TMI Blog2023 (1) TMI 14X X X X Extracts X X X X X X X X Extracts X X X X ..... ARs For the Department : Ms. Rashmitra Jha, Sr. DR ORDER PER SAKTIJIT DEY, JUDICIAL MEMBER: 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 learned Dispute Panel (DRP). 2. The grounds raised by the assessee are as under: 1.1 That on the facts and circumstances of the case and in law, the Ld. Assistant Commissioner of Income-Tax, Circle 1(1)(1), International Taxation, Delhi ( Ld. AO ) as well as the Hon ble Dispute Resolution Panel 1 ( DRP ) erred in holding that the Appellant has a dependent agent permanent establishment ( DRP ) in India in terms of Article 5(6) of the Double Taxation Avoidance Agreement between India and Ireland. 1.2 That the Ld. A.O and Hon ble DRP grossly erred in completely disregarding the fact that Adobe India is an independent entity. 1.3 That the Ld. A.O and Hon ble DRP grossly erred on the facts by concluding that Adobe India is dependent agent PE of the Appellant and the agent is actively involved in sales and supply of sof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. A.O erred whilst computing the tax liability of the Appellant. 4. That on the facts and in circumstances in law, the Ld. A.O erred in not allowing credit of taxes deducted at source ( TDS ) amounting to INR 12,68,394 whilst computing the tax payable by the Appellant. 5. That on the facts and circumstances in law, the Ld. A.O erred in mechanically initiating proceedings under Section 274 red with 270A of the Act. 3. The dispute in the present appeal concerns existence or otherwise of a Permanent Establishment (PE) of the assessee in India and in case there is a PE, attribution of profit to the PE. 4. Briefly, the facts are, 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 of software in India through distributors to the end users. In the return of income filed for the impugned assessment year, the assessee offered income of Rs.12,36,13,520, being in the nature of fee for technical services (FTS). However, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment, in so far as, it relates to transaction of business support services. Therefore, the question which arises for consideration is, whether in such a scenario, still, profit can be attributed to the PE in India. As we find, while deciding identical issue in assessee s own case in preceding assessment years, the Tribunal in the order, referred to above, has held as under: 10. Upon careful consideration, we find that the issue of attribution to profit when the transaction has been found to at Arm's Length between foreign party and the Indian AE, then no further attribution is required has already been decided by the decision of the Hon'ble Supreme Court in the case of DIT v. Morgan Stanley Co. Inc [2007] 292 ITR 416 (SC). This aspect was very much before the Ld. CIT(A) and he has dealt with the same as under:- As regards determination of profits attributable to a PE in India (MSAS) is concerned on the basis of arm's length principle Article 7(2) is relevant. According to the AAR where there is an international transaction under which a non- resident compensates a PE at arm's length price, no further profits would be attributable in India. In this c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ituation would be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to the PE for those functions/risks that have not been considered. Therefore, in each case the data placed by the taxpayer has to be examined as to whether the transfer pricing analysis placed by the taxpayer is exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case. 11. The Ld. CIT(A) in this regard held that the argument of the appellant is that if the international transactions between the parent entity (HO) and associated entity (AE) stand accepted at an Arm's length based on FAR analysis, in that case, the question of appropriation of profit to DAPE does not arise. That his argument sans the concept of separate entity approach as provided in article 7 of India Ireland DTAA to distinguish between PE and parent entity (HO). That if the international transactions between India AE and HO have been accepted at an arm's length by TPO, it does not automatically mean that FAR of DAPE stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat without prejudice to the above, the judicial decision of the attribution of profit by applying FAR analysis has not been accepted by the Indian Government and the profit has to be determined by apply of provisions of DTAA r.w.s.10A of the Income Tax Rules, 1962. In view of the above, we are of the opinion that the decision of the Hon'ble Apex Court as above squarely applies in this case. Hence holding that 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. Hence, this issue needs to be decided in favour of the assessee. 14. We further find the above view of the Ld. CIT(A) is not sustainable in the light of the Hon'ble Supreme Court decision as above. The Ld. CIT(A) has opined that Adobe India while discharging the functions as assigned by Adobe Ireland has the right to use the intangible asset in the form of brand, trademark and logo but there is cost paid for the same to the assessee. Further he observed that there is persistent risk of violation of copyright of software product and unauthorized use of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ivities pointed out in the contract and transfer pricing report. We find that the above observations have been cogently rebutted by the ld. counsel for the assessee. As regards the few e-mails that have been referred they are only also marked to the Adobe India personnel which has been said to be done only for the sake of keeping the Adobe India in the loop. In none of the e-mail referred Adobe India has actually provided guidance and directions regarding the quotes. This is a fiction of imagination by the Revenue. Hence, the functions attributed on the basis of these e-mails are not at all enlarging the scope of actual functions performed by the AE than as per the agreement and the transfer pricing report. The plea that the email dump has not been provided is a peculiar plea. In Adobe India T.P. adjustment no such issue has been recorded. It is common knowledge e-mail correspondence is a two way process. So when everything was found in order in Adobe India T.P. Adjustment, hence, it cannot be said that Revenue did not have complete access to all the e-mails between Adobe India and Adobe Ireland. The Ld. CIT(A) is also of view that the assets client list gives rise to in intangible ..... X X X X Extracts X X X X X X X X Extracts X X X X
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