TaxTMI 
TaxTMI 
2025 (6) TMI 1630
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....evant facts as picked from record and submissions are that the assessee is a company incorporated under the laws of USA and is stated to be engaged in the business of providing software-based information security solution to various customers in India and around: the globe. The Assessee delivers following four integrated and comprehensive solutions to customers using cloud platform, the Zscaler Zero Trust Exchange: (i) Secure access to the internet and SaaS with Zscaler Internet Access or ZIA (ii) Secure access to internal applications with Zscaler Private Access or ZPA (iii) Management and enhancement of the user-to-application experience with Zscaler Digital Experience or ZDX; and (iv) Protection for public cloud workloads, servers and internet of things, or IoT, devices with Zscaler Cloud Protection or ZCP. 2.1 Further, the assessee has submitted that., the assessee is the patent owner of the above softwares. The software are sold through distributors/resellers in India and assessee has a subsidiary in India i.e., ZSCALER Softech India Pvt Ltd, which provides Information technology, IT support, sales support and marketing services. 3. Th....
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....ependent agent falling out of the scope of dependent agent as per paragraph 5 of Article 5 of India-USA DTA, M/s ZSCALER Softech India Pvt. Ltd., acts wholly for Zscaler Software products for distribution of software in India. Therefore, in view of the aforesaid provisions, M/s ZSCALER Softech India Pvt. Ltd., would not be excluded from the definition of DAPE as it is not an independent agent. 5. Accordingly, relying Article 7 of Indian DTAA, the ld. AO concluded that in the instant case, M/s ZSCALER Softech India Pvt. Ltd., the PE is engaged in licensing/ selling of software in India for which the PE has provided marketing and sales support. Accordingly, the profit of the PE would be profit from distribution of software and commission income for intermediation. 6. The assessee vide its reply to show cause also stated that it has paid equalisation levy on the total receipts and hence the receipts should be exempt under section 10(50) of the Income Tax Act. However, that was not sustained by the ld. AO for following reasons; "Firstly, the assessee the assessee deliberately did not disclose this information in the proceedings earlier and submitted it in the last respon....
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....eceipts don't fall under the chapter of equalisation levy and hence are not eligible for exemption under section 10(50) of the Act." 7. The objections filed by the assessee were dismissed by the Dispute Resolution Panel (DRP), for which the assessee is in appeal and the grounds as cover the issues for both years are reproduced below from appeal for AY 2021-2022:- "1. That on the facts and circumstances of the case and in law, the Ld. AO has erred in determining the taxable income of the Appellant for the subject year at INR 32,84,67,754 as against Nil returned income and accordingly, the impugned order passed by the Ld. AO is bad in law and void ab initio. 2. That on the facts and circumstances of the case and in law, the Ld. AO erred in passing the impugned order without appreciating the correct factual position and legal principles brought on record by the Appellant. 3. That on the facts and circumstances of the case and in law, the Ld. AO has erred in holding Zscaler Softeeh India Private Limited ('Zscaler India') as Dependent Agent Permanent Establishment ('DAPE') of the Appellant without issuing show cause notice and without providing opportun....
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.... above grounds of appeal either before or during the hearing before the Hon'ble Tribunal. Further, the aforesaid grounds are mutually exclusive mid without prejudice to each other." 8. Now based on the rival contentions, and considering that ld. Sr. Counsel as well as the ld. DR have heavily relied the various clauses of Reseller Agreement and Service agreement, we consider it expeditious to reproduce certain extracts from the relevant Reseller Agreement entered by assessee with one of its Partners, M/s Tech Mahindra Ltd., copy of which is made available at pages 1-19 of PB, and pertinent is to mention that such agreements with other Partners like Infoysys Ltd. and other companies are made available at pages 20- 64 of the PB. "1.4 "End User Subscription Agreement" or "FUSA" means the terms of service by and between End User and Zscaler governing the use of the Services by such End User. "1.10 "Services" means those Zscaler products and services provided to an End User pursuant to a valid Purchase Order accepted by Zscaler. 2.1 Grant of Rights for Managed Service. Subject to the terms of this Agreement, Zscaler hereby grants Partner a non-exclusive, non....
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....ditions of this Agreement. The parties agree that any conflict between the provisions of a Purchase Order and the terms contained in this Agreement will be resolved in favor of the terms contained in this Agreement. By entering into this Agreement, Partner waives any preprinted terms and conditions set forth in its Purchase Order (or any other Partner document) that may be accepted by Zscaler for Partner's convenience. Zscaler shall invoice Partner pursuant an accepted Purchase Order following the scheduling of the activation of Services for an End User. Partner is responsible for invoicing the End User for any applicable fees that Partner charges to the End User, and Partner is solely responsible for collection from End User of such fees. 5.2 Prices for Services: Partner shall receive a discount off of Zscaler's Retail Price List for the Services based on Partner's Partner Level as agreed to separately by the parties. Prices do not include sales, use, VAT, excise, export, withholding or similar taxes or fees. Zscaler reserves the right to change the Retail List Prices for the Services at any time with at least thirty (30) days prior written notice; however, an....
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....ket expenses incurred during provision of services on actual basis and will obtain prior approval. Service Provider shall mention Service Fee separately for each category of service as mentioned in Appendix-B for which invoice is raised. Service Provider shall send a monthly invoice to Service Recipient Section 8: Intellectual Property 8.1 Disclose: Service Provider hereby agrees that all Innovations and Work Product that are made, conceived, developed, reduced to practice, discovered or created (in each case, whether or not during regular business hours) by Service Provider and its employees (solely or in collaboration with others) arising from or relating to the provision of any Services, including without limitation any Work Product and Innovations that relate to any products of Service Recipient and predecessors and earlier versions thereof, shall be disclosed in writing promptly to Service Recipient and shall be the sole and exclusive property of Service Recipient. 8.10 Attorney-in-Fact: Service Provider irrevocably appoints Service Recipient to be its attorney-in-fact, and on its behalf to sign execute or make any such instrument, and generally to u....
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....Appellant also paid Equalization Levy while treating provision of software-based information security solutions as E-commerce supply or services. With change of law, now the revenue has changed its stance and has alleged Zscaler India is a Dependent Agent Permanent Establishment of the Appellant as per Article 5(4) of the India USA DTAA and attributed revenue earned by same to appellant. 12. Now to examine the issue as to how far the assertion of Revenue is sustainable we find that as per Article 5(4) of the India-US DTAA, DAPE is established subject to fulfillment of the following pre-conditions: i. Existence of a principal-agent relationship between the concerned entities; ii. Agent having authority to conclude contracts on behalf of the foreign enterprise; iii. Agent maintains stock of goods or merchandise; iv. Agent secures orders on behalf of the foreign enterprise; 13. The relevant clauses of the two agreements referred above nowhere categorically provide at for principal agent relationship between the Appellant and Zscaler India. They apparently transact on a principal-to-principal basis and there is no element of agency as defined u....
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....enters into end user subscription agreement with the Appellant for the said software-based security solutions. Revenue is unable to show that if at all throughout the this process Zscaler India does have any involvement in the capacity of an agent maintaining any stock of goods or merchandise pr procuring any orders on behalf of the Appellant. 15. The services extended by Zscaler India to Indian customers is by way of updates to clients on benefits received from the Appellant's product and also understands that if the customers are interested in renewal of Contracts. Same merely amounts to marketing support services to the Appellant. Thus, it is sufficiently made evident by ld. Sr. Counsel that none of the conditions stipulated in Article 5(4) of the India USA DTAA are met in the present case inasmuch as, there is neither any principal agent relationship between the Appellant and Zscaler Indian or Zscaler India has any authority to conclude contracts on behalf of the Appellant and has not secured orders on behalf of the Appellant. 16. In this regard the law is settled where the jurisdictional High Court in Progress Rail Locomotive Inc. vs. DCIT, (2024) 163 taxman.com[See Pg. ....
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....be deemed to be a PE/DAPE. 18. The two-fold submissions made by the Departmental Representative during the course of the argument were: i)Zscaler India is a DAPE of the Appellant as the Appellant failed to produce any evidence such as email record, travel itinerary etc. to satisfy that it is the Appellant who was directly involved with the contract negotiation and conclusion; ii) the Tribunal needs to consider substance over form in this case and relied upon the judgment of Daikin Industries Ltd. vs. ACIT, [2018] 65 ITR(T) 693 (Delhi - Trib.)and Rolls Royce Singapore (P.) Ltd. vs. ADIT, [2012] 347 ITR 192 (Delhi). 19. We are of the considered view that the burden to prove, that assessee has a PE in India lies initially on the Revenue as held by the Hon'ble apex Court in Assistant Director of Income-tax-1, New Delhi vs. E-Funds IT Solution Inc. [2017] 399 ITR 34 (SC). As discussed above there was no discussion of ld.Tax authorites on basis of any material available in the form of two agreements, we have discussed to show that any element of agency was there in the respective rights and obligations of two parties. Evidence such as email record, travel itinerary etc. would not h....