Adobe India Is Not Dependent Agent PE Of Adobe Ireland: Delhi High Court Negates Attribution Of Further Profits

The Delhi High Court has upheld an order of the Income Tax Appellate Tribunal to the effect that Adobe Systems India Pvt. Ltd is not a dependent agent permanent establishment (DAPE) of Adobe Systems Software Ireland Ltd.In doing so, a division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar affirmed that no further attribution of profit can be made as Adobe India was remunerated at arm's length.As per the AO, Adobe India was not a mere PE (Permanent Establishment) but a DAPE.PE is a place of business in India from which a non-resident carries on business in India and hence becomes liable for taxes. DAPE is an agent which carries on business for a non-resident, even without a place of business.The Tribunal had found that as per the TPO, the income attributable to the PE (Adobe India) had already been subjected to tax.In its appeal, the Revenue argued that all the functions performed and risks assumed by Adobe India were not considered in the Transfer Pricing Analysis and thus, there was a need to attribute profits for those functions/risks that have not been considered.Revenue relied on certain emails to conclude that activities actually performed by Adobe India are wider in nature as against the activities pointed out in the contract and transfer pricing report.It cited DIT v. Morgan Stanley & Co. Inc. (2007) where the Supreme Court had held that where the transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise, there would be a need to attribute profits to PE for those functions/ risks that have not been considered.The High Court however said that no material was placed before it to establish that Adobe India was performing functions which were “wider in scope”, stretching to matters which had not formed subject matter of examination in the Transfer Pricing Report.It said, “Quite apart from the exhaustive analysis of the issue by the Tribunal, we are constrained to note that the appellant had woefully failed to make good its contention that certain aspects or facets of the functioning of the Associate Enterprise did not form part of the Transfer Pricing Analysis…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.”For context, the Tribunal had found that the emails in question were marked to the Adobe India personnel only to keep them in the loop. In none of those emails Adobe India had provided any guidance or directions, ITAT had observed.Revenue had also contended that the facts of the case indicate a Double Irish Model of corporate structuring aimed at tax avoidance. This model 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.The High Court said it fails to understand how that principle could have had any relevance to income which was asserted by the Revenue itself to have arisen or accrued in India.Accordingly, it dismissed the appeal and held that Adobe India had already been subjected to tax.Appearance: Mr. Ruchir Bhatia, SSC for Appellant; Mr. S. Ganesh, Sr. Adv. with Mr. Vishal Kalra and Mr. S.S. Tomar, Adv for RespondentCase title: The Commissioner Of Income Tax - International Taxation -1 v. Adobe Systems Software Ireland LtdCitation: 2025 LiveLaw (Del) 139Case no.: ITA 474/2023Click here to read order

Adobe India Is Not Dependent Agent PE Of Adobe Ireland: Delhi High Court Negates Attribution Of Further Profits

Kapil Dhyani

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