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TMI Blog2025 (1) TMI 1412X X X X Extracts X X X X X X X X Extracts X X X X ..... fits to the PE would have not justified the Tribunal in proceeding to interfere with the views that were expressed by the AO as well as the CIT(A).
We, however, find that although it appears to have been urged before the Tribunal that Adobe India was performing functions which were "wider in scope" and also stretched to matters which had not formed subject matter of examination in the Transfer Pricing Report, the Tribunal on facts has found that the said conclusions were wholly unjustified and were merely assumptions made by the appellants and were not founded on any material or evidence which formed part of the record.
Double Irish model of Corporate Structuring and a perceived scheme of tax avoidance - Double Irish model which is spoken of by various authors essentially alludes to advantages that may be taken by certain entities of a "loophole" existing in the Irish law so as to escape taxation in that nation. We, however, fail to comprehend or appreciate how that principle could have had any relevance to income which was asserted by the appellants themselves to have arisen or accrued in India. X X X X Extracts X X X X X X X X Extracts X X X X ..... nd is a tax resident of that nation. It accordingly claimed benefits of the India-Ireland Double Taxation Avoidance Agreement [DTAA]. ADIR is a wholly owned subsidiary of Adobe Software Trading Company Limited [ASTCL] and Adobe Systems Incorporated [Adobe USA] is the ultimate parent company of ADIR. Adobe USA also had a subsidiary in India known as Adobe Systems India Pvt. Ltd. [Adobe India]. 5. The Assessing Officer [AO] as well as the Commissioner of Income Tax(Appeals) [CIT(A)] had essentially taken the position that Adobe India constituted not only a Fixed Place Permanent Establishment [PE] but was also liable to be recognized as a Dependent Agent PE [DAPE]. The assessee aggrieved by those conclusions, had approached the Tribunal and instituted the appeals in question. 6. While dealing with the principal question of a Fixed Place PE as well as DAPE, the Tribunal has taken note of the Transfer Pricing Analysis which was undertaken by the Transfer Pricing Officer [TPO] and has thus taken the view that since the income attributable to the PE had already been subjected to tax, no further exercise was liable to be undertaken. 7. Mr. Bhatia, learned counsel for the appellants, how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justified by a transfer pricing analysis and, therefore, no further income could be attributed to the PE (MSAS). In other words, the said ruling equates an arm's length analysis (ALA) with attribution of profits. It holds that once a transfer pricing analysis is undertaken, there is no further need to attribute profits to a PE. The impugned ruling is correct in principle insofar as an associated enterprise, that also constitutes a PE, has been remunerated on an arm's length basis taking into account all the risk-taking functions of the enterprise. In such cases nothing further would be left to be attributed to PE. The situation would be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to PE for those functions/risks that have not been considered. Therefore, in each case the data placed by the taxpayer has to be examined as to whether the transfer pricing analysis placed by the taxpayer is exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case. Lastly, it may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTAA r.w. 10A of the Income Tax Rules, 1962. In view of the above, we are of the opinion that the decision of the Hon'ble Apex Court as above squarely applies in this case. Hence, holding that since the transactions between the assessee and its Indian AE has been found to be at Arm's Length in the transfer pricing adjustment, no further attribution can be made to the PE of the appellant as claimed. Hence, this issue needs to be decided in favour 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. 85 Ors. The Ld. CIT(A) hypothesized that Adobe Systems, Inc. & Ors. would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are only also marked to the Adobe India personnel which has been said to be done only for the sake of keeping the Adobe India in the loop. In none of the e-mail referred Adobe India has actually provided guidance and directions regarding the quotes. This is a fiction of imagination by the Revenue. Hence, the functions attributed on the basis of these e-mails are not at all enlarging the scope of actual functions performed by the AE than as per the agreement 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerates expenses that reduce the amount of Irish tax it pays. The second company, which is incorporated in Ireland but not tax resident in the country, collects the royalties in a tax haven, thereby avoiding Irish taxes. "Typically the IP holding company earns much of the profits as it owns the valuable IP. A much smaller amount of profits is earned in countries with sales activity," says Peter Vale, tax expert at Grant Thornton. The "Double Irish" scheme takes advantage of a loophole in Irish law, which enables companies to be registered in Ireland without being tax resident in the country." 13. As is manifest from the above, the Double Irish model which is spoken of by various authors essentially alludes to advantages that may be taken by certain entities of a "loophole" existing in the Irish law so as to escape taxation in that nation. We, however, fail to comprehend or appreciate how that principle could have had any relevance to income which was asserted by the appellants themselves to have arisen or accrued in India. 14. We, consequently, find no justification to interfere with the judgment handed down by the Tribunal. The appeals fail and shall stand di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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