In an interesting case, [2026] 184 taxmann.com 34 (Delhi – Trib.) [02-03-2026], Oracle Corporation (a US company) entered into a Software Support Services Agreement in 2003 with its 100% Indian subsidiary, Oracle India Pvt. Ltd. (OIPL). Under this agreement, the US entity received 56% of software revenue from OIPL and offered it to tax at 15% as “royalty” under the DTAA.
The Assessing Officer (AO) taxed this income at 42.23%, treating OIPL as a Permanent Establishment (PE) of the US parent company.
The ITAT—noting an absence of evidence suggesting the US company had disposal of, access to, or control over OIPL’s premises and being independent legal entity —held that there was no PE in India. Consequently, no business profits could be attributed to a PE or brought to tax in India in the hands of the US Corporation.
However, a factor that has apparently not been heavily weighed or highlighted is that the US Corporation takes more than half of the gross revenue (56%) from the Indian subsidiary, in addition to its entitlement to 100% of the profits via dividends.
A structure involving 100% ownership combined with a 56% revenue transfer suggests a Significant Economic Presence (SEP) in India and indicates that control and management may be exercised from abroad. This could potentially allow for the holding company to be considered a resident in India under Section 6 (Place of Effective Management).
Furthermore, following the insertion of Explanation 2A in Section 9, there is now a strong case to move away from the “principle of consistency” and tax such inflows as business profits rather than royalties.
Not the least the Supreme Court held substance over form principle regarding tax treaties and anti-avoidance in recent decision in Tiger Global may relatively pose question on this kind of structure.