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TMI Blog2023 (12) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in completely disregarding the fact that Adobe Systems India Private Limited ("Adobe India") is not an agent of the Appellant and is a legally and economically independent entity. 1.3. That the Ld. AO and Hon'ble DRP grossly erred on the facts by concluding that Adobe India is a Dependent Agent PE of the Appellant and the agent is actively involved in sales and supply of software distributed by the Appellant, without appreciating that the sales and supply of software were done by independent third-party distributors. 1.4. That the Ld. AO and Hon'ble DRP erred in law in holding Adobe India to be a Dependent Agent PE of the Appellant without bringing any cogent documentary evidence on record to substantiate the above statement. 1.5. That the Ld. AO erred in law by not acting in accordance with the directions of the Hon'ble DRP wherein it had directed the Ld. AO to pass the final assessment order after considering the orders passed by the Hon'ble Income Tax Appellate Tribunal ("ITAT") in the Appellant's own cases for earlier years wherein based on similar facts, it has been held that the Appellant does not have at Dependent Agent PE in India. 2.1. Tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax rate of 10% provided under Article 11 of the India-Ireland Double Taxation Avoidance Agreement ("DTAA" or "Tax treaty"). 4. That on the facts and in circumstances in law, the Ld. AO erred in not allowing credit of taxes deducted at source ("TDS") amounting to INR 73,97,849/- whilst computing the tax liability of the Appellant for the year under consideration. 5. That on the facts and in circumstances of the case and in law, the Ld. AO has grossly erred in levying interest under section 234A of the Act whilst computing the tax liability of the Appellate for the year under consideration. 6. That on the facts and in circumstances in law, the Ld. AO erred in mechanically initiating proceedings under section 271(1)(c) of the Act. 7. The above grounds of appeal are mutually exclusive and without prejudice to each other. The Appellant craves leave to add, alter, amend and/or modify any of the grounds of appeal at or before the hearing of the appeal." 3. Facts giving rise to the present appeal are that the assessee company filed its return of income for the Assessment Year under consideration on 14.10.2016, declaring total income of INR 16,20,68,861/- claimed to be taxed at s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 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 connection, the AAR has relied upon Circular No. 23 of 1969 issued by CBDT as well as Circular No. 5 of 2004 also issued by CBDT. [Para 29] Article 7 of the U.N. Model Convention inter alia provides that only that portion of business profits is taxable in the source country which is attributable to the PE. It specifies how such business profits should be ascertained. Under the said Article, a PE is treated as if it is an independent enterprise (profit centre) dehors the head office and which deals with the head office at arm's length. Therefore, its profits are determined on the basis as if it is an independent enterprise. The profits of the PE are determ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions 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 stands subsumed in the same. That it is important to distinguish between the benchmarking analysis for the transactions between HO and associated enterprise (AE) vis-avis that of HO and its PE. That it may be important to make a distinction between the FAR of the parent entity (Head Office (HO) in Ireland) and AR of the DAPE (India). Further, it is also important to note that FAR of the DAPE is distinct from FAR of the associate enterprise (AE) in India. That so, practically, it is a interplay of FAR amongst three entities i.e. parent entity (HO) in Ireland, DAPE in India and Associated Entity (AE) in India. 12. We find the above view of the Ld. CIT(A) is not sus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avour 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 copies of the software product in Indian market. In this regard, he has referred to case against the particular person filed by Adobe Systems, Inc. & Ors. The Ld. CIT(A) hypothesized that Adobe Systems, Inc. & Ors. would come to know about the instances of infringement of copyright only through the local presence of Adobe India Resources. The Ld.CIT(A) further opined that the function of the India AE of identification of potential customers and continuous engagement of registered customers goes into development of market of intangibles and no compensation has been made to the Indian AE for all such functions to develop market intangible asset. From this, the ld. CIT(A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment 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 assets has also no basis. No cogent case has been made out that Adobe India was provided with right to any intangible asset belonging to the assessee i.e. Adobe Ireland. The issue raised by the Ld.CIT(A) by relying upon legal dispute infringement of copy right in India being looked after by Adobe India/Adobe Ireland is also without any basis as it is Adobe USA, the IP owner which handles the legal matters relating to infringement of brand, copy right matters and other related actions to be undertaken in all jurisdiction in which the Adobe operates including India. Adobe USA is authorised in monitoring to Indian operations and their legal counsels handles the matters the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he income-tax refund received by the Appellant during the year under consideration @40% (plus applicable surcharge and cess), as per the provisions of the Act, as opposed to applying the beneficial tax rate of 10% provided under Article 11 of the India-Ireland Double Taxation Avoidance Agreement ("DTAA" or "Tax treaty"). 9. Apropos to Ground No.3 raised by the assessee, the assessee has filed a brief note. For the sake of clarity, the relevant contents of the brief note are reproduced as under:- "Brief note on Ground Nos. 3, 4 and 5. It is humbly requested that the remaining grounds of objection should not be treated as withdrawn/not pressed. Ground No. 3: On the facts and circumstances of the case & in law, the Ld. AO grossly erred in levying tax on interest on the income-tax refund received by the Appellant during the year under consideration @40% (plus applicable surcharge and cess), as per the provisions of the Act, as opposed to applying the beneficial tax rate of 10% provided under Article 11 of the India-Ireland Double Taxation Avoidance Agreement ("DTAA" or "Tax treaty"). 1. It is humbly submitted that the taxability of interest income earned by a tax resident of Ire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paperbook-II. 7. Moreover, the Ld. Commissioner of Income Tax (Appeals) ["CIT(A)"] in the Appellant's own case for AY 2020-21 [appeal filed against the intimation passed under Section 143(1) of the Act] had also explicitly mentioned that the interest income earned on the income-tax refunds are governed by Article 11 of the India-Ireland Tax treaty, prescribing a rate of 10%. This order has now attained finality since no appeal has been filed by the Revenue. 8. It is further submitted that the aforesaid order of the Hon'ble CIT(A) has also been upheld by this Hon'ble Bench in the Appellant's own case for AY 2020-21 [ITA No. 913/Del/2023]. Accordingly, the action of the Ld. AO of taxing the interest on refund at the rate of 40% is required to be set aside and the same should be brought to tax at 10% as prescribed in the India-Ireland tax treaty. 10. On the other hand, ld. DR supported the orders of the authorities below. We have heard the rival submissions perused material on record. The identical issue came up for consideration of the coordinate bench of this Tribunal in the AY 2020-21 in ITA No. 913/Del/2023, wherein the coordinate bench decided the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessee for the year under consideration as invalid under section 139(9) of the Act since the gross receipts shown in Form 26AS for which credit of TDS credit had been claimed by the Assessee in its return of income were higher than the total receipts shown in the return of income. 11. Aggrieved by the aforementioned order, the Assessee had filed an application under section 264 of the Act with the Ld. Commissioner of Income Tax (IT), Delhi-1 ("CIT"). After considering the contentions of the Assessee, the Ld. CIT had passed an order dated March 23, 2020 under section 264 of the Act, quashing the abovementioned order passed by the Ld. AO CPC and giving a direction to treat the return of income filed by the Assessee as valid (please refer to page nos. 119 to 135 of the paperbook-II). 12. Thereafter, the Appellant filed letters with the Ld. AO requesting to give effect to the order of the Hon'ble CIT. However, in complete disregard of the requests, the Ld. AO initiated the re- assessment proceedings under section 148 of the Act and levied interest under section 234A of the Act whilst assessing the income for the year under consideration. It is humbly prayed that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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