Search engines selling ad space may be taxed

The Authority for Advance Rulings has said that Google Online India Pvt Ltd, a wholly owned subsidiary of US-based Google International LLC, will have to pay service tax for selling advertisement space on its search site to Indian entities.

This can set a precedent for search engines with offices in India falling in the ambit of the tax. The advance ruling last week noted that the proposed activity of Google India to sell space on its site tantamount to providing a service to advertisers and clients. "From this angle, the applicant will be covered by the definition of advertising agency," it said. When contacted, Google executives said they were still examining the ruling and did not wish to comment on it.

A ruling by the advance authority is binding on the company with immediate effect unless it decides to appeal against the verdict. The search engine had approached the Advance Ruling Authority in August this year, seeking clarifications on whether providing selling space for advertisement on the Google website would be exempt from service tax or was classifiable as advertisement service, computer network service, business auxiliary service or any other taxable service.

In its application, Google had said the service it proposed to provide did not attract service tax.