Receipt towards Supply of software and automated services are not taxable in India

Adobe Systems Software Ireland Ltd Vs ACIT (ITAT Delhi)

ITAT Delhi held that amount received from the supply of software and automated services, are not taxable in India.

Facts- 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 software in India through distributors to the end users. In the return of income filed for the impugned assessment year, the assessee offered an 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 in India.

AO, while examining the aforesaid claim of the assessee, found that while dealing with identical nature of receipts in earlier years, it was held that the assessee has a dependent agent PE and fixed place PE in India in the form of an Indian Subsidiary viz. Adobe Systems India Pvt. Ltd., which provides marketing support services to the assessee. Thus, the Assessing Officer concluded that Adobe India is a dependent agent/fixed place PE of the assessee in India. Therefore, AO held that the receipts from software supply and automated services, being attributable to the PE, are taxable in India. DRP upheld the additions made by AO.

Conclusion- In the transfer pricing proceedings, the TPO, has observed that the international transaction between the assessee and the Indian AE are at arm’s length and has not proposed any further adjustment, 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 has held that the finding of PE is also without cogent basis. Be that as it may issue of PE becomes academic and we are not engaging further into it.

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