QlikTech International AB (“the assessee”), engaged in the software business, entered into an agreement with its Indian subsidiary, QlikTech India Pvt. Ltd., for marketing and distribution of software in India. The AO treated the Indian subsidiary as a Dependent Agent Permanent Establishment (DAPE) and attributed 30% of its product-sale revenue to the assessee. The ITAT held that the software sale transaction had been subjected to TP adjustment and, accordingly, the question of treating the subsidiary as a DAPE did not arise.
Contentions:
Assessee | Revenue |
The assessee contended that once the transaction between it and QIPL had been accepted as a sale and purchase transaction, there was no basis for separately treating QIPL as a DAPE. It argued that the ITAT’s finding did not warrant an open-ended remand and that the AO only needed to verify whether the transaction was at ALP. | The Revenue contended that the ITAT’s finding was contrary to the concept of DAPE and could defeat the purpose of Section 9 and the applicable DTAA. It also argued that TP compliance by itself could not prevent the Indian subsidiary from being treated as a DAPE.
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The assessee filed a Miscellaneous Application seeking modification of the ITAT’s earlier order, as the matter had been remanded to the AO despite the ITAT’s finding that DAPE would not arise if the transaction was accepted as a sale and purchase and subjected to ALP determination. | The Revenue also argued that the AO, while examining the international tax implications, was not precluded from determining QIPL as a DAPE merely because the TPO had not invoked DAPE provisions in QIPL’s own assessment.
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Court’s Judgement |
The Karnataka HC dismissed the Revenue’s appeal, observing that the ITAT had unequivocally held that where the software sale transaction was accepted as a sale and purchase and subjected to TP adjustment, The HC noted that the Revenue’s questions of law were directed against this earlier finding, which had not been altered by the impugned MA order. |
The HC clarified that its dismissal would not preclude the Revenue from challenging the ITAT’s original order dated 16.12.2024 in accordance with law. Thus, the present appeal against the MA order was dismissed without disturbing the original ITAT finding |
The Supreme Administrative Court annulled the first-instance decision and remanded the case. It directed the new panel to: (1) explicitly reallocate the burden of proof between parties, (2) address whether Cost Plus applies to sale-of-goods transactions, (3) conduct proper comparability analysis, with expert witness if needed.
