No DAPE Where Indian AE is at Arm’s Length: Bangalore ITAT

Qliktech International AB Vs DCIT (ITAT Bangalore)

No DAPE Where Indian AE is at Arm’s Length: Bangalore ITAT Deletes PE-Based Business Income Addition

The Bangalore ITAT held that where the Indian Associated Enterprise (AE) has been remunerated at arm’s length and the Transfer Pricing Officer (TPO) has accepted the transfer pricing analysis without any adjustment, the AE cannot be treated as a Dependent Agent Permanent Establishment (DAPE) of the foreign enterprise merely because it carries out distribution and support functions. Consequently, the business income of the foreign company cannot be attributed to India by treating the Indian subsidiary as its DAPE. The Tribunal followed its own earlier order in the assessee’s case for AY 2021-22, the subsequent Miscellaneous Application order, and the AO’s order giving effect, noting that the Department had already accepted the position.

On the issue of interest on income-tax refund, the Tribunal observed that the Assessing Officer had not proposed this addition in the show-cause notice but introduced it only in the draft assessment order, giving rise to a violation of the principles of natural justice. Further, as the assessee contended that no refund interest had actually been received during the year, the Tribunal restored the matter to the AO for de novo verification, directing that if the interest was not received during the relevant previous year, it should not be taxed in that year. The assessee was also permitted to rely on the relevant Bombay High Court decision before the AO. Accordingly, the appeal was partly allowed for statistical purposes.

Cases Discussed

• Qliktech International AB Vs DCIT (ITAT Bangalore), IT(IT)A No. 990/Bang/2023
• Qliktech International AB Vs DCIT (ITAT Bangalore), M.A. No. 06/Bang/2025 in IT(IT)A No. 990/Bang/2023

FULL TEXT OF THE ORDER OF ITAT BANGALORE

This appeal is filed by the Assessee against the order of Ld. Deputy Commissioner of Income Tax, Circle 2(1) vide DIN: ITBA/AST/S/143(3)/2025-26/1085312410(1) dated 29-Jan-2026 for the Assessment Year 2023-24.

2. The brief facts of the case are that the assessee is a foreign company and filed their return of income as Nil. The said return was processed and an intimation u/s. 143(1) was issued. The AO based on the Form 26AS, has alleged that the assessee had received interest income but not declared the same in the return of income. Similarly the AO found that the assessee had received a sum of Rs. 38,86,16,927/- from an Indian company but not offered the same for taxation. Therefore the return of the assessee was selected for scrutiny and notice u/s. 143(2) was issued. Subsequently, notices u/s. 142(1) were issued and show cause notice was also issued calling for the details. The AO had also issued notice u/s. 133(6) to the Indian company seeking some details to verify the claim made by the assessee. The assessee filed their submissions. On perusal of the Master Distribution Agreement, the AO observed that the assessee is engaged in the software development, marketing and support of the Data Analytics Software material. The AO further stated that the assessee is having 99% shares of its AE, the Indian Company and the Indian company had paid a consideration of Rs. 38,86,16,927/- to the assessee. The consideration was received for sale of software license for distribution in Indian and for corporate cost recharge. The AO considered the facts in detail and also considered the various clauses in the Agreements and also considered the submissions made by the Indian company, concluded that the Indian company is carrying out all its activities solely for the benefit of the assessee and therefore the Indian company acts as a Dependent Agent of the assessee. The AO therefore treated the Indian company as a Dependent Agent Permanent Establishment and therefore the assessee has earned income in India through the DAPE, i.e. the Indian company and estimated the income at 30% of the consideration received from the Indian company from the sale of products as business income. A draft assessment order was made for which the assessee filed their objections before the Ld.DRP but the Ld.DRP rejected the objections and confirmed the draft assessment order. Thereafter the AO made the final assessment order u/s. 143(3) of the Act. The AO had also added the interest income received by the assessee as income from other sources in the final assessment order.

3. As against the said final assessment order, the assessee is in appeal before this Tribunal.

4. At the time of hearing, the Ld.AR submitted that they are pressing ground nos. 3,4 and

5. The Ld.AR submitted that the AO’s finding that the Indian company could be treated as Dependent Agent Permanent Establishment is not correct in view of the peculiar facts of the case and also relied on the order of the Coordinate Bench of this Tribunal dated 16/12/2024 in IT(IT)A No. 990/Bang/2023 in respect of the assessee’s own case for the A.Y. 2021-22. The Ld.AR also submitted that the Indian entity was subjected to the transfer pricing adjustment by the Ld.TPO and found that the same is at arms length price and therefore the Indian entity could not be termed as Dependent Agent Permanent Establishment. The Ld.AR also relied on the order of this Tribunal passed in M.A. No. 06/Bang/2025 in IT(IT)A No. 990/Bang/2023 dated 22/05/2025 in which the Tribunal had accepted the application filed by the assessee and concluded that there was no necessity to remit the matter back to the AO for fresh adjudication. The Ld.AR also relied on the order giving effect to the order of the ITAT dated 08/07/2025 in which the AO had given effect to the order of the ITAT and deleted the additions made by treating the Indian company as the Dependent Agent Permanent Establishment. The Ld.AR therefore submitted that the department has accepted the view of the order of the Tribunal for the A.Y. 2021-22 and therefore submitted that when the facts are not different in the current A.Y., the decision rendered by this Tribunal would be applicable to the present year also and prayed to allow this ground.

5. Insofar as the ground no. 5 in which the assessee had disputed the taxability of interest on income tax refunds, the Ld.AR submitted that the interest has not been received and therefore it should not be taken as income during the year and for that proposition, the Ld.AR relied on the judgment of the Hon’ble Bombay High Court. Another plea raised by the assessee is that the variation in respect of the interest was not proposed in the show cause notice whereas the same was incorporated in the draft assessment order and therefore the said order of the AO is against the principles of natural justice.

6. The Ld.DR submitted that the ground nos. 3 and 4 are not sustainable and prayed to remit the interest issue to the AO for verification and thereafter pass an order accordingly.

7. We have heard the arguments of both sides and perused the materials available on record.

8. In respect of ground nos. 3 and 4, the main grievance of the assessee is that the AO could not estimate the business income of the assessee based on the understanding that the Indian company is acting as a Dependent Agent Permanent Establishment and therefore the income was earned by the assessee in India and liable to be taxed under the provisions of the Income Tax Act. It is also the case of the assessee that the Indian company is also subjected to transfer pricing analysis and the Ld.TPO had accepted the same as at arms length price and therefore the assessee could not be subjected to tax by treating the Indian company as Dependent Agent Permanent Establishment and also it amounts to double taxation. We have also gone through the order of the Coordinate Bench of this Tribunal in the assessee’s own case for the A.Y. 2021-22 in which a similar dispute arose and the Tribunal had given the following fmding.

“10. We have heard the rival contentions of both the parties and perused the materials available on record. On perusal of the order of the TPO in the case of the subsidiary company namely Qliktech India private limited, we find that the transaction between the assessee and its subsidiary for the sale of software product has been made subject to TPO adjustment. Accordingly, the question of treating the Indian subsidiary as dependent agency permanent establishment does not arise. The copy of the TP order in the case of the subsidiary company is available on record. However, we note that such document was filed before us as additional piece of evidence and therefore we are of the view that such TP order has not been verified at the level of the lower authorities. Accordingly, we set aside the issue to the file of the AO for fresh adjudication in the light of the above stated discussion and as per the provisions of law. Hence the ground of appeal of the assessee is hereby allowed for statistical purposes.”

9. In the above said order, the Tribunal had remitted the issue for verification of the TPO order made on the Indian company. We have also noticed that the assessee had filed a miscellaneous application against the said order and prayed that the remitting the matter to the AO is not required when the Tribunal had given a finding that the Indian company does not constitute a DAPE. The Tribunal had also accepted the said plea and thereby modified the order in M.A. No. 06/Bang/2025 dated 22/05/2025. We have also noticed that, thereafter, the AO had also passed an order giving effect to the Tribunal’s order on 08/07/2025 in which the AO had granted the relief insofar as the addition made, by treating the Indian company as the Dependent Agent Permanent Establishment. It is also not brought to our notice that any order of the higher forums which are against the above said order of this Tribunal.

10. We have also gone through the order of the Ld.TPO dated 28/10/2023 in respect of the Indian company in which the TPO had not made any adjustment and accepted the arms length price declared by the Indian company. Therefore, the facts are one and the same for both the years and therefore following the earlier order of this Tribunal, we allow the ground nos. 3 and 4 raised by the assessee.

11. Insofar as the ground no. 5 is concerned, we have considered the fact that the AO had not whispered about the interest portion while issuing the show cause notice but added the said dispute while passing the draft assessment order. Therefore, there is some force in the arguments made by the assessee. On merits, it is the contention of the assessee that they have not received any interest income on the refund and therefore it could not be treated as income. This fact was not dealt with by the lower authorities and therefore we are remitting this issue to the AO for denovo consideration and if the AO is found that the assessee had not received the interest during the year, it could not be treated as income. While considering the issue by the AO, it is also open to the assessee to produce the necessary documents including the judgment of the Hon’ble Bombay High Court. We, therefore, set aside the issue in respect of the interest on income tax refund and remit this issue to the file of the AO for denovo consideration.

12. The other grounds raised by the assessee were not pressed at the time of hearing and therefore we are not adjudicating the other grounds.

13. In the result, the appeal filed by the assessee is partly allowed for statistical purposes.

Order pronounced in the open court on 16^th July, 2026.