Case Law Details
One of the necessary conditions for holding that an agent constitutes a PE of an enterprise is that the agent must have an authority to conclude contracts or should have been found to be habitually entering into or concluding contracts on behalf of the enterprise. In the present case, there is no allegation that Adobe India is authorised to conclude contracts on behalf of the Assessee or has been habitually doing so. In the present case, there is no allegation that Adobe India is authorised to conclude contracts on behalf of the Assessee or has been habitually doing so. In view of the Same Adobe India cannot be termed as PF of dobe Systems USA under India-USA DTAA.
Briefly stated, the controversy in these petitions involves the question whether Adobe Systems India Private Limited (an Indian subsidiary of the Assessee and hereafter referred to as Adobe India) could be considered as its Permanent Establishment (PE). And if so, whether any part of the Assessee’s income, could be attributed to such PE in respect of the activities carried out by Adobe India, income from which had been subjected to transfer pricing scrutiny/adjustment.
A subsidiary company is an independent tax entity and is separately taxed for its income in the country of its domicile. In the present case, Adobe India is a separate assessee and is liable to pay tax on its income. The fact that a holding company in another contracting state exercises certain control and management over a subsidiary would not render the subsidiary as a PE of the holding company. This is expressly spelt out in paragraph 6 of Article 5 of the Indo-US DTAA.
The aforesaid principle is also stated in Klaus Vogel on Double Taxation Conventions, Third Edition in the following words:-
“40. [Principle] It is generally accepted that the existence of a subsidiary company does not, of itself, constitute that subsidiary company a permanent establishment of its parent company. This follows from the principle that, for the purpose of taxation, such a subsidiary company constitutes an independent legal entity. Even the fact that the trade or business carried on by the subsidiary company is managed by the parent company does not constitute the subsidiary company a permanent establishment of the parent company.”
Please become a Premium member. If you are already a Premium member, login here to access the full content.
