BLOOMBERG LP,MUMBAI vs. ADDL DIT IT (IT) RG 3, MUMBAI

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ITA 5529/MUM/2014Status: DisposedITAT Mumbai14 August 2026AY 2008-0916 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the Indian subsidiary was not a dependent agent PE as it operated on a principal-to-principal basis and did not habitually conclude contracts on behalf of the assessee. Therefore, no further profit attribution was warranted.

What were the facts?

The assessee, a US-based company, sold its financial information products to its Indian subsidiary, which then distributed them to end-users in India. The assessee offered the receipts as royalty income, but the AO treated the subsidiary as a dependent agent PE and attributed profits.

What were the issues?

Whether the Indian subsidiary constituted a Permanent Establishment (PE) of the foreign assessee under the India-USA DTAA, and if so, the attribution of profits.

Which sections of the Income-tax Act were involved?

Section 115A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, MUMBAI BENCHES, MUMBAI

Before: SAKTIJIT DEY & ARUN KHODPIA

For Appellant: Shri P.J.Pardiwala-Sr. Adv./, Shri Ketan Ved
For Respondent: Shri Satya Pal Kumar - CIT DR, Shri Ashish Nagesh- SR DR
Pronounced: 14.08.2026

PER SAKTIJIT DEY, VICE PRESIDENT: Captioned appeals by the assessee arise out of two separate orders of learned Commissioner of Income Tax (Appeals)-10, Mumbai, pertaining to assessment years (A.Ys for short) 2008-09 and 2009-10.

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP 2. The core issue arising in the appeal relates to existence or otherwise of a Permanent Establishment (‘PE’ for short) under Article 5 of India-United States of America (USA) Double Taxation Avoidance Agreement (‘DTAA’ for short) and in case there is a PE, the issue of attribution of profit. Of course, the assessee has raised alternative grounds urging that the receipts from its subsidiary Indian company was correctly offered to tax as royalty income u/s.115A of the Act.

3.

Briefly, 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 proceedings, the Assessing Officer called upon the assessee to furnish details notice on the nature of business and the receipts earned from India. In response to the show-cause notice issued by the AO, the assessee furnished the

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP necessary details, reiterating its contention that a license fee earned towards distribution BPS is in the nature of royalty. Further, the assessee submitted that as per the terms of Distribution Agreement with BDS, it is sale of product, simpliciter, and the assessee has nothing to do with the end user/customers of the product, as it is the responsibility of BDS, which sells the product to end user/customers on principal to principal basis. It was submitted by the assessee that it has simply sold the license of the product to the BDS, hence, has offered the receipts as royalty income. The assessee further stated that BDS is carrying on the distribution activities independently without any control of the assessee. Thus, it was submitted that BDS cannot be considered as an agency PE of the assessee.

5.

The AO, however, was not convinced with the submissions of the assessee. Referring to the Distribution Agreement, the AO observed that the assessee exercises control over the business of the Indian subsidiary. He observed, as per the terms of the agreement, the Indian subsidiary cannot sell any product other than the product of the assessee. He observed, since the Indian subsidiary is totally dependent upon the assessee, it has to be treated as a dependent agent PE (DAPE) of the assessee in India. Without prejudice, he observed that the products/services of the assessee are sold in India through joint effort of the assessee and the Indian subsidiary, as the assesse as also the Indian subsidiary provide necessary inputs for creating lucrative, attractive, and alluring products tailored to Indian customers. He further observed that the assessee is providing services in India through personnel of the Indian subsidiary whose expenses are getting reimbursed later on. Thus, the Indian subsidiary can also be held as service PE of the assessee in India. Having held so, the AO proceeded to attribute profit to the

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP PE. While doing so, he allowed deduction of 10% towards expenses out of the total receipts from the Indian subsidiary and treated the balance amount as the income attributable to the PE. Accordingly, he completed the assessment for both the 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, sale, and distribution of BPS in India during the tenure of the Agreement. Clause 9 of the Agreement provides that the assessee shall provide to its Indian subsidiary such network connection to its computer servers in the United States which may be required to develop the BPS to its subscribers in India. Clause 10 of the Agreement provides that the Indian subsidiary shall provide to its

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP customers in India equipment which is compatible with the international communication network on which the BPS are carried out. Alternatively, the customer may use its own hardware, which has been approved by the assessee to receive the BPS Services. Clause 11 provides that the Indian subsidiary shall purchase or lease, at its expense, whatever equipment the assessee needs to receive and distribute the BPS Services in India and to enable subscribers to receive the BPS services. Clause 12 of the agreement provides that the Indian subsidiary undertakes certain activities at its own expenses but to the reasonable satisfaction of the assessee, which includes:

i. The promotion and distribution of BPS services within the territorial limits of India. ii. The execution and enforcement of contracts between the Indian subsidiary and subscribers to the BPS services. iii. The billing and collection of the charges for the BPS services which charges shall be determined by the Indian subsidiary subject to the approval of the assessee and Reserve Bank of India. iv. Submission of applications to communications companies and government agencies for the installation and of leased landlines and/or other means of communication, for access to international communications facilities and for authority to engage in all aspects of distribution of BPS Services as envisaged by the Agreement.

8.

He submitted, after entering into the Distribution Agreement, the Indian subsidiary had independently entered into separate agreements with customers in India for sale and distribution of the products of the services. In this context, he drew our

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP attention to the copy of the sample agreement placed in the paper book. Thus, he submitted, the materials placed on record clearly suggest that the Indian subsidiary is distributing the products/services of the assessee as an independent entity and not as dependent agent. Drawing our attention to Article 5(4) of India-USA DTAA, learned counsel submitted, none of the conditions are fulfilled. He submitted, neither the Indian subsidiary has any authority to conclude contract on behalf of the assesse, 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 specifically exclude services in the nature of royalty and fees for included services. He submitted, undoubtedly, the product/services sold by the assessee are in the nature of license, hence, fall in the category of royalty or FIS. Hence, cannot be included under Article 5(2)(l). He submitted, even the other condition that the services has to be provided through

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP employees or other professional is not fulfilled, as there is no material brought on record by the departmental authorities to establish that the assessee had rendered services through employees or other personnel. Drawing our attention to Article 5(3)(e), learned counsel submitted, even assuming that the assessee has rendered some services, it is in the nature of preparatory or auxiliary character, hence, cannot be included within the definition of PE. Proceeding further, he submitted, the Departmental authorities have wrongly placed reliance upon the decision in case of Reuters Ltd. (33 SOT 301/ITA No.1325/Mum/2001), which was set aside by the ITAT, and in the second round, ITAT has decided the issue in favor of the assessee by holding that there is no PE. He submitted, even the decision of the Authority for Advance Ruling in case of M/s. Booz & Company (Australia) is not applicable. Drawing our attention to the decision of Hon'ble Supreme Court in case of Bhopal Sugar Industries Ltd. vs. Sales Tax Officer, Bhopal (1977 AIR 1275), he submitted, certain restrictions like fixation of price, submission of accounts, selling in a particular area or territory and so on, per se would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale. In this connection, he also relied upon the following decisions:

1.

ESS Distribution (Mauritius) SNC et Compagnie vs. Dy. DIT, IT [2022] 145 taxmann.com 267 (Del-Trib.) 2. Taj TV Ltd. vs. Addl. DIT(IT) [2017] 77 taxmann.com 355 (Mum-Trib.)

10.

Finally, learned counsel submitted, even assuming that the Indian subsidiary constitutes DAPE, no profit can be attributed to the PE as the transactions between the assessee and the Indian PE is at arm's length. In this context, he drew our attention to

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP order dated 27.10.2011 passed u/s. 92CA(3) of the Act by the Transfer Pricing Officer. In support of such contention, learned counsel relied upon the following decisions:

i) 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 grant limited license to the Indian subsidiary to use the intellectual property relating to the products and services. Further, Clause 9 of the Agreement provides that the assessee shall provide the Indian subsidiary such network and connection to its computer servers in USA which may be required to deliver the products and services to subscribers in India. Clause 10 and 11 provide that the Indian subsidiary shall purchase and install equipment, ofcourse, as may be compatible with the

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP international communication network for providing products or services to the Indian customers. Clause 12 of the agreement defines the obligation of the Indian subsidiary, one amongst them being, Indian subsidiary shall be responsible for execution and enforcement of contracts between it and the end-users/customers of BPS. The billing and charges for products and services shall be determined by the Indian subsidiary, of- course subject to the approval of the assessee and the Reserve Bank of India. Clause 13 provides that the Indian subsidiary has to appoint at its own expense, employees and other contractors suitably qualified to distribute and support the provision of products or services to the customers. Clause 28 speaks of Indemnity clause under which the Indian subsidiary indemnifies the assessee against any liabilities, claims, causes of action, suits, damages an expenses which may arise out of the distribution of products and services by the Indian subsidiary. Thus, as could be seen from the terms of the Distribution Agreement, the assessee sells its products/services to the Indian subsidiary, which in turn enters into independent contract with the Indian end user/customers for sale of products and services. Sample copies of contract between the Indian subsidiary and Indian end-user/customers have been placed on record. Keeping in perspective the aforesaid facts, it needs to be decided whether the assessee has a service PE under Article 5(2) of India-USA DTAA or it had a DAPE in India in the form of Indian subsidiary, in terms with Article 5(4) of DTAA.

13.

As regards the existence of service PE, the AO has inferred that the assessee is providing services in India through personnel of BDS to its Indian customers. In this context, the AO has referred to Article 5(2)(l) of India-USA DTAA. Whereas, before learned first appellate authority, the assessee had furnished a detailed submission stating

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP 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 defined in Article 12 (Royalties and Fees for Included Services), within a Contracting State by an enterprise through employees or other personnel. Provided, firstly, the activities relating to such service continued within that State for a period or periods aggregating more than 90 days within any twelve-month period or secondly, the services are performed within the State for a related enterprise (Associated Enterprises). However, Article 5(3)(e) carves out certain exceptions inter alia the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character for the enterprises.

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP 14. In the facts of the present appeal, before departmental authorities, the assessee had specifically stated that though the employees visited India for period of exceeding 90 days, however, they were for auxiliary activities of the following nature:

i) Overseeing the operation of its Indian subsidiary. ii) Providing training to the employees of BDS iii) Providing BDS with administrative and general support iv) Assisting BDS in governing of news, information and providing support on the sales of its products Bloomber Professional Service.

15.

The fact that the employees of the assessee were in India for the aforesaid activities has not been disputed either by the A.O. or learned first appellate authority. While the A.O. has stated that the assessee is providing services to customers/end user in India through the employees of BDS, learned first appellate authority has observed that the activities carried out on behalf of the assessee are much beyond the normal stewardship/auxiliary activities. However, learned first appellate authority is completely silent on the allegation of the A.O. that the assessee was providing services to Indian customer’s /end users through employees of BDS.

16.

On the contrary, learned first appellate authority has very categorically observed that the employees of the assessee were providing training, assistance and governing of news information and providing support on its products to the employees of BDS. If we examine the aforesaid facts in the context of Article 5(2)(l) of Indian-USA DTAA it can be seen that the employees of the assessee in addition to overseeing the operations 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

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP 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 12 of the tax treaty. Article 12 of tax treaty provides for taxation of royalties and FTS. Admittedly, the assessee has treated the receipts from BDS to be in the nature of royalty. Whereas, Article 12(4) defines FIS to mean fee for any technical or consultancy services. Therefore, it needs to be established whether the services rendered by the assessee to BDS are in the nature of technical or consultancy services. In case, such services are in the nature of technical or consultancy services falling under Article 12(4), they cannot be included under Article 5(2)(l). The departmental authorities have failed to establish that the services rendered by the assessee to BDS are beyond stewardship/auxiliary activities or they do not fall within the ambit of FIS under Article 12(4). Thus, without ascertaining the nature of services provided by the assesse, it cannot be said that the assessee is having a service PE.

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP 17. As regards the existence or otherwise of DAPE under Article 5(4), the departmental authorities have concluded existence of DAPE for the reason that the Indian subsidiary is exclusively engaged in distribution of products/services of the assessee and is not permitted to undertake any other distribution activity. Further, it is the say of the departmental authorities that the assessee exercises control over the Indian subsidiary. Insofar as, the business activity is concerned, it is under the effective control of the assessee and has to be carried out under the strict directive and guidance of the assesse. It has been held that the Indian subsidiary being the sole distributor of the assesse’s product does not have any free and independent decision making power to even raise bills to the customers in India.

18.

Keeping in view the aforesaid line of reasoning of the departmental authorities, it is necessary to examine Article 5(4) of India-USA DTAA. A reading of the said article makes it clear that the entity can be considered as a dependent agent in the following circumstances:

a) It habitually exercises an authority to conclude contract. b) Even if he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of other enterprises. c) He habitually secures orders in the first-mentioned State, wholly or almost 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

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP 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 record do reveal that the Distribution Agreement does not restrict the assessee from choosing its customers and selling the products/services of the assesse, in any manner. Of course, the Distribution Agreement certainly provides for maintaining the standard protocol framed by the parent company. From the invoices raised by the assessee on BDS, it is quite clear that the assessee is no way concerned with the transaction between the Indian subsidiary and the end customers. So far as, the sales of products by the Indian subsidiary to end customers, the Indian subsidiary has raised separate invoices to them.

20.

Thus, the aforesaid facts clearly demonstrate that the sale of products /services by the Indian subsidiary to the end customers in India is on principal to principal basis and not for and on behalf of the assessee. Therefore, in our view, the Indian subsidiary cannot be considered as DAPE of the assessee in India. Further for sake of completeness,

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP we must observe, even assuming that the Indian subsidiary can be considered as DAPE, however, there is no question of attributing further profit as the transaction between the assessee and the Indian subsidiary has been found to be at arms length by the TPO in order passed u/s. 92CA(3) of the Act. The judicial precedents cited before us by ld. Counsel clearly support this view. Thus, on over all consideration of facts and materials on record, we conclude that the assessee does not have any PE in India in the form of BDS. Hence, further attribution of profit to such non-existent PE is untenable. Accordingly, we direct the A.O. to accept the income declared by the assessee in the returns of income filed in both the assessment years under dispute.

21.

In view of our decision, in foregoing paragraphs, various other ground raised by the assessee on secondary issues having become academic do not require adjudication. So far as grounds relating to levy of interest u/s. 234B of the Act initiating of penalty proceedings, they having become infructious are dismissed.

22 In the result, the appeals are partly allowed.

Order pronounced in the open court on 14.08.2026

Sd/- Sd/- ARUN KHODPIA SAKTIJIT DEY ACCOUNTANT MEMBER VICE PRESIDENT Mumbai Dated: 14.08.2026

ITA Nos. 5529 & 5530/MUM/2014 (A.Y. 08-09 & 09-10) BLOOMBERG LP Copy to: BLOOMBERG LP, C/O. DELOTTE HASKINS & SELLS LLP. INDIABULLS FINANCE CENTRE, TOWER, 3, 28TH FLOOR, ELPHINSTONE 1 MILLS COMPOUND, SENAPATI BAPAT MARG, ELPHINSTON (W) -400013, MAHARASHTRA ADDL DIT IT (IT) RG 3, IST FLOOR, R.NBO. 103, SCINIDA 2 HOUSE, N.M. MARG BALLARD PIER ,, -400038, MAHARASHTRA 3 THE PCIT / CIT, 4 THE D.R., ITAT, MUMBAI BENCH 5 GUARD FILE

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