The Delhi High Court, in a compelling judgment, frowned upon the department’s endeavours to attribute excess profits to an Adobe Enterprise in India by citing a lack of appreciation of a broad gamut of functions performed, and risks assumed, in the Indian entity’s Transfer Pricing Documentation. 

The bench of Justice Yashwant Varma and Justice Harish Vaidyanathan Shankar has observed that 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. 

The respondent/assessee, Adobe Systems Software Ireland Limited2, the respondent/assessee is stated to be a company that had been incorporated under the laws of Ireland and is a tax resident of that nation. It claims benefits of the India-Ireland Double Taxation Avoidance Agreement. ADIR is a wholly owned subsidiary of Adobe Software Trading Company Limited4 and Adobe Systems Incorporated is the ultimate parent company of ADIR. Adobe USA also had a subsidiary in India known as Adobe Systems India Pvt. Ltd.

The Assessing Officer as well as the Commissioner of Income Tax(Appeals)8 had essentially taken the position that Adobe India constituted not only a Fixed Place Permanent Establishment but was also liable to be recognized as a Dependent Agent PE. The assessee aggrieved by those conclusions, had approached the Tribunal and instituted the appeals in question.

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 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.

Previously, the Income Tax Appellate Tribunal had overruled the Revenue’s contention that the functions performed by Adobe India were much wider than what was contained within both intercompany agreements and the transfer pricing analysis. The Tribunal ruled that the Revenue’s arguments were solely based on hypothesis, guess work, and assigning of all sorts of imaginary motives by perusing a few emails. 

The Court concurring with the Tribunal’s conclusions, ruled that “the appellant (Department) 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.”

Case Details

Case Title: The Commissioner Of Income Tax – International Taxation -1 Versus Adobe Systems Software Ireland Ltd.

Case No.: ITA 474/2023

Date: 23 January 2025

Counsel For Petitioner: Ruchir Bhatia

Counsel For Respondent: S. Ganesh, Sr. Adv.

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