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The Tax Publishers2018 TaxPub(DT) 2996 (Del-Trib) : (2018) 171 ITD 0001 : (2018) 194 TTJ 0137 : (2018) 065 ITR (Trib) 0023 Nokia Networks OY v. Jt. CIT INCOME TAX ACT, 1961 --Double taxation relief--Permanent establishment Indian subsidiary carrying insallation work of assessee----Where assessee-finland company made agreement with its subsidiary 'NIPL' to carry out installation work of GSM equipment marketing activities and installation contract undertaken by NIPL had been on principal to principal basis; and in the case of former agreement between assessee and NIPL, payment had been made to NIPL on cost plus markup basis which had not been disturbed; and in later agreement there was an independent contracts by NIPL with Indian customers which had nothing to do with assessee, income arising from both contracts were taxable in hands of NIPL in India. --Assessee, i.e., Nokia Networks OY (formerly known as Nokia Telecommunications OY), is a company incorporated under the laws of Finland and is engaged in the manufacturing of advanced telecommunication systems and equipments (GSM Equipments) which are used in fixed and mobile phone networks; and trading of telecommunication of hardware and software. In the year 1994 (i.e., on 30-3-1994), assessee had established a Liaison Office (LO) and later on a wholly own subsidiary was incorporated, named as 'Nokia India Pvt. Ltd.' Nokia India or NIPL. After incorporation of NIPL in May, 1995, installation activities were carried out by Indian subsidiary under its independent contracts with Indian Telecommunication operators. AO refers to a statement of managing Director of NIPL and from this statement, AO concludes that from 1-1-1997 rent was also not paid by LO and the same was taken over by Indian office (NIPL) and thus he concludes that Indian company has completely absorbed cost on behalf of assessee. From assessment order, assessing officer highlights his reasons for treating NIPL. as fixed place PE or dependent agency PE (DAPE) of assessee. *Held:* On the facts and material on record, there was no DAPE within the scope and terms of article 5(5) of the treaty. Provision of paragraph 7 of aricle 5 will also no apply. Concept of virtual projection does not mean that even without a fixed place, virtual projection itself will lead to an inference of a PE. If on a facts there is no establishment of a fixed place and disposal test is not satisfied, then virtual projection itself cannot be held to be a factor for creation of a PE. Thus, there was no PE within the terms of article 5 of India Finland DTAA. Marketing activities and installation contract undertaken by NIPL had been on principal to principal basis; and in case of former agreement between assessee and NIPL, payment had been made to NIPL on cost plus markup basis which had not been disturbed; and in later agreement there was an independent contracts by NIPL with Indian customers which had nothing to do with assessee. The income arising from both contracts were taxable in hands of NIPL in India. Income Tax Act, 1961 Section 90 Relied:Formula One World Championship Ltd. v. CIT (2017) 394 ITR 80 (SC), ADIT v. E-fund IT Solution Inc. (2017) 399 ITR 34 (SC) and Ishikarajima-Harima Heavy Industries Ltd. v. DIT (2007) 288 ITR 408 (SC). Distinguished:State Bank of Travancore (1986) 158 ITR 102 (SC) and UCO Bank v. CIt (1999) 237 ITR 889 (SC). *REFERRED :* Nortel Network India International Inc. v. DIT (2016) 386 ITR 353 (Del), Ishikawajima Harima Heavy Industries Ltd. v. DIT (2007) 288 ITR 408 (SC), CIT v. Hyundai Heavy Industries Company Ltd. (2007) 291 ITR 482 (SC), DIT v.Morgan Stanley & co. Inc. (2007) 292 ITR 416 (SC), Cenrica India Offshore v. CIt (2014) 364 ITR 336 (Del), Royals Royce Plc. v. DIT; ITA Nos. 495, 496, 497/2008 and other appeals (Delhi High Court), CIT v. Vishakhapatnam Por Trust 3) 144 ITR 146 (AP), ADIT v. E-Fund IT Solution (2017) 399 ITR 34 (SC), CIT v. R.D. Aggarwal & Co. and another (1965) 56 ITR 20 (SC), Nortel Networks India International Inc. v. DIT (2016) 386 ITR 353 (Del), Ishikawajima-Harima Heavy Industries Ltd. v. DIT (2007) 288 ITR 408 (SC), Skoda Export v. Addl. CIT (1983) 43 ITR 452 (AP), Mahabir Commercial Co. Ltd. v. CIT (1972) 86 ITR 147 (SC), ABC In re (application No. P-8) (1997) 223 ITR 416 (AAR), Ansaldio Energia SPA v. CIT (2009) 310 ITR 337 (Mad), CIT v. PVAL Kulandagan Chettiar (2004) 267 ITR 654 (SC), CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC), DIT v. E Funds IT Solutions (2014) 364 ITR 256 (Del) and Arrow Electronics India Ltd. v. Addl. DIT, ITA Nos. 209 & 210/Bang/2001 (Bang-Trib). FAVOUR : In assessee's favour. A.Y. : 1997-98 & 1998-99 INCOME TAX ACT, 1961 --Double taxation relief --Business profit Offshore supply contract of GSM equipments to telecom operators----Income of the assessee from off-shore supply of equipments in pursuance of supply contract could not be brought to tax in India.--Question before Tribunal was [A-92 marking is not available].Held: Nothing is taxable on account of signing, network planning and negotiation of offshore supply contracts, therefore, there was no question of any attribution of income on account of these activities which were purely related to supply contracts. Income of the assessee from off-shore supply of equipments in pursuance of supply contract could not be brought to tax in India. Income Tax Act, 1961 Secion 90(2) Followed:Nortel Networks India International Inc. v. DIt (2016) 386 ITR 353 (Del). *Relied:*Ishikawajima-Harima Heavy Industries Ltd. v. DI (2007) 288 ITR 408 (SC). *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 1997-98 & 1998-99 INCOME TAX ACT, 1961 --Income--Notional interestVendor financing----When assessee had neither treated amount to be legally claimed nor had acknowledged any debt due too on its customer as delayed payment then it could not be held that any interest was accrued to assessee, and therefore, such a notional charging of interest for each day elapsed from the due date to the actual payment could not be held to be taxable to assessee. --AO in his order had made addition on the ground that assessee provided credit facilities to its customers for which it should have charged interest on same. For arriving to this conclusion, he had referred to one clause given in paragraph 6.9 of contract between assessee and M to conclude that purchaser were liable to pay interest @18% for each day elapsed from due date of actual payment. Thus, only reason for making such an addition was existence of a particular clause in agreement signed between assessee and some of Indian Cellular Operators. CIT(A) too had confirmed said addition on. Held: It had not been brought on record that in any of the contract the assessee had charged any interest on delayed payment or providing any credit facilities to its customers or any customer has paid any such amount for each day elapsed from the due date to the actual payment. Once none of the parties have either acknowledged debt or any corresponding liability of other party to pay, then it cannot be held that any income should be taxed on notional basis which had neither accrued nor received by the assessee. Therefore, such a notional charging of interest for each day elapsed from due date to actual payment could not be held to be taxable to assessee. Income Tax Act, 1961 Section 2(xiv) Income Tax Act, 1961 Section 5 Relied:,b> E.D. Sassoon Co. Ltd. v. CIT (1954) 26 ITR 27 (SC), CIT v. Ashokbhai Chaamanbhai (1965) 56 ITR 42 (SC), CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC), Godhara Electricity Company Ltd. v. CIT (1997) 225 ITR 746 (SC), State Bank of Travancore, (1986) 158 ITR 102 (SC), ABC In re [Applicaion No. P-8) : (1997) 223 ITR 416 (AAR), Ansaldio Energia SPA v. CIT (2009) 310 IR 337 (Mad) CIT v. Excel Industries Ld. 92013) 358 ITR 250 (SC). *REFERRED :* FAVOUR : In assessee's favour. A.Y. : 1997-98 & 1998-99 IN THE ITAT, SPECIAL BENCH, NEW DELHI N.K. SAINI, PRAMOD KUMAR, A.MS. & AMIT SHUKLA, J.M. Nokia Networks OY v. Jt. CIT ITA Nos. 1963 & 1964 (Del) of 2001 A.Y. 1997-98 & 1998-99 SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2018 TaxPub(DT) 2996 (Del-Trib) : (2018) 171 ITD 0001 : (2018) 194 TTJ 0137 : (2018) 065 ITR (Trib) 0023

Nokia Networks OY v. Jt. CIT

INCOME TAX ACT, 1961

--Double taxation relief--Permanent establishment Indian subsidiary carrying insallation work of assessee----Where assessee-finland company made agreement with its subsidiary 'NIPL' to carry out installation work of GSM equipment marketing activities and installation contract undertaken by NIPL had been on principal to principal basis; and in the case of former agreement between assessee and NIPL, payment had been made to NIPL on cost plus markup basis which had not been disturbed; and in later agreement there was an independent contracts by NIPL with Indian customers which had nothing to do with assessee, income arising from both contracts were taxable in hands of NIPL in India. --Assessee, i.e., Nokia Networks OY (formerly known as Nokia Telecommunications OY), is a company incorporated under the laws of Finland and is engaged in the manufacturing of advanced telecommunication systems and equipments (GSM Equipments) which are used in fixed and mobile phone networks; and trading of telecommunication of hardware and software. In the year 1994 (i.e., on 30-3-1994), assessee had established a Liaison Office (LO) and later on a wholly own subsidiary was incorporated, named as 'Nokia India Pvt. Ltd.' Nokia India or NIPL. After incorporation of NIPL in May, 1995, installation activities were carried out by Indian subsidiary under its independent contracts with Indian Telecommunication operators. AO refers to a statement of managing Director of NIPL and from this statement, AO concludes that from 1-1-1997 rent was also not paid by LO and the same was taken over by Indian office (NIPL) and thus he concludes that Indian company has completely absorbed cost on behalf of assessee. From assessment order, assessing officer highlights his reasons for treating NIPL. as fixed place PE or dependent agency PE (DAPE) of assessee. Held: On the facts and material on record, there was no DAPE within the scope and terms of article 5(5) of the treaty. Provision of paragraph 7 of aricle 5 will also no apply. Concept of virtual projection does not mean that even without a fixed place, virtual projection itself will lead to an inference of a PE. If on a facts there is no establishment of a fixed place and disposal test is not satisfied, then virtual projection itself cannot be held to be a factor for creation of a PE. Thus, there was no PE within the terms of article 5 of India Finland DTAA. Marketing activities and installation contract undertaken by NIPL had been on principal to principal basis; and in case of former agreement between assessee and NIPL, payment had been made to NIPL on cost plus markup basis which had not been disturbed; and in later agreement there was an independent contracts by NIPL with Indian customers which had nothing to do with assessee. The income arising from both contracts were taxable in hands of NIPL in India.

Income Tax Act, 1961 Section 90

Relied:Formula One World Championship Ltd. v. CIT (2017) 394 ITR 80 (SC), ADIT v. E-fund IT Solution Inc. (2017) 399 ITR 34 (SC) and Ishikarajima-Harima Heavy Industries Ltd. v. DIT (2007) 288 ITR 408 (SC). Distinguished:State Bank of Travancore (1986) 158 ITR 102 (SC) and UCO Bank v. CIt (1999) 237 ITR 889 (SC).

REFERRED : Nortel Network India International Inc. v. DIT (2016) 386 ITR 353 (Del), Ishikawajima Harima Heavy Industries Ltd. v. DIT (2007) 288 ITR 408 (SC), CIT v. Hyundai Heavy Industries Company Ltd. (2007) 291 ITR 482 (SC), DIT v.Morgan Stanley & co. Inc. (2007) 292 ITR 416 (SC), Cenrica India Offshore v. CIt (2014) 364 ITR 336 (Del), Royals Royce Plc. v. DIT; ITA Nos. 495, 496, 497/2008 and other appeals (Delhi High Court), CIT v. Vishakhapatnam Por Trust 3) 144 ITR 146 (AP), ADIT v. E-Fund IT Solution (2017) 399 ITR 34 (SC), CIT v. R.D. Aggarwal & Co. and another (1965) 56 ITR 20 (SC), Nortel Networks India International Inc. v. DIT (2016) 386 ITR 353 (Del), Ishikawajima-Harima Heavy Industries Ltd. v. DIT (2007) 288 ITR 408 (SC), Skoda Export v. Addl. CIT (1983) 43 ITR 452 (AP), Mahabir Commercial Co. Ltd. v. CIT (1972) 86 ITR 147 (SC), ABC In re (application No. P-8) (1997) 223 ITR 416 (AAR), Ansaldio Energia SPA v. CIT (2009) 310 ITR 337 (Mad), CIT v. PVAL Kulandagan Chettiar (2004) 267 ITR 654 (SC), CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC), DIT v. E Funds IT Solutions (2014) 364 ITR 256 (Del) and Arrow Electronics India Ltd. v. Addl. DIT, ITA Nos. 209 & 210/Bang/2001 (Bang-Trib).

FAVOUR : In assessee's favour.

A.Y. : 1997-98 & 1998-99

INCOME TAX ACT, 1961
--Double taxation relief --Business profit Offshore supply contract of GSM equipments to telecom operators----Income of the assessee from off-shore supply of equipments in pursuance of supply contract could not be brought to tax in India.--Question before Tribunal was [A-92 marking is not available].Held: Nothing is taxable on account of signing, network planning and negotiation of offshore supply contracts, therefore, there was no question of any attribution of income on account of these activities which were purely related to supply contracts. Income of the assessee from off-shore supply of equipments in pursuance of supply contract could not be brought to tax in India.

Income Tax Act, 1961 Secion 90(2)

Followed:Nortel Networks India International Inc. v. DIt (2016) 386 ITR 353 (Del). Relied:Ishikawajima-Harima Heavy Industries Ltd. v. DI (2007) 288 ITR 408 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 1997-98 & 1998-99

INCOME TAX ACT, 1961
--Income--Notional interestVendor financing----When assessee had neither treated amount to be legally claimed nor had acknowledged any debt due too on its customer as delayed payment then it could not be held that any interest was accrued to assessee, and therefore, such a notional charging of interest for each day elapsed from the due date to the actual payment could not be held to be taxable to assessee. --AO in his order had made addition on the ground that assessee provided credit facilities to its customers for which it should have charged interest on same. For arriving to this conclusion, he had referred to one clause given in paragraph 6.9 of contract between assessee and M to conclude that purchaser were liable to pay interest @18% for each day elapsed from due date of actual payment. Thus, only reason for making such an addition was existence of a particular clause in agreement signed between assessee and some of Indian Cellular Operators. CIT(A) too had confirmed said addition on. Held: It had not been brought on record that in any of the contract the assessee had charged any interest on delayed payment or providing any credit facilities to its customers or any customer has paid any such amount for each day elapsed from the due date to the actual payment. Once none of the parties have either acknowledged debt or any corresponding liability of other party to pay, then it cannot be held that any income should be taxed on notional basis which had neither accrued nor received by the assessee. Therefore, such a notional charging of interest for each day elapsed from due date to actual payment could not be held to be taxable to assessee.

Income Tax Act, 1961 Section 2(xiv)

Income Tax Act, 1961 Section 5

Relied:,b> E.D. Sassoon Co. Ltd. v. CIT (1954) 26 ITR 27 (SC), CIT v. Ashokbhai Chaamanbhai (1965) 56 ITR 42 (SC), CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC), Godhara Electricity Company Ltd. v. CIT (1997) 225 ITR 746 (SC), State Bank of Travancore, (1986) 158 ITR 102 (SC), ABC In re [Applicaion No. P-8) : (1997) 223 ITR 416 (AAR), Ansaldio Energia SPA v. CIT (2009) 310 IR 337 (Mad) CIT v. Excel Industries Ld. 92013) 358 ITR 250 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 1997-98 & 1998-99

IN THE ITAT, SPECIAL BENCH, NEW DELHI

N.K. SAINI, PRAMOD KUMAR, A.MS. & AMIT SHUKLA, J.M.

Nokia Networks OY v. Jt. CIT

ITA Nos. 1963 & 1964 (Del) of 2001

A.Y. 1997-98 & 1998-99