The Delhi bench of the Income Tax Appellate Tribunal( ITAT ) has held that amount received by Adobe from the supply of software and automated services is not taxable in India when profit is not attributed to Permanent Establishment (PE).
Adobe Systems Software, the assessee has filed the captioned appeal assailing the final assessment order dated 26.02.2022 passed under Section 143(3) read with section 144C(1)(3)of the Income-Tax Act, 1961 for the assessment year 2017-18, in pursuance to the directions of Dispute Panel (DRP).
The assessee is a non-resident corporate entity incorporated in Ireland. The assessee is a wholly owned subsidiary of Adobe System, USA and is engaged in licensing software in India through distributors to the end users. In the return of income filed for the impugned assessment year, the assessee offered an income of Rs.12,36,13,520, being likea fee for technical services (FTS). A couple of other receipts from software supply and automated services were not offered to tax in India as the assessee claimed that they are not taxable in India.
The Assessing Officer, while examining the aforesaid claim of the assessee, found that while dealing with identical nature of receipts in earlier years, it was held that the assessee has a dependent agent PE and fixed place PE in India in the form of an Indian Subsidiary viz. Adobe Systems India Pvt. Ltd., which provides marketing support services to the assessee.
The Assessing Officer concluded that Adobe India is a dependent agent/fixed place PE of the assessee in India and held that the receipts from software supply and automated services, being attributable to the PE, are taxable in India. The DRP upheld the additions made by the Assessing Officer.
It was observed that the international transaction between the assessee and the Indian AE is at arm’s length and has not proposed any further adjustment, in so far as, it relates to the transaction of business support services.
A Coram of Shri G S Pannu, president & Shri Saktijit Dey, Judicial Member held that the amount received by the assessee from the supply of software and automated services is not taxable in India and directed the AO to delete the additions.
As regards the issue about the short grant of TDS amounting to Rs,12,68,394, the Tribunal directed the Assessing Officer to factually verify the assessee’s claim and allow TDS credit by the law.
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