ADOBE SYSTEMS SOFTWARE IRELAND LIMITED,DUBLIN, IRELAND vs. CIRCLE 1(1)(1) - ASSISTANT COMMISSIONER OF INCOME TAX, NEW DELHI

ITITA 24/DEL/2026Status: DisposedITAT Delhi28 July 2026AY 2023-2411 pages
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What were the facts?

The assessee, Adobe Systems Software Ireland Limited, is a tax resident of Ireland and a subsidiary of Adobe Inc., US. The assessment year is 2023-24. The appeal challenges an assessment order passed under Section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961. The assessee earned revenue from software distribution/licensing, automated services, services involving human intervention, and interest on income tax refund. While income from human intervention services and interest on refund were offered to tax as per the India-Ireland DTAA, the Assessing Officer (AO) made additions for software distribution and automated services, holding that the assessee had a Permanent Establishment (PE) in India and was not entitled to treaty benefits. The AO also attributed 35% profit to the alleged PE.

What did the Tribunal hold?

The Tribunal held that the issues of treaty benefit eligibility, PE existence, and profit attribution are legacy issues that have been consistently decided in favour of the assessee by the Tribunal and confirmed by the Hon'ble Delhi High Court in preceding assessment years. The Tribunal noted that the Hon'ble High Court upheld the Tribunal's findings, and the Revenue's appeals against these decisions were dismissed or admitted to have no substantial question of law. The Tribunal found the Revenue's reliance on MLI provisions to distinguish the High Court's judgment to be without substance, as MLI would not operate in the absence of notification under Section 90(1) of the Act. Therefore, grounds 2 to 4 were decided in favour of the assessee. Regarding interest on income tax refund (ground 5), the Tribunal, following its own order for AY 2020-21, directed that such interest be taxed at 10% as per Article 11 of the India-Ireland DTAA, allowing the ground. Interest under Section 234B (ground 6) was held to be consequential and mandatory, thus dismissed. Credit for TDS (ground 7) was restored to the AO for verification and allowance if not already granted. Initiation of penalty proceedings under Section 270A (ground 8) was deemed premature and dismissed. The appeal was partly allowed.

What were the issues?

1. Whether the assessee is eligible for treaty benefits under the India-Ireland Double Tax Avoidance Agreement (DTAA) in light of the Assessing Officer's findings? (Question of law) 2. Whether the assessee has a Permanent Establishment (PE) in India as per Article 5 of the India-Ireland DTAA? (Question of mixed law and fact) 3. Whether an ad-hoc attribution of profit at 35% to the alleged PE in India is justified? (Question of mixed law and fact) 4. Whether interest on income tax refund is taxable at the rate of 10% as per Article 11 of the India-Ireland DTAA? (Question of law) 5. Whether interest under Section 234B of the Act is leviable? (Question of law) 6. Whether credit for Tax Deducted at Source (TDS) amounting to Rs. 28,15,026/- should be allowed? (Question of fact) 7. Whether initiation of penalty proceedings under Section 270A of the Act is valid at this stage? (Question of law) Assessee's contentions: The assessee argued that income from software sales is not royalty, citing *Engineering Analyses Center of Excellence vs. CIT*. It contended it has no PE in India, thus business income is not taxable. Alternatively, if Adobe India is a PE, no further attribution is needed as Adobe India was compensated at arm's length. The assessee also relied on previous Tribunal and High Court orders in its own case for preceding assessment years, which held that the assessee is eligible for treaty benefits, has no PE, and no profit attribution is required. For interest on refund, it argued for a 10% tax rate as per the DTAA. Revenue's contentions: The Revenue supported the AO's order and DRP's directions. It argued that the Hon'ble High Court's decision was prior to the insertion of Explanation 2A to Section 9(1) and the application of Article 13 of the MLI to Article 5 of the DTAA. It relied on MLI provisions.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 144C(13),Section 9(1)(i),Section 90(1),Section 234B,Section 270A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI

Before: SHRI VIKAS AWASTHY & SHRI SANJAY AWASTHI

PER VIKAS AWASTHY, JUDICIAL MEMBER:

This appeal by the assessee is directed against the assessment order dated 18.11.2025 passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’), for Assessment Year 2023-24. 2. The facts of the case in brief as emanating from records are: The assessee

The order continues below.

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