Article 12 of India-Ireland DTAA – Consideration received for distribution of software on a standalone basis, or embedded with hardware, could not be characterised as Royalty, and replacement of hardware could not be regarded as Fees for Technical Services (“FTS”) but as business profits; and in the absence of PE, income was not taxable in India.

14. TS-845-ITAT-2025 (Bang-Trib)

Arista Network Limited vs. DCIT (IT)

IT(IT) A No. 1159 (Bang) of 2023

A.Y.: 2021-22 Dated: 23 June 2025

Article 12 of India-Ireland DTAA – Consideration received for distribution of software on a standalone basis, or embedded with hardware, could not be characterised as Royalty, and replacement of hardware could not be regarded as Fees for Technical Services (“FTS”) but as business profits; and in the absence of PE, income was not taxable in India.

FACTS

The Assessee, a tax resident of Ireland, provided software-based cloud services through direct and channel distribution. It earned income from (i) software distribution, (ii) software embedded with hardware, and (iii) replacement of hardware and services. The Assessee claimed that the income received by it was not in the nature of royalty and, in the absence of PE, the income was taxable only in Ireland.

The AO referred to the confidentiality clause in the distribution agreement and observed that it conferred some proprietary information, including access to source code, on distributors, and this was s