No income attributed to DAPE of Adobe-Ireland in India, when transaction between Indian AE and foreign party found at arm’s length price, so was held by the Income Tax Appellate Tribunal (ITAT), New Delhi.
Adobe Systems Software Ireland Limited (‘ADIR’) is a company incorporated under the laws of Ireland and is a tax resident of Ireland in accordance with Double Taxation Avoidance Agreement (‘DTAA’ or ‘tax treaty’) between India and Ireland. Therefore, it is entitled to the beneficial provisions of the India Ireland DTAA. ADIR is a wholly owned subsidiary of Adobe Software Trading Company Limited (‘ASTCL’) Adobe Systems Incorporated (‘Adobe USA’) is the ultimate parent company of ADIR. Adobe USA has a subsidiary in India known as Adobe Systems India Pvt. Ltd. (‘Adobe India’) that provides marketing support services to ADIR.
The assessee is engaged in the distribution of shrink-wrapped/off the shelf/electronic download computer software (‘Adobe Products’) outside of North America including India and it supplies the Adobe Products to its non-exclusive Indian distributors on a principal to principal basis. As per the submission of the assessee, it purchases the software built by the third party turnkey manufacturers.
The Assessing Officer treated the amount received by ADIR from sale of software to Indian distributors as royalty income u/s 9(1)(vi) of the Act as well as under Article 12(3) of India Ireland tax treaty and taxed the same at the rates applicable with receipt as royalty income. The Assessing Officer also held Adobe India is working for the assessee as an agent. AO held that the assessee was having fixed place PE/dependent agent PE. On this basis, he attributed certain profit as revenue receipt from India as business profit taxable in India in the hands of the assessee.
The issue raised in the appeal relates to the existence of dependent PE in India/fixed place PE in India and the attribution of income as the case may be.
The Bench consisting of held that “Once a transfer pricing analysis has been undertaken in respect of the Indian AE, nothing further would be left to be attributed to it as the alleged PE of Adobe Ireland and that, accordingly, would automatically extinguish the need for attribution of any additional profits to the alleged PE.
Since the transactions between the assessee and its Indian AE has been found to be at Arm’s Length in the transfer pricing adjustment, no further attribution can be made to the PE of the appellant as claimed.”
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