Article 5 of India – USA DTAA – Indian subsidiary of foreign parent company cannot constitute dependent agent permanent establishment merely because it provided marketing support activity, and in absence of PE, receipts of foreign company were taxable only in USA.

9. [2025] 175 taxmann.com 992 (Delhi - Trib.)

Zscaler Inc. vs. DCIT ITA NO. 3376 (DEL) OF 2023, 928 (DEL) OF 2025

A.Y.: 2021-22 to 2022-23 Dated: 18.06.2025

Article 5 of India - USA DTAA – Indian subsidiary of foreign parent company cannot constitute dependent agent permanent establishment merely because it provided marketing support activity, and in absence of PE, receipts of foreign company were taxable only in USA.

FACTS

The Assessee was a tax resident of USA. It was engaged in the business of providing security-based software solutions globally, and the software was provided to customers through its resellers/distributors. The Assessee had an Indian subsidiary (“I Co”), which rendered back-office services, sales support, and marketing services. The Assessee compensated I Co for its services at arm’s length.

Relying on the Supreme Court decision in Engineering Analysis Centre of Excellence (P.) Ltd 432 ITR 471 (SC), the Assessee filed a Nil return of income for the relevant AYs on the footing that receipts from software did not constitute royalty. Further, the Company discharged equalization levy @ 2% of gross receipts and claimed e