TaxTMI 
TaxTMI 
2026 (8) TMI 1108
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....y, the facts are, the assessee is a non-resident corporate entity, incorporated in USA and stated to be engaged in the business of providing financial information throughout the world, such as, up to date business-markets-commodity-currency information, news and media reports through web portal and web network based product known as Bloomberg Professional Services (BPS). The assessee had a subsidiary in India, M/s. Bloomberg Data Service Private Limited (BDS), which is also its Associate Enterprises. The assessee had entered into a distribution agreement with BDS, in terms of which, BDS operates as a distributor of BPS. It is stated, in terms with the agreement, the assessee sells its products to BDS, which in turn, sells them to the end user/customers in India on principal to principal basis. In assessment years 2008-09 and 2009-10, the assessee received Rs. 122,59,10,894/- and Rs. 198,85,65,732/- from BDS towards license fee for sale and distribution of BPS. In the returns of income filed in the assessment years under dispute, the assessee offered the receipts as 'royalty income' under section 115A of the Act, with applicable tax rate of 10%. 4. In course of assessment proceed....
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....he assessments years in dispute. 6. Though, the assessee challenged the assessment order by filing appeals before learned first appellate authority on various grounds, however, learned first appellate authority did not found merit in them. Thus, ultimately, the additions made were sustained. 7. Before us, learned counsel appearing for the assessee drew attention to the Distribution Agreement dated 01.04.2007 entered with the Indian subsidiary and submitted that the assessee had agreed to make available to the Indian subsidiary its product and services for distribution in Indian market. The Agreement further provides that the Indian subsidiary shall have the right to distribute the products and services of the assessee in India to customers to use within the territorial limits of India. The Agreement further made it clear that the Indian subsidiary without written consent of the assessee, act as a distributor or for any other information vendor competing with the products and services of the assessee. As per the terms of the Agreement, the assessee granted limited license to the Indian subsidiary to use the intellectual property in connection with the publication, marketing, s....
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....ed counsel submitted, none of the conditions are fulfilled. He submitted, neither the Indian subsidiary has any authority to conclude contract on behalf of the assessee, nor it maintains stock of goods or merchandise from which it regularly derives goods or merchandise on behalf of the assessee. He submitted, even the Indian subsidiary does not secure any order wholly for the assessee. Thus, he submitted, the conditions of DAPE as provided under Article 5(4) of the treaty are not satisfied. Drawing our attention to paragraph 6 of the Article 5, he submitted, merely because the Indian subsidiary is an associate enterprise of the assessee or the assessee holds stake in it or exercises some control over it, that by itself does not make Indian subsidiary PE of the assessee. 9. With regard to the observation of the Department that the Indian subsidiary can be considered to be a service PE, learned counsel drew our attention to Article 5(2) and submitted that the allegation of the departmental authorities is that the assessee provided services in India by utilizing employees of the Indian subsidiary. In this connection, he drew our attention to Article 5(2)(l) and submitted that it sp....
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.... DIT vs. Morgan Stanley & Co. [2007] 162 Taxman 165 (SC) ii) ADIT vs. E-Funds IT Solution Inc. [2017] 86 taxmann.com 240 (SC) iii) Honda Motor Co. Ltd. vs. ADIT [2018] 92 taxmann.com 353 (SC) iv) PCIT vs. Samsung Electronics Co. Ltd. [2025] 170 taxmann.com 417 (Del) 11. Learned DR strongly relied upon the observations of the AO and learned First Appellate Authority. 12. We have given a thoughtful consideration to rival contentions, perused the materials available on record and applied our mind to judicial precedents cited before us. Undisputedly, the assessee had entered into a distribution agreement with its Indian subsidiary, for distribution of its products or services. A reading of the said agreement, a copy of which is placed in the paper book, reveals that as per Clause 1, during the tenure of the agreement, the assessee would make available to BDS its various products and services for onward distribution to end-user/customers in India. Under Clause 2 of the Agreement, the Indian subsidiary was granted right to distribute the products and services to customers within the territorial limits of India. Clause 3 provides that the assessee would gr....
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....iled submission stating that none of its employees had visited India for providing services to Indian customers of BDS. Rather, the assessee had specifically submitted that its employees had visited India for mostly activities which are in the nature of auxiliary services. In this context, learned first appellate authority had observed that the employees of the assessee had visited not only for overseeing operation of its Indian subsidiary, but also for providing training, assistance in gathering of news, information and supporting on the sales of its products. He has further stated that the assessee had rendered services to its Indian subsidiary by assisting in various activities by news gathering sale of products in India essentially for running the business of Indian subsidiary. Hence, he ultimately, held that the activities of the assessee are much beyond the normal auxiliary activities. With the aforesaid observations, he concluded that the assessee had a service PE in India. 13. Before we proceed to evaluate acceptability of the aforesaid observations, it is necessary to note what Article 5(2)(l) postulates (l) furnishing of services, other than included services as define....
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....of the Indian subsidiary were providing training and some other assistance to the Indian subsidiary. Essentially, learned first appellate authority has accepted that some of the activities carried on by the assessee are in the nature of stewardship/auxiliary activities. Thus, it has to be seen what is nature of other activities/services provided by the assessee to BDS. It needs to be ascertained the nature of other services like training, assistance in gathering news, etc., whether falls within the purview of the services defined under Article 12 such as royalties and FIS. Insofar as, the overseeing operation of the Indian subsidiary, there cannot be any doubt that it is in the nature of auxiliary/stewardship activity. Hence, for this reason there cannot be any service PE. Insofar as, activities relating to providing trainings to employees of BDS, providing BDS with administrative and general support, assisting BDS to gather news, information, processing and providing support on the sales of its products, neither the A.O. nor learned first appellate authority have discussed in detail the nature of such services. Article 5(2)(l) excludes services of the nature falling under Article ....
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....st fully for the enterprise. 19. It needs to be factually examined whether these conditions are fulfilled in the facts of the present case. Undoubtedly, the assessee has independently entered into agreements with the Indian customers for sale of BPS. There is nothing on record to suggest that Indian subsidiary has entered into such contracts on behalf of the assessee. There is no privity of contract between the assessee and the Indian customers. In fact, in the event of any dispute between the Indian subsidiary and the Indian customers, the assessee cannot be held liable as the Indian subsidiary has indemnified the assessee from all such eventualities. The facts on record reveal that under the Distribution Agreement, the Indian subsidiary has not been given any authority to enter into contract on behalf of the assessee. Though, it may be a fact that the assessee exercises some control with regard to its products/services licensed to the assessee. However, that in our view, is a normal activity which any parent company exercises over its subsidiary. That by itself does not make the subsidiary a dependent agent. Not only the Distribution Agreement, but facts and materials on recor....