ZSCALER, INC.,UNITED STATES OF AMERICA vs. DCIT, INTERNATIONAL TAX, CIRCLE 3(1)(1), NEW DELHI

ITA 928/DEL/2025Status: DisposedITAT Delhi18 June 2025AY 2022-23Bench: SHRI ANUBHAV SHARMA (Judicial Member), SHRI MANISH AGARWAL (Accountant Member)18 pages
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What did the Tribunal hold?

The Tribunal held that the Indian subsidiary did not have the authority to conclude contracts on behalf of the assessee and was not habitually engaged in securing orders. Therefore, it did not constitute a DAPE under the India-USA DTAA.

What were the facts?

Zscaler Inc., a US-based company providing software-based information security solutions, filed its Indian tax return declaring 'Nil' income, claiming exemption under the India-USA DTAA. The Assessing Officer (AO) held that its Indian subsidiary, Zscaler Softech India Pvt. Ltd., constituted a Dependent Agent Permanent Establishment (DAPE) in India.

What were the issues?

Whether the Indian subsidiary of a foreign company constitutes a Dependent Agent Permanent Establishment (DAPE) under the India-USA DTAA, and consequently, whether the foreign company's income is taxable in India.

Which sections of the Income-tax Act were involved?

Article 5(4), Article 7, Section 10(50)

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Income Tax Appellate Tribunal, DELHI BENCHES: D : NEW DELHI

Before: SHRI ANUBHAV SHARMA & SHRI MANISH AGARWAL, CCOUNTANT MEMBER

For Appellant: Shri Ajay Vohra, Sr. Advocate;, Shri Kishore Kunal, Advocate;, Ms Ankita Prakash, Advocate; &, Shri Govind Gupta, Advocate
For Respondent: Ms Ekta Jain, CIT-DR
Hearing: 05.05.2025Pronounced: 18.06.2025

PER ANUBHAV SHARMA, JM: These appeals are preferred by the Assessee against the final assessment orders dated 31.10.2023 and 22.01.2025 passed by the Dy. Commissioner of Income-tax, International Tax Circle 3(1)(1), Delhi (hereinafter referred to as the Ld. AO) u/s 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AYs 2021-22 and 2022-23, respectively. Since the issues are common appeal, for AY 2021-2022 is considered lead year appeal and facts or orders wherever relevant are picked or referred from appeal for AY 2021-2022.

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