In a significant case, the New Delhi bench of the Income Tax Appellate Tribunal (ITAT) has held that receipt by Adobe from the supply of software and automated services is not taxable in India.
Adobe Systems Software Ireland Ltd., the assessee challenged the final assessment orders passed under section 143(3) read with section 144C(13) of the Income-tax Act, 1961 (‘the Act’) about assessment years 2018-19 and 2019-20.
The assessee is a non-resident corporate entity incorporated in Ireland and a tax resident of Ireland. As stated by the Assessing Officer, 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. The software licensed by the assessee is the intellectual property of Adobe Systems, USA, which in turn, provides the right to license the software to the assessee through another subsidiary, Adobe Software Trading Company Ltd.
The assessee had earned interest on an Income Tax refund and has offered to tax income earned from training services involving human intervention and interest on an Income Tax refund. Whereas, the income earned from the supply of software and automated services was claimed to be not taxable in India, as per the treaty provisions. While deciding the assessee’s objections on the issue, learned DRP following their directions in past assessment years held that the assessee has a dependent agent PE in India, hence, income attributable to PE in India is taxable.
In the case of Assistant Director of Income Tax-I, New Delhi v. M/s. E-Funds IT Solution Inc., [2017], it has been held that once the arm’s length principle has been satisfied, there can be no further profit attributable to a person even if it has a permanent establishment in India.
Respectfully following the decisions of the Coordinate Bench in the assessee’s case, the Coram comprising of Shri G S Pannu, President and Shri Saktijit Dey, Judicial Member deleted the additions made on the reasoning that the transactions between the assessee and its AE in Indian being at arm’s length, no further profit can be attributed to the PE. The appeals of the assessee are allowed.
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