Thursday, May 19, 2016

Indian subsidiary won’t form PE of foreign parent Co even if latter has right to audit subsidiary

a) Adobe Systems Incorporated (“assessee”) is a company incorporated outside India having a wholly owned subsidiary in India (Adobe India).

b) Adobe India provides software related Research and Development (R&D) and is paid on cost plus basis in terms of an agreement entered into between the Assessee and Adobe India.

c) Assessee claimed that such income received from Adobe India was not assessable in India as assessee did not have any business operations in India, thus he did not file return in India.

d) Assessing O􀁹icer (AO) issued notice under section 148 on observation that as per the agreement between assessee and Adobe India, it was obliged to audit the facilities of Adobe India for maintenance of the requisite standards. Therefore, it had a Service PE in India in terms of Article 5(2)(l) of the Indo-US DTAA and was liable to file return of income and pay taxes in India.