AUTOMATION ANYWHERE INC,USA V. ACIT, CIRCLE INT. TAXATION 1(1)(1), DELHI

ITA 1615/DEL/2023

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The case involves Automation Anywhere Inc., a US-based company, appealing against the final assessment order for the Assessment Year 2020-21, which included a demand notice under Section 156 of the Income-Tax Act, 1961. The primary contention was regarding the taxation of software license fees attributed to a fixed place Permanent Establishment (PE) in India. The Assessing Officer had treated 25% of the software license fee as taxable in India, citing the existence of a PE. However, the Tribunal, referencing previous decisions and the absence of new facts, ruled that the income from software license fees should not be attributed to a PE in India, thus not taxable under the cited provisions.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 312913 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2020-2021
• Other Referred Cases: ADIT Vs. E Funds IT Solutions Inc., Formula 1 World Championship Ltd. Vs. CIT
• Laws Referred To: Income-Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAJNA PARAMITA
• Assessee Lawyers: DAMODARAN P. VAIDYA
• Keywords: Business income; Corroborative evidences; Wholly owned subsidiary; Permanent establishment; Application of stay
• Section: 143(3); 5(2)

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH, ‘D’: NEW DELHI BEFORE SHRI ANUBHAV SHARMA, JUDICIAL MEMBER AND SHRI BRAJESH KUMAR SINGH, ACCOUNTANT MEMBER ITA No.1615/DEL/2023 [Assessment Year: 2020-21] Automation Anywhere Inc. 633, River Oaks Parkway, San Jose, CA 95134, USA Vs ACIT, Circle Int. Taxation 1(1)(1), Civic Centre, Minto Road, New Delhi-110002 PAN-AAMCA9481A Appellant Respondent SA No.225/Del/2023 (Arising out of ITA No.1615/DEL/2023) [Assessment Year: 2020-21] Automation Anywhere Inc. 633, River Oaks Parkway, San Jose, CA 95134, USA Vs ACIT, Circle Int. Taxation 1(1)(1), Civic Centre, Minto Road, New Delhi-110002 PAN-AAMCA9481A Appellant Respondent Appellant by Shri Damodaran P. Vaidya, Adv. Respondent by Ms. Prajna Paramita, CIT DR Date of Hearing 22.04.2025 Date of Pronouncement 30.04.2025 ORDER PER BRAJESH KUMAR SINGH, AM, This appeal by the assessee is directed against the final assessment order dated 29.04.2023 passed under Section 143(3) r.w.s. 144C(13) and issuance of demand notice under Section 156 of the Income-Tax Act, 1961 pertaining to Assessment Year 2020-21 2 ITA No.1615/Del/2023 arising out of direction dated 23.03.2023 of the Depute Resolution Panel (DRP)-1, New Delhi. 2. Brief facts of the case:- The assessee is a tax resident of United States of America and engaged in the development, marketing, and sale of Intelligent Automation (hereinafter referred to ‘IA’) software previously known as Robotic Process Automation (in short ‘RPO). The primary source of revenue of assessee is sale of IA software and rendering of subscription serviced through software-as-a-service [hereinafter referred to ‘SaaS’] platform to customers under a license agreement. Additionally, the assessee provided professional services to its customers such as implementation of IA software and consulting. The company develops and sells RPA software and a digital Workforce Platform (DWP). RPA services enables customers to automation business processes through the use of configurable software \"bots\". During the year under consideration Assessee Company received following receipts from its Indian Clients: Nature of receipt Amount in receipt Income offered to tax in India Income offered to tax in India Software License fess 98,27,93,855/- Nil The receipts are not in the nature of royalty or fees for technical services in terms of Article 12 of the India- USA tax treaty Rendering of services 8,82,20,689/- 8,82,20,689/- Offered to tax Total 1,07,10,14,544/- 8,82,20,689/- 2.1. M/s. Automation Anywhere Software Private Limited (hereinafter referred as AASPL) is a wholly owned subsidiary of the assessee in India to whom the assessee had outsourced preparatory activities to AASPL 3 ITA No.1615/Del/2023 under an agreement, which was matter of dispute as it was held to be fixed place of Permanent Establishment (hereinafter referred to ‘PE’) by the Assessing Officer in AY 2018-19 and 2019-20. Following the findings in the assessment order, for AY 2018-19 and 2019-20, during this year also, the Assessing Officer treated 25% of the software license fee amounting to Rs.24,56,98,463/- (out of software license fees amounting to Rs.98,27,93,855/-) as taxable in India as business income of the assessee on the ground that the assessee had a PE in India. 3. At the time of hearing, ld. AR has submitted that this issue is covered by the decision of Co-ordinate Bench of the Tribunal in Assessment Years 2018-19 and 2019-20. On going through the said order, we find that vide ITA No.2147/Del/2022 (AY 2018-19) and in ITA No.2148/Del/2022 for AY 2019-20 vide order dated 24.08.2023, the Co- ordinate Bench of the Tribunal has considered that the existence or otherwise of PE of the assessee in India and in case there is PE, the profit attributable to the PE. The Ld. AR has successfully pointed out that there is no change in the facts and circumstances and in fact the authorities below have also relied their previous year observations and findings with regard to existence of PE. In this regard, the said references of the Assessing Officer are in the draft assessment order in para no.6.1 page no.31 and para -11.b. at pages No. 36 and para no.12.1(a) at page 36 to 37. Similarly, DRP has made reference to its findings for AY 2018-19 and 2019-20 in para no.4.2.4 at page no.4 and 4.2.5 at pages no.-6. We find that this issue has been considered wholesomely by the Co-ordinate Bench of the Tribunal, wherein, all the aspects with regard to ground nos. 4 ITA No.1615/Del/2023 B1 to G1 has been considered and adjudicated in the favour of the assessee. The relevant part of the order is reproduced below:- “24. On the contrary, from the assessment stage itself the assessee has clarified that its employees had access to AASPL premises only with prior permission. The assessee has further stated that visiting employees were given temporary space for meeting with employees of AASPL and cannot directly undertake client meeting in the premises of the AASPL. It appears that, even clients meetings are organized by the AASPL. The visiting of high officials of the assessee, like, CEO, CFO, Chief HR etc. appears to be for meeting officers of AASPL for the sake of owners/shareholders’ interests in the subsidiary. Some of the personnel visiting the premises of AASPL are for receiving training for stewardship activity. Though, the Assessing Officer has made allegation that the assessee has carried out its business activities, either wholly or partly through the premises of AASPL, however, such allegations are not backed by any supporting evidence. It is relevant to observe, the assessee has entered into a separate inter-company agreement with AASPL, through which, the assessee receives services from AASPL by remunerating the Indian AE at cost plus 18% mark-up. As per the terms of the agreement, the Indian AE provides RPA related software development and related services, which includes without limitation, coding, testing, financial modeling, customers support etc. 25. As could be seen from the aforesaid facts, even part of the services to be provided by the assessee under the master service agreement with ANZ is outsourced to the India AE. In any case of the matter, the assessee has offered the receipts from services as FTS income and it is a fact on record that the Assessing Officer has accepted such income without assessing it as income attributable to the PE. Thus, as per the facts and material available on record, there is nothing to demonstrate that the assessee has carried out any activity, either wholly or partly in relation to sale of software licence through the alleged PE in India so as to satisfy the conditions of Article 5(1) read with Article 5(2) of the tax treaty. It is trite law that the burden of proving the existence of fixed place PE is on the Assessing Officer. In this context, we may refer to the decision of the Hon’ble Supreme Court in case of ADIT Vs. E Funds IT Solutions Inc. (supra). Further, in case of Formula 1 World Championship Ltd. Vs. CIT (supra), the Hon’ble Supreme Court has laid down certain tests for ascertaining a fixed place of business. The tests are the non-resident is free to use the place of business at any time of his own choice and has free access, it can carry on work relating to more than one 5 ITA No.1615/Del/2023 customer, it can use the place of business for internal administrative and bureaucratic work. However, factually the Assessing officer has failed to satisfy any of the aforesaid tests. 26. Facts on record reveal that, though, many of the employees visited India, but there is no evidence to suggest that all of them used the premises of AASPL. Even assuming that all those employees used the premises of AASPL but there is no evidence to suggest that they used the premises for the activity relating to the sale of software. Undisputedly, the receipts, which are sought to be attributed to the PE are from sale of software licence, however, as could be seen from the facts on record, the transfer of licence takes place, once, the licence key is generated and made available to the licencee after execution of the contract. Insofar as the receipts from provision of services, undisputedly, the assessee has offered them to tax. Though, learned Departmental Representative has alleged before us that the licence agreement was executed in India contrary to the claim of the assessee, however, no documentary evidences has been brought to establish such facts. 27. Thus, considering the totality of facts and circumstances of the case, we are of the view that the Revenue has failed to establish on record through credible evidence that the assessee has a fixed placed PE in India through which it has earned the income relating to sale of software licence. Therefore, in our considered opinion, no part of such income can be attributed to the PE. Grounds are disposed of accordingly.” 4. In the light of the facts as before us, there being no change in the facts and circumstances compared to the previous year, therefore, respectfully following the order of the Co-ordinate Bench of the Tribunal in assessee’s own case, we decided this issue in favour of the assessee. Accordingly, the addition of Rs.24,56,98,463/- as business income on account of fixed place PE to be taxed @40% sur-charge and taxes made by the Assessing Officer in the final assessment order is not sustainable and the same is deleted. Accordingly, grounds no.B1 to G1 are allowed. 6 ITA No.1615/Del/2023 5. Remaining grounds have become academic in nature, hence, the same are dismissed. 6. Since, the appeal of the assessee has been decided in favour of the assessee, the above Stay Application becomes infructuous and the same is dismissed as such. 7. In the result, the appeal of the assessee is allowed and Stay Application of the assessee is dismissed. Order pronounced in the open court on 30th April, 2025. Sd/- Sd/- [ANUBHAV SHARMA] [BRAJESH KUMAR SINGH] JUDICIAL MEMBER ACCOUNTANT MEMBER Dated 30.04.2025. = = = =f{x~{tÜ f{x~{tÜ f{x~{tÜ f{x~{tÜ Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi "