Taxation of E-Commerce of February 2016, reproducing paragraphs 134 and 135, paragraph 137 and paragraph 193, which respectively proposed a list of payments to be subjected to the levy including 'reimbursement of expenses of a nature that are included in any of the above', warned expressly about payment being made by a third party outside India and later reimbursed by the actual user, and recommended a definition of specified services carrying the same reimbursement limb (paragraphs 12 to 14). Parliament did not enact that limb, and the Court held that this omission was decisive (paragraph 15). It rejected the Revenue's reliance on Hyatt International and Tiger Global on the ground that both dealt with Double Taxation Avoidance Agreements and the General Anti-Avoidance Rules and could not be applied out of context (paragraph 15), and recalled the rule of strict construction from AV Fernandez and from Murarilal Mahabir Prasad v. B R Vad (paragraph 16). On the corporate veil it applied Vodafone International, quoting paragraphs 72 and 79, and Balwant Rai Saluja, quoting the six principles from Ben Hashem v. All Shayif, for the proposition that impropriety is a precondition (paragraphs 17 and 18); the documents showed Zoho USA in existence since at least July 2010 and reimbursements being made in 2014, 2015 and 2016, before the levy existed, so the structure was not set up to evade it (paragraphs 19 to 21). On the survey it applied the Madras High Court Division Bench in Khader Khan Son and Paul Mathews & Sons, holding that a statement under section 133A is not on oath and carries no evidentiary value (paragraph 22), and noted that even the impugned order's own finding was that payments to Google USA came from Zoho USA's bank accounts, albeit operated from the Indian office, which could not be treated as payment by the Indian company (paragraph 24).
In spite of the above concerns and specific recommendations of the E-Commerce Taxation Committee, the Finance Act, 2016, did not include reimbursement of expenses of the nature mentioned in clauses (i) to (xii) of paragraph 135 of the Report within the scope of specified service.
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Handle my notice → Ask a CA on WhatsAppIt is not. The equalisation levy is charged by Chapter VIII of the Finance Act, 2016 and not by the Income-tax Act, and on a textual reading of sections 164 and 165 the charge falls on consideration for a specified service received by a non-resident FROM an Indian resident carrying on business. Where a US subsidiary bought Google advertising from Google USA and the Indian parent merely reimbursed it, the service was provided by one non-resident to another and the levy cannot be imposed on the Indian parent unless reimbursement is itself a specified service — and it is not. The Committee on Taxation of E-Commerce had expressly recommended that reimbursements be brought within the levy, and Parliament did not do it. The Court also refused to pierce the corporate veil, the subsidiary having been incorporated and reimbursed in this way long before the levy existed, and held that statements recorded in a section 133A survey could not fix the liability. This was decided by the High Court (Senthilkumar Ramamoorthy J) and bears on section FA 2016 s.165, section FA 2016 s.164, section 133A, section 132(4) of the Income Tax Act 1961. It is reported as W.P. No. 6176 of 2022, High Court of Judicature at Madras; neutral citation 2026:MHC:1822; order reserved 27 February 2026, pronounced 1 June 2026; no law-report citation traced. This is the first substantial judicial construction of the six per cent levy that I could find, and it is useful well beyond its facts. It settles three things. First, the charge is textual and the ordinary rule of strict construction of taxing statutes applies to it: if the payment is not within the four corners of sections 164 and 165, no levy. Second, the legislative-history argument runs the taxpayer's way — the E-Commerce Taxation Committee's report of February 2016 proposed at its paragraphs 135(xiii) and 193(xiii) that 'reimbursement of expenses of a nature that are included in any of the above' be a specified service, and warned at paragraph 137 about exactly the avoidance route of routing payment through a third party outside India; Parliament enacted the list without the reimbursement limb, and the Court treated that omission as decisive. Third, the Revenue's substance-over-form route was closed off: the Court held that Hyatt International and Tiger Global, both of which the Revenue relied on, dealt with treaties and the General Anti-Avoidance Rules and could not be applied out of context, and that piercing the corporate veil requires impropriety, which was absent where the group structure and the reimbursement practice predated the levy. The survey point is transportable to any levy or income-tax proceeding: a statement recorded under section 133A of the Income-tax Act carries no evidentiary value because the officer cannot administer an oath. The limits: the finding of fact that payments to Google USA came out of Zoho USA's bank accounts, albeit operated by people sitting in the Indian office, was central; on facts where the Indian entity itself pays the foreign platform, the case does not help. If it applies to you, the first step is this: Document the chain: who contracted with the advertising platform, who was invoiced, and out of whose bank account the platform was paid. If the foreign entity contracted and paid, the reimbursement argument is available.
Zoho Corporation Private Limited is an Indian software product company that sells its products online. It formed overseas subsidiaries to carry on activities outside India, each acting as the primary reseller or distributor in its geography; the United States accounts for about sixty per cent of turnover. Zoho Corporation, USA resells the products in the United States for a reseller margin. The main channel for marketing the products online is Google's AdWords Program, which Zoho USA availed of under an agreement it entered into with Google dated 23 July 2010. Google invoiced Zoho USA, and Zoho USA paid Google. The Indian company then reimbursed Zoho USA for marketing costs of Rs.332 crore in financial year 2016-17 and Rs.550 crore in financial year 2017-18. For 2016-17 the Indian company paid Rs.20.17 crore of equalisation levy on the reimbursement and later claimed refund of Rs.20.12 crore on the footing that only Rs.5 lakh was payable. For 2017-18 it initially did not pay. The revenue authorities conducted a TDS survey under section 133A of the Income-tax Act at its business premises on 19 March 2019, recorded statements of employees and took copies of books and records; after the survey the company deposited Rs.36.94 crore under protest for 2017-18. Its refund claim for both years was rejected by order dated 12 October 2021, and it filed this writ petition. The Revenue's case was that the AdWords services were really provided by Google USA to the Indian company, that Zoho USA was only the ostensible recipient, that the survey had shown employees of the Indian company selecting AdWords, preparing invoices for Zoho USA and operating its bank account, and that the corporate veil should be lifted. The matter was decided on 2026-06-01 by the High Court (Senthilkumar Ramamoorthy J). On those facts the High Court held as follows. The writ petition was disposed of by setting aside the order dated 12 October 2021 and directing reconsideration of the refund claims for financial years 2016-17 and 2017-18 in the light of the order, with refund of the appropriate amount to be made within three months after verification and a reasonable opportunity to the petitioner, no costs (paragraph 26). On the merits the Court held that the advertising service was provided by one non-resident (Google USA) to another (Zoho USA), so that on a textual reading of sections 165 and 164 the levy could not be imposed on the Indian company unless reimbursement was itself within the scope of 'specified service' (paragraph 11); that the Finance Act 2016 did not include reimbursement of expenses within the scope of specified service notwithstanding the E-Commerce Taxation Committee's recommendation that it should, so the levy could not be imposed on that ground (paragraph 15); that the facts did not justify piercing the corporate veil (paragraphs 20, 21 and 25); and that statements recorded in the course of a section 133A survey could not be relied on to fix liability (paragraph 22).
The Court began from the text. It set out section 165 in full at paragraph 9, drew from it that the levy is charged on consideration received or receivable by a non-resident from an Indian resident carrying on business or profession or a non-resident with an Indian permanent establishment, and that the consideration must be for a specified service (paragraph 10). On the facts, Google USA provided the service to Zoho USA — non-resident to non-resident — so everything turned on whether reimbursement was a specified service (paragraph 11). It then examined the report of the Committee on Taxation of E-Commerce of February 2016, reproducing paragraphs 134 and 135, paragraph 137 and paragraph 193, which respectively proposed a list of payments to be subjected to the levy including 'reimbursement of expenses of a nature that are included in any of the above', warned expressly about payment being made by a third party outside India and later reimbursed by the actual user, and recommended a definition of specified services carrying the same reimbursement limb (paragraphs 12 to 14). Parliament did not enact that limb, and the Court held that this omission was decisive (paragraph 15). It rejected the Revenue's reliance on Hyatt International and Tiger Global on the ground that both dealt with Double Taxation Avoidance Agreements and the General Anti-Avoidance Rules and could not be applied out of context (paragraph 15), and recalled the rule of strict construction from AV Fernandez and from Murarilal Mahabir Prasad v. B R Vad (paragraph 16). On the corporate veil it applied Vodafone International, quoting paragraphs 72 and 79, and Balwant Rai Saluja, quoting the six principles from Ben Hashem v. All Shayif, for the proposition that impropriety is a precondition (paragraphs 17 and 18); the documents showed Zoho USA in existence since at least July 2010 and reimbursements being made in 2014, 2015 and 2016, before the levy existed, so the structure was not set up to evade it (paragraphs 19 to 21). On the survey it applied the Madras High Court Division Bench in Khader Khan Son and Paul Mathews & Sons, holding that a statement under section 133A is not on oath and carries no evidentiary value (paragraph 22), and noted that even the impugned order's own finding was that payments to Google USA came from Zoho USA's bank accounts, albeit operated from the Indian office, which could not be treated as payment by the Indian company (paragraph 24). In the words reproduced by the source cited on this page: "In spite of the above concerns and specific recommendations of the E-Commerce Taxation Committee, the Finance Act, 2016, did not include reimbursement of expenses of the nature mentioned in clauses (i) to (xii) of paragraph 135 of the Report within the scope of specified service." The decision followed or applied Vodafone International Holdings BV v. Union of India — paragraphs 72 and 79 applied on when the corporate veil may be pierced; Balwant Rai Saluja v. Air India Limited — paragraph 71 applied, adopting the six principles in Ben Hashem v. All Shayif; Commissioner of Income-Tax v. S. Khadar Khan Son [2008] 300 ITR 157 (Mad.) and Paul Mathews & Sons v. CIT 263 ITR 101 (Kerala) — applied on the evidentiary value of a section 133A statement; AV Fernandez v. The State of Kerala and Murarilal Mahabir Prasad v. B R Vad (1975) 2 SCC 736 — applied on strict construction of a charging provision; Hyatt International Southwest Asia Ltd v. Additional Director of Income Tax and The Authority for Advance Rulings v. Tiger Global International III Holdings — distinguished as confined to treaties and the General Anti-Avoidance Rules.
It was decided by the High Court on 2026-06-01 and is reported as W.P. No. 6176 of 2022, High Court of Judicature at Madras; neutral citation 2026:MHC:1822; order reserved 27 February 2026, pronounced 1 June 2026; no law-report citation traced. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section FA 2016 s.165, section FA 2016 s.164, section 133A, section 132(4), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The writ petition was disposed of by setting aside the order dated 12 October 2021 and directing reconsideration of the refund claims for financial years 2016-17 and 2017-18 in the light of the order, with refund of the appropriate amount to be made within three months after verification and a reasonable opportunity to the petitioner, no costs (paragraph 26). On the merits the Court held that the advertising service was provided by one non-resident (Google USA) to another (Zoho USA), so that on a textual reading of sections 165 and 164 the levy could not be imposed on the Indian company unless reimbursement was itself within the scope of 'specified service' (paragraph 11); that the Finance Act 2016 did not include reimbursement of expenses within the scope of specified service notwithstanding the E-Commerce Taxation Committee's recommendation that it should, so the levy could not be imposed on that ground (paragraph 15); that the facts did not justify piercing the corporate veil (paragraphs 20, 21 and 25); and that statements recorded in the course of a section 133A survey could not be relied on to fix liability (paragraph 22). It arises in Refunds, Interest & Condonation and How Tax Law Is Read matters, on section FA 2016 s.165, section FA 2016 s.164, section 133A, section 132(4) of the Income Tax Act 1961, and was decided by Senthilkumar Ramamoorthy J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Establish that the arrangement predates the levy where it does. Contemporaneous agreements, invoices and debit notes from before 1 June 2016 were what defeated the piercing-the-veil argument here. Put the E-Commerce Taxation Committee's report on record. Paragraph 135(xiii) and paragraph 193(xiii) recommended taxing reimbursements and paragraph 137 warned about third-party routing; the omission of that limb from the enacted definition is the strongest textual point available. Meet a survey-based case with Khader Khan Son and Paul Mathews: statements recorded under section 133A are not on oath and have no evidentiary value, and the Court applied that to an equalisation levy demand. If levy has already been paid under protest, claim refund and be ready for a verification direction — the Court set aside the rejection and directed reconsideration and refund after verification within three months rather than ordering payment outright.
Searched for later treatment; none was found. That is not the same as a source affirming it. Two searches, nothing found. The citedby search on the doc id is empty and the indiankanoon page for the judgment itself records 'Cited by 0'. A search combining the party name with 'equalisation levy' returns only this judgment. No later decision has adopted, doubted or distinguished the holding that the charge under ss.164 and 165 of Chapter VIII of the Finance Act, 2016 falls on consideration for a specified service received by a non-resident from an Indian resident, so that an Indian parent's reimbursement to its US subsidiary of Google advertising costs is outside it and the corporate veil cannot be pierced to create the charge. No intra-court appeal or special leave petition was traced. This is a single-judge order little more than three months old; a writ appeal would not yet be time-barred. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The order was reserved on 27 February 2026 and pronounced on 1 June 2026; the neutral citation printed on it is 2026:MHC:1822 and the case number is W.P. No. 6176 of 2022. Two things in the order should be flagged. First, at paragraph 4 the Court records that the levy 'was made applicable with effect from 01.07.2016'. The Lok Sabha record of papers laid on the table on 5 August 2016 describes Notification No. S.O. 1904(E) dated 27 May 2016 as 'appointing the 1st day of June, 2016 as the date on which Chapter VIII of the Finance Act, 2016 shall come into force'. The date was immaterial to the decision, which concerned financial years 2016-17 and 2017-18 in their entirety, but a reader should not take 1 July 2016 from this order. Second, at paragraph 10 the Court sets out the definition of 'specified service' under the label 'Explanation (i) to Section 164' and prefixes it with the opening words of a different Explanation, the one about 'online sale of goods' and 'online provision of services'; the quotation as printed is internally inconsistent and only the words of the definition itself should be relied on. The order runs to 26 numbered paragraphs and the numbering is continuous. Hyatt International Southwest Asia Ltd and the Tiger Global decision that the Revenue relied on are both already in this library. Note on the section tags: '165' and '164' in this entry's `sections` list are sections of the FINANCE ACT, 2016, while '133A' and '132(4)' are Income-tax Act, 1961 provisions. The Income-tax Act has its own sections 164 and 165, which are trust provisions and have nothing to do with this order. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The writ petition was disposed of by setting aside the order dated 12 October 2021 and directing reconsideration of the refund claims for financial years 2016-17 and 2017-18 in the light of the order, with refund of the appropriate amount to be made within three months after verification and a reasonable opportunity to the petitioner, no costs (paragraph 26). On the merits the Court held that the advertising service was provided by one non-resident (Google USA) to another (Zoho USA), so that on a textual reading of sections 165 and 164 the levy could not be imposed on the Indian company unless reimbursement was itself within the scope of 'specified service' (paragraph 11); that the Finance Act 2016 did not include reimbursement of expenses within the scope of specified service notwithstanding the E-Commerce Taxation Committee's recommendation that it should, so the levy could not be imposed on that ground (paragraph 15); that the facts did not justify piercing the corporate veil (paragraphs 20, 21 and 25); and that statements recorded in the course of a section 133A survey could not be relied on to fix liability (paragraph 22).
TaxSphere, “Zoho Corporation Private Limited v. Deputy Commissioner of Income Tax — no equalisation levy on an Indian parent's reimbursement to its US subsidiary of Google advertising costs, and the corporate veil cannot be pierced to create the charge”, https://taxnotice.vittsphere.com/caselaw/case/zoho-corporation-equalisation-levy-not-payable-on-reimbursement-to-a-foreign-subsidiary-for-google-adwords/ (validity last checked 2026-09-09)
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My client paid a foreign platform for online advertising. Was it required to withhold six per cent equalisation levy, what was the threshold below which it was not, and from when did that levy stop?
A foreign platform sold to Indian customers. Was it liable to the two per cent equalisation levy on its own receipts, what was the threshold, and when did that levy end?
A notice has come in demanding equalisation levy, and I cannot find the levy anywhere in the Income-tax Act. Which statute is it actually in, what machinery governs assessment and appeal, and has it not been abolished?
My client paid equalisation levy on the same receipts the Assessing Officer is now taxing as income. Is there an exemption, and has the department any answer to it?
