Home Case Index All Cases Income Tax Income Tax + HC Income Tax - 2016 (5) TMI HC This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (5) TMI 728 - HC - Income TaxReopening of assessment - existence of PE in India - Indo-US DTAA - Held that:- AO's view that Adobe India constituted the Assessee's PE in terms of paragraph 1 of Article 5 of the Indo-US DTAA is palpably erroneous and not sustainable on the basis of the facts as recorded by him. We also find that there is no material to hold that the Assessee's employees constitute a Service PE in terms of Article 5(2)(l) of the Indo-US DTAA. The Assessee has denied that any of its employees has rendered any service in India. There is no material available with the AO that would contradict the same. The AO has concluded that the Assessee has a PE in India in terms of Article 5(2)(l) of the Indo-US DTAA, only on the basis that the Assessee has a right to audit Adobe India and that the agreement between the Assessee and Adobe India entails that the Assessee would provide specifications, assistance and supervision for the R&D services procured by the Assessee. The said terms of the agreement do not in any manner indicate that the Assessee has been providing services in India. Clause 5.5 of the agreement referred to by the AO indicates that the Assessee is authorized to audit the Indian subsidiary (Adobe India), so as to ensure that Adobe India adheres to the standards required by the Assessee. AO's view that Adobe India constitutes the Assessee's PE under Article 5(5) of the Indo-US DTAA is also wholly unsustainable. Article 5(5) of the Indo-US DTAA provides for an exclusion to Article 5(4) of the Indo-US DTAA. In terms of Article 5(4), where a person acts in a contracting state on behalf of an enterprise of the other contracting state, the enterprise shall be deemed to have a Permanent Establishment in the first mentioned state. In other words, a dependent agent of an enterprise would constitute its PE. In the present case, there is no material to form a view that Adobe India acts as an agent for and on behalf of the Assessee. Further, there is no allegation that any of the other conditions specified under clauses (a), (b) or (c) of paragraph 4 of Article 5 of the Indo-US DTAA are applicable to Adobe India. One of the necessary conditions for holding that an agent constitutes a PE of an enterprise is that the agent must have an authority to conclude contracts or should have been found to be habitually entering into or concluding contracts on behalf of the enterprise. In the present case, there is no allegation that Adobe India is authorised to conclude contracts on behalf of the Assessee or has been habitually doing so. In the present case, apart from the AO stating so, there is no reason to assume that Adobe India is an agent of the Assessee; there is neither any agreement which states so nor any material which indicates that Adobe India acts as such. More importantly, it is not disputed that Adobe India is assessed on its income determined at ALP and, therefore, there is no occasion for the AO to assume that Adobe India constitutes the Assessee's PE under Article 5(5) of the Indo-US DTAA. - Decided in favour of assessee
|