ITAT Delhi Deletes Notional Royalty Additions and Holds No PE for Oracle Systems (AYs 2006–2012)

The Delhi Benches “D” of the Income Tax Appellate Tribunal allowed substantial relief to Oracle Systems Corporation in a batch of seven appeals concerning AYs 2006–07 to 2012–13. The Tribunal followed its earlier common order dated 02.01.2026 in the assessee’s own case for AYs 2001–02 to 2005–06 and applied the principle of consistency.

Notional Royalty on Global Deals Deleted

The central controversy revolved around whether the entire revenue transfers received by Oracle India Pvt. Ltd. (OIPL) under the Software Support Services Agreement (SSSA) constituted royalty payable to the foreign parent. While the assessee had already offered 56% of such revenues to tax in accordance with the amended inter-company agreement, the Assessing Officer sought to tax 100% of the revenue transfers as royalty under Section 9(1)(vi) of the Income-tax Act and Article 12 of the India–USA DTAA, thereby imputing additional notional royalty. The Tribunal held that royalty must arise from a contractual obligation and be “payable” under the agreement; in the absence of any clause mandating payment beyond the agreed percentage, no further royalty could be deemed to accrue. It further observed that no duplication of software occurred in India in respect of global deals and that taxing additional royalty would effectively result in double taxation since OIPL had already offered the corresponding income to tax.

On the PE issue, the Revenue had contended that OIPL constituted a Fixed Place PE, Service PE, and Agency PE under Article 5 of the DTAA. The Tribunal rejected these findings, holding that the “disposal test” for Fixed Place PE was not satisfied, no services were furnished in India by employees of the foreign entity so as to create a Service PE, and OIPL did not habitually conclude contracts on behalf of the assessee to qualify as a Dependent Agent PE. Since OIPL operated as an independent legal entity remunerated at arm’s length, no further attribution of profits was warranted. Interest under Section 234B was directed to be recomputed in light of prevailing Supreme Court jurisprudence.