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2022 (8) TMI 889 - AT - Income TaxIncome accrued in India - PE in India - attributing profits to the P.E - amount of income which can be attributed to the P.E and which is taxable in the hands of the assessee - revenue determined the assessee as being a Dependent Agent PE (DAPE) - assessee emphatically denies that the Appellant has a P.E. in India. - HELD THAT:- On a plain reading of Article 7(1) of the DTAA, the question of attributing profits to the P.E. arises only if the foreign enterprise is making a profit. This is the condition precedent. If it is making a loss then no question arises at all of attributing any profit to the P.E., which would be taxable in India. AO has taken gross profit margins of the Appellant Company for 2009 and 2010 as per its audited accounts instead of the net profit margins. The gross profits margins of the Appellant Company for 2009 and 2010 were positive, and that was how the A.O. could attribute profits to the P.E. In so adopting the gross profit margins of the Appellant Company, the A.O. has acted in a manner which is directly contrary to Article 7(1) of the DTAA and also contrary to the said Special Bench Judgment. It is the Net Profits margins which are to be considered as for attribution as per the DTAA. Computation made by the A.O. in his assessment order is incorrect as the AO has not allowed the payments made by the Appellant to NSN India for the services rendered by NSN India as a deduction from the profit attributable to the alleged PE. If the said payments are allowed as a deduction from the gross profit figures taken by the A.O., then again the resultant figure would be losses. Consequently, even if the method of attribution adopted by the A.O. is considered to be correct, in any event, there would be no profit/income attributable to the PE. Consequently, even if the Appellant has a P.E. in India, no profit or income can in law at all be attributed to the P.E. which would be taxable in India. Hence, we hold that the adjudication on issue of PE would be academic in nature. R&D centre FPPE - The issue of Global Development Centres not being a fixed place PE would also be an academic discussion owing to nonavailability of the attributable profits. Further, the Hon’ble Jurisdictional High Court in the case of Adobe Systems Incorporated [2016 (5) TMI 728 - DELHI HIGH COURT] and the Hon’ble Supreme Court in the case of ADIT vs. E-Funds IT Solution Inc. [2017 (10) TMI 1011 - SUPREME COURT] held that R&D centres cannot give rise to any PE. Software supply –Royalty - This issue is covered in favour of the Appellant by the Judgment of the Delhi High Court in the case of Ericssion AB [2011 (12) TMI 91 - DELHI HIGH COURT].The Supreme Court of India in the case of Engineering Analysis Centre of Excellence Private Limited [2021 (3) TMI 138 - SUPREME COURT] settled the long-running contentious issue over how payments made by Indian customers to non-resident suppliers for the use or resale of computer software should be characterised, providing much-needed tax certainty on the issue.Thus Software sales cannot give raise to Royalty income taxable in India in the case of the assessee before us. Appeal of assessee allowed.
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