No PE in India When Indian Affiliate Only Identified Leads | ITAT

Case Details: App Dynamics International Ltd. v. ACIT Intl. Taxation [2025] 178 taxmann.com 730 (Delhi-Trib.)

Judiciary and Counsel Details

• Challa Nagendram Prasad, Judicial Member & Naveen Chandra, Accountant Member
• Nageswar Rao & Pratik Rath, Advs. for the Appellant.
• Siddharth Bhim Singh Meena, CIT-DR for the Respondent.

Facts of the Case

The assessee was a non-resident company incorporated in the United Kingdom. It was engaged in the sale of off-the-shelf software. During the relevant assessment year, the assessee had receipts from the sale of off-the-shelf software to its third-party customers in India. The assessee had considered such receipts as non-taxable as per the provisions of the Income-tax Act, 1961. While remitting payment for off-the-shelf software, customers in India withheld taxes at source.

During the assessment proceedings, the Assessing Officer (AO) discovered that the assessee had received Marketing and Sales Support Services from one of its associated enterprises, AppD India, in India. Referring to the contract between the assessee and AppD India, and Article 5 of the UK-India DTAA, the AO held that AppD India was the Dependent Agent Permanent Establishment (DAPE) of the assessee. Finally, AO attributed 75 per cent of profits from offshore sales to the PE of the assessee for its operations carried out in India.

The matter reached before the Delhi Tribunal

ITAT Held

The Tribunal held that the AO had selectively read the ISA to arrive at his conclusions. According to the ISA, AppD India was a separate legal entity primarily engaged in marketing and sales support services. While the overall marketing strategy was defined by AppD UK, the day-to-day management to execute the defined strategy was monitored independently by AppD India. AppD UK had no role in relation to the same. AppD India was an independent contractor both legally and economically, as it employed its resources and provided similar services to other parties.

Further, it was noted that AppD India performed its function in the ordinary course of business. While the marketing strategy was determined by AppD UK, it was AppD India that executed the strategy and performed necessary actions as it deemed fit in the normal course of business.

Further, the AO had not controverted the assessee’s assertion that AppD India did not maintain/deliver stock of goods/software on behalf of AppD International. Neither had he established that AppD India secured orders, where leads identified by it were definitely converted into orders.

List of Cases Referred to

• Rajesh Babubhai Damania v. ITO [2002] 122 Taxman 614/[2001] 251 ITR 541 (Guj) (para 7)
• Set Satellite (Singapore) Pte. Ltd. v. Dy. DIT, International Taxation [2008] 173 Taxman 475/307 ITR 205 (Bom) (para 11)
• DIT (International Taxation) v. Morgan Stanley & Co. [2007] 162 Taxman 165/292 ITR 416 (SC) (para 11).