TMI Blog2023 (12) TMI 1120X X X X Extracts X X X X X X X X Extracts X X X X ..... ing that factually the issue stands on identical footing in relation to preceding assessment years, as, both the Assessing Officer and learned DRP have decided the issue following their earlier decisions. That being the case, respectfully following the decision of the coordinate Bench, as referred to above, we hold that the amount received by the assessee from supply of software and automated services, are not taxable in India. The Assessing Officer is directed to delete the additions. Levying tax on interest on the income-tax refund received by the Appellant during the year under consideration - India-Ireland Double Taxation Avoidance Agreement - Revenue has not brought to our notice any binding precedent on this issue. Therefore, the Assessing Officer is directed to tax the interest @10% as prescribed in the Indo-Ireland Tax Treaty. Credit of TDS whilst computing the tax liability of the Appellant for the year under consideration - We hereby direct the Assessing Officer verify the claim and grant the credit of taxes deducted at source in accordance with law. Levying interest u/s 234A whilst computing the tax liability of the Appellate for the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T ) 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. That on the facts and circumstances of the case and in law, the Ld. AO erred in attributing a sum of INR 71,90,98,265/- as business profits to the alleged Dependent Agent PE of the Appellant in India. 2.2. Without prejudice to the above grounds, the Ld. AO and Hon'ble DRP failed to appreciate that attribution of profits to the alleged PE is a transfer pricing issue and grossly erred on facts and in law in disregarding established judicial pronouncements in India, including the orders of the Hon'ble ITAT in the Appellant's own cases for earlier years, on the issue that once the associated enterprise, that also allegedly constitutes a PE, (Adobe India in the present case) has been renumerated on an arm's length basis after taking into account its functions, assets and risk ( FAR ) profile, nothing further can be attributed to the said PE. 2.3. Without prejudice to the above grounds, the Ld. AO and Hon'ble DRP grossly erred in disregarding the fact that the amount paid by the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 special rate. The Assessing Officer ( AO ) noted that during the assessment proceedings, it was noticed that the assessee has a Dependent Agent PE in India in the form of Adobe India and the agent is actively involved in the sales and supply of software distributed by the assessee and especially carrying out promotion activity of application products of the assessee. Therefore, it was held that premises of Adobe India form a fixed place PE for the assessee company. The AO therefore, passed a draft assessment order u/s 144C of the Income Tax Act, 1961 ( the Act ). The assessee field its objection before Ld. Dispute Resolution Panel ( DRP ) who disposed off the objections vide direction dated 14.11.2022. Thereafter, the AO passed a final assessment order dated 24.01.2023 thereby, he assessed the income of the assessee company at INR 73,71,80,436/-. Aggrieved against this the assessee in appeal. 4. Ground Nos. 1 2 raised by the assessee relate to existence of dependent age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprise (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 determined on the basis of what an independent enterprise under similar circumstances might be expected to derive on its own. Article 7(2) of the U.N. Model Convention advocates the arm's length approach for attribution of profits to a PE. [Para 31] The object behind enactment of transfer pricing regulations is to prevent shifting of profits outside India. Under article 7(2) not all profits of MSCo would be taxable in India but only those which have economic nexus with PE in India. A foreign enterprise is liable to be taxed in India on so much of its business profit as is attributable to the PE in India. The quantum of taxable income is to be determined in accordance with the provisions of Act. All provisions of Act are applicable, including provisions relating to depreciation, investment losses, deductible expenses, carry forward and set-off losses, etc. However, deviations are made by DTAA in cases of royalty, interest etc. Such deviations are also made under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 sustainable in the light of the decision of the Hon'ble Supreme Court as above in the case of DIT vs Morgain Stanley Co.(supra). To the same effect is the order of the ADIT v. EFunds IT Solution Inc.[2017] 399 ITR 34(SC), Honda Motor Co. Ltd vs. ADIT (301 CTR 601)(SC) and of the Hon'ble Delhi High Court in the case of Adobe Systems Inc. v. ADIT [WP(C) 2384, 2385, 2390 of 2013] and DIT v.BBC Worldwide Ltd.[2011] 203 Taxman 554(Delhi), once a transfer pricing analysis has been undertaken in respect of the Indian AE, nothing further would be left to be attributed to it as the alleged PE of Adobe Ireland and that, accordingly, would automatically extinguish the need for attribution of any additional profits to the alleged PE. 13. In all these cases, it has found that the transactions have been found to be at Arm's Length by the Transfer Pricing Officer in the Transfer pricing order of the AE i.e. Adobe India. This is not disputed by the Reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers 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) opines that Adobe India is responsible for protecting, development maintenance of the intangible assets (copyright, brand, patent confidential data of customers) of Adobe group in India. Further, the Ld. CIT(A) opined that risk of receivables from distributors also exist in India but there is no compensation made for such functions. Keeping the above in view, the Ld. CIT(A) held that Adobe India is dependent PE of the assessee company and in order to compensate for the FAR assigned to DAPE, he has no reason to defer from the view of the Assessing Officer to attribute 35% of the total Revenue pertaining to India for this year. 15. Further, functions attributed to the Adobe India by the Revenue is also based upon the observations of the Ld. CIT(A) for Assessment Year 2010-11 primarily. The allegation of the Revenue is that the assessee was asked to produce dump of the emails correspondence between Adobe India and Adobe Ireland to deep dive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 there from. 16. As regards the risk recoverable from distributors, the hypothesis that the risk is borne by Adobe India has also no basis. The documents clearly show that the collection from the customers is managed by the team Adobe Ireland. Thus, from the above, it is apparent that only on hypothesis and guess work and assigning of all sorts of imaginary motives by a few e-mails, the Ld. CIT(A) and therefore the Revenue is contending that the functions performed by Adobe India are much wider than the that as per the agreement and the transfer pricing analysis. We find that as discussed by us hereinabove these submissions are not at all cogent enough to warrant a view that the transfer pricing analysing done in the case of Adobe India does not adequately reflects functions performed and the risk assumed by the enterprise. In such a situation as held by Hon'ble Apex Court as above, there is no need to attribute any further profit as all fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Ireland is dealt with by Article 11 of the India-Ireland tax treaty (please refer to page nos. 87 to 98 of the paperbook-II) which inter alia provides that interest arising in India and paid to a resident of Ireland may be taxed in India, but the tax so charged shall not exceed 10% of the gross amount of the interest. 2. Furthermore, the term interest used in the said Article has been defined in paragraph 4 as income from debt claims of every kind. 3. In the present case, the Assessee, upon determination of its tax liability for AY 2008-09 and AY 2010-11 (the period to which the refund relates), was entitled to a refund of the excess taxes paid by it. Furthermore, since these taxes had been collected in excess of the Assessee's actual tax liability, the income-tax authorities were liable or obligated by the provisions of the Act to refund the excess taxes collected by them. Accordingly, the amount of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 issue by observing as under:- 17. We are in agreement with the findings of the Ld. CIT(A). However, in our humble opinion, claim of the treaty benefit made by the assessee is not in dispute at all at this stage and hence no verification is required by the Ld. AO with respect to the same. In the light of the above legal position and factual matrix of the case, we set aside the order of the Ld. AO on the impugned issue and direct him to apply the tax rate of 10% on interest on income tax refund as per the provisions of Article 11 of the India-Ireland DTAA. Accordingly, ground No. 3 is decided in favour of the assessee. 11. We do not see any reason to deviate from the finding of the coordinate bench as the facts and circumstances are identical, the Revenue has not brought to our notice any other binding precedent on this issue. Therefore, the Assessing Officer is directed to tax the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uesting 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 this Hon'ble Bench may kindly direct the Ld. AO to consider the return furnished under section 139(1) of the Act as valid. 15. It is stated that the interest was levied treating the return of income as invalid however by the order of Commissioner of Income Tax, Delhi -1 who has quashed the order passed by the CPC and directed the return of income file by the assessee be treated as valid. Therefore, it is prayed that the interest levied by the Assessing Officer u/s. 234A may be deleted. On the other hand, the ld. DR supported the orders of the authorities below. But he could not controvert the fact that ld. CIT(A) has decided the issue in favour of the Assessee. 16. We have considered the rival submissions; we find merit into the contention of the learned counsel for the assessee. When the return of the income has been held to be validly filed th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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