TaxTMI 
TaxTMI 
2019 (4) TMI 280
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....and in law. the learned Commissioner of Income Tax (Appeals) -XXIX ("CIT-A") has erred: (a) in upholding the Assessing officer's contention that income earned by the appellant from supply of telecommunications hardware to Indian telecom operators is taxable in India on the basis that the appellant has a Permanent Establishment ("PE") in India under the provisions of Article 5 of the Double Taxation Avoidance Agreement between India and Finland ("India-Finland tax treaty"); (b) in upholding the Assessing officer's contention that income earned by the appellant from supply of software to Indian telecom operators is taxable in India on the basis that such income is in the nature of 'royalty', both under the provisions of the Income-tax Act, 1961 ('Act') and Article 13 of the India-Finland tax treaty; (c) In without prejudice-estimating income from supply of hardware at 18.68 percent of the estimated revenues from supply of hardware (being 70 percent of the total supply revenues); (d) in without prejudice, attributing 50 percent of estimated income from supply of hardware, to activities in India; (e) in without prejudice, not considering the....
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....• The appellant's equipment supply contract with Sterling Cellular Limited has been signed by Heide Hamalinen as an employee of Nokia India. • The appellant's equipment supply contract with BPL US West Cellular Limited (signed on October 31, 1998) has been signed by Olli Oittinen as an employee of Nokia India. • The appellant is responsible for installation and acceptance in respect of equipment supply contract with BPL US West Cellular Limited dated October 31. 1998. • Reliance has been placed on the equipment supply contracts/ purchase orders of the following customers to whom no supplies have been made by the appellant during the financial year relevant to the subject assessment year: - Equipment supply contract with Sterling Cellular Limited dated April 20, 1999. - Letter of intent issued by Bharti Airtel; and - Purchase orders raised by Hutch Max. (c) Based on facts and circumstances of the case and in law, the learned CIT-A has erred in observing as follows: • Installation project or supervisory activities of the appellant continued in India for more than six months. • T....
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....lding the levy of interest under section 234B of the Act. 4. Based on facts and circumstances of the case and in law, the order passed by the learned CIT-A is bad in law and void ab-initio. 5. Based on facts and circumstances of the case and in law, the order passed by the learned CIT-A violates rules of natural justice. The appellant prays for leave to add, alter, amend or vary from the grounds of appeal at or before the time of hearing." (Grounds of appeal no. 2135 for A.Y. 1999-2000 taken for the sake of brevity.) 3. Appellant, Assistant Director of Income Tax (hereinafter referred to as the revenue by filing the present appeal for A.Y. 2002-03 and A.Y. 2003-04 sought to set aside the impugned composite order dated 29.12.2009 passed by Ld. CIT(A) on the identical grounds, inter alia, that "1. On the facts and circumstances of the case, Ld. CIT(A) has erred in attributing only 20% of profits to activity of the PE in India for supply of Hardware. 2. On the facts and circumstances of the case, Ld. CIT(A) has erred in attributing only 20% of profits to activity of the PE in India for supply of Operating Systems Software. 3. The appellant prays for leave to ad....
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....Ld. CIT(A) for earlier year proceeded to hold that assessee had a permanent establishment in the form of Nokia India and supply of software is attributable to that PE and further supply of software is to be taxed under the head "royalty". Assessing Officer, however, not followed the decision of CIT(A) on the point of attribution as the decision of CIT(A) to that extent was under challenge. 8. Assessee carried the matter before Ld. CIT(A) by way of filing the appeals who by following order passed by the Ld. CIT(A) in A.Y. 1997-98 and 1998-99, upheld the assessment order to the extent that assessee had carried its business in India through its subsidiary and liaison office on continuous and on regular basis which clearly shows that the assessee had business connection in India as per Section 9(1)(i) of the Act, thus, had PE as per Article 5 of the treaty. 9. Ld. CIT(A) also upheld the findings of the assessing officer that consideration which has been received by the assessee for the license of software in India is clearly liable to be taxed as royalty under the DTAA as well as under Income Tax Act. However, directed the AO to apply net rate of 30% where contract was executed b....
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.... of the findings returned by special bench of the Tribunal vide order dated 05.06.2018 for A.Y. 1997-98, 1998-99. However, he has vehemently contested ground no. 1 raised by assessee. 15. However, on the other hand the Ld. DR for the revenue in order to repel the argument addressed by Ld. AR for the assessee that facts of appeal for AY 1999-2000, 2000-01 and 2001-02 are distinguishable from A.Y. 1997-98 and A.Y. 1998-99 and as such orders dated 22.06.2005 and 05.06.2008 passed by the Tribunal are not applicable to the present appeals and also filed written submissions which are made part of the appeal files and contended, inter alia, that in the present appeals AO as well as Ld. CIT(A) have categorically held that there exists a fixed placed PE in the form of the premises of the Indian subsidiary which was at the disposal of the assessee, from which the assessee was carrying on its business; that Ld. CIT(A) has held that assessee is having PE under Article 5(2) of the DTAA in the form of "Place of Management", "Office" and "Sales Outlet' as well as under Article 5(3) in the form of "Installation & Supervisory PE" and all these forms of PE do not require a "Geographically Fixed P....
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....d. CIT(A) while passing the impugned order for A.Y. 1999-2000, 2000-01, 2001-02 also categorically relied upon order passed by his predecessor in A.Y. 1997-98 and 1998-99, relevant extract thereof is extracted as under - "4. I have considered the submissions of the appellant and facts of the case carefully. In the appellant's case on almost similar facts my ld. Predecessor for A.Ys. 97-98 and 98-99 has held that the appellant had PE in India. After considering all the submissions of the appellant and facts of the case my predecessor has held as under : "All the facts and circumstances suggest that the assessee carried out business in India, which was not merely preparatory or incidental in nature. The designing of GSM is not the incidental activity, without which the business of the assessee could have been carried on. In fact it was the heart of the activity but for which even the requirements of Indian operators could not have been listed out. The requirements were worked out on the basis of design and thereafter the equipment was supplied and the software was licensed. The assessee always had the presence of its office or the office of Indian company to aid it in its activ....
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....uced before the AO for any verification. The justification and basis of claim of various expenses in the certified accounts is not clearly explained. The evidence and nexus that all the expenses are relatable to Indian business is neither established nor proved. These accounts were not reliable. Similar view was also taken by my predecessor for A.Y. 1997-98 and 1998-99. Therefore, considering these facts, I also hold that the A.O. was justified in rejecting certified accounts. In earlier years the bifurcation of total receipts in the software and hardware was taken as 70% and 30%. During the years under appeals some of the contracts are also continuing contracts and some are fresh purchase orders. The AO has not examined all the bills of supplies to examine the exact appropriation towards the hardware and software. The AO has simply mentioned that the appellant during these years have been making supplies to establish the telecom operators in continuation with their earlier contracts when main and basic equipments were already supplied and the assessee has mainly supplying in the years under consideration is for software for up gradation of system for enhancing the capacity and har....
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....d examine the argument addressed by Ld. DR for the revenue that facts of A.Y. 1999-2000 to 2001-02 are different from A.Y. 1997-98 in the backdrop of the aforesaid facts and circumstances of the case. 20. Undisputedly the basic issue to be decided in all the appeals is "as to whether there is fix place Permanent Establishment (PE) qua Nokia India Pvt. Ltd.". 21. Ld. DR for the revenue drew our attention to para 4.10 at page 12 of the assessment order and para 4.1 at page 6 of the impugned order passed by Ld. CIT(A). AO after discussing the relevant provisions of Indo-Finland treaty reached the conclusion that : "From the above said facts, which have been discussed in the earlier paras of this order and the findings from the contracts and documents submitted by the assessee, it had a fixed placed of business in the form of Nokia's India office and the so called liaison office, both of which were operating from the same premises. The CIT(A) has already upheld that the assessee had a permanent establishment in the form of Nokia India." 22. The Ld. CIT(A) confirmed the finding returned by the AO by returning following findings :- "4.1 In all the years under appeal, the a....
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....ess is being carried on partly through the fixed place it will be a PE within the meaning of Article 5 of DTAA. From various facts on records it also emerges that In India the appellant has place of management, an office as well as premises were used as sales outlet or for receiving orders. Therefore, as per provisions of Article 5(2) also the appellant had PE in India. Similarly the installation project or Supervising Activity has continued for more than six months. It is immaterial whether employees stayed here or not but the supervisory activity in connection with Installation Project has continued for more than six months. It is the continuance of activity which is the required condition and not the stay of employees. As the installation and supervisory activity has been continued for more than the prescribed period as per treaty, the appellant also had PE as per provisions of article 5(3) of the treaty. 23. Referring to the aforesaid findings of AO as well as Ld. CIT(A) the Ld. DR contended that AO as well as the Ld. CIT(A) have returned categoric findings that their existing a fixed place PE in the form of premises of Indian Subsidiary which was at the disposal of assessee....
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....tions made by the learned Assessing Officer and analyse his finding with factual clarification and analysis based on material placed on record, which has been extensively referred to during the arguments raised by the parties before us." ""40. Though the issue of business connection under the provisions of Income-tax Act should ordinarily be taken first as to whether any income of the assessee directly or indirectly accrues or arises through or from any business connection in India. But, since the main mandate of the direction of the Hon'ble High Court as well as the key arguments of the parties before us including the case of the department mostly revolves around the question whether assessee had any permanent establishment in the form of NIPL in terms of Article 5 or not, therefore, we will take up the issue of PE first 41. We shall now deal with the concept of fixed place of PE' which has been harped upon by the Id. CITDR at great length and has been objected to by the learned counsel that it was never the case of the department either by the Assessing Officer or by the Id. CIT(A) that the assessee had a fixed place of business in terms of Article 5(1), albeit the ....
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.... Hon'ble Apex Court in the case of Formula One World Championship Ltd. (supra). Their Lordships have threadbare discussed the concept after referring to various commentaries and views of eminent international jurists, judgments rendered by foreign courts and also the judgment of Hon'ble High Courts in India. The Hon'ble Apex Court first of all have referred to the judgment of the Hon'ble Andhra Pradesh High Court in the case of CIT v. Vishakhapatnam Port Trust [1983] 1441TR 146/15 Taxman 72, wherein the Hon'ble High Court had laid down a very important proposition which is reproduced hereunder: " 26. Special bench also extracted the key findings of case cited as formula One World Championship Ltd. [2017] 394 ITR 80 (SC) which are as under :- "43. The key sequitur and proposition which is culled out from the judgement of the Hon'ble Supreme Court is that; Firstly, the fix place should be where the commercial and economic activity of the enterprise is carried out; Secondly, such a fix place acts as a virtual projection of the foreign enterprise; Thirdly, PE must have three characteristics, stability productivity and dependence; and lastly, fixed ....
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....ficer or by the Id. CIT(A) in the entire order that there exist any fixed place PE qua the Indian subsidiary, i.e., NIPL, except for stating that office of the LO and NIPL were colocated, employees of the assessee were working with NIPL and therefore, it constituted a fixed place PE. If that reasoning alone is to be taken into consideration, then such an interpretation of PE did not found judicial favour either by the earlier Special Bench or by the Hon'ble High Court qua the LO, hence on same reasoning and principle, NIPL would also cannot be reckoned as fixed place PE. Be that as may be, one of the key arguments by the Revenue before us is that foreign expatriates were present in NIPL office who were working as an employee of NIPL and were engaged in the business of NIPL, i.e., installation and marketing activities. The key thrust of the Id. CIT-DR before us was that; firstly, Country Manager of LO continued to be the MD of the NIPL; secondly, the identity between LO and NIPL were blurred and NIPL was nothing but 'virtual projection' of the assessee in India; thirdly, NIPL was doing most of the activities in India like Market Development, liaisioning with customers, t....
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....#39;fixed place PE'. Even if the arguments sake it is accepted that he was a seconded employee to NIPL, then also if he had worked under the control of NIPL despite lien was maintained with assessee company, then also it does not lead to an inference that assessee company was having any kind of a PE, leave alone under paragraph 1 of Article 5. Similarly the allegation has been made by the Assessing Officer as well as strongly contended by the learned CIT-DR that employees of the NIPL were mostly belonging to the assessee company as some of the expatriates/ technical persons were working on installation contract of NIPL for which activities, salaries were paid and managed by assessee. This concept perhaps may assume some significance while deciding the concept 'Service PE' for which reliance was also placed by the learned CIT- DR on Morgan Stanley and Centrica off-shore Pvt. Ltd, however as per the then existing provision of Article 5 between India and Finland treaty, there was no such concept of 'Service PE' per se except for certain activities mentioned in clause (a) and (b) of Paragraph 3 of Article 5, which ostensibly are not applicable at all. Since none of ....
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....s through Indian company then by virtue of this rule as enshrined in Article 7 of India- Finland DTAA, PE will get constituted and there would be a deemed PE in the form of Indian company whose income has to be attributed accordingly. This second part of allegation does not hold ground at all, because; firstly, as stated in the earlier part of the order, assessee and NIPL have entered into separate marketing and technical support agreements in respect of the projects installed and has no correlation with the supply contract. This has been specifically held so by the Hon'ble High Court also in paragraph 34 reproduced in the earlier part of the order; secondly, not only that, for rendering these services NIPL was compensated with cost plus mark up of 5% which though has been adversely commented by the Assessing Officer and Id. CIT (A) but there has been no determination of ALP under transfer pricing mechanism. This inter alia means that the remuneration paid by the assessee to NIPL for these services has to be reckoned at arm's length; and lastly, not one off-shore sale has happened in India through NIPL and this fact has again been accepted by the Hon'ble High Court in i....
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....ephone, fax and conveyance. Now, whether such kind of facilities can at all be treated to be a fixed place of business of the assessee company. Telephone or fax or a car cannot be reckoned as physically located premise. The word used in Article 5(1) is 'fixed place of business through which business of enterprise is wholly or partly carried out'. A fixed place alludes to some kind of a particular location, physically located premise or some place in physical form. Nowhere is it borne out that any kind of physically located premise or a particular location was made available to the assessee which was at the disposal of the assessee for carrying out wholly or partly its business through that place. Not only there should be an existence of a fixed place of business but also through that fixed place business of the enterprise should be wholly or partly carried out. No such material has been brought on record that any kind of such fixed place was made available. Providing telephone or fax or conveyance services can ever be equated with fixed place. Even the co-location of earlier LO office and the Indian subsidiary company was only in the initial year of 1995 and later on LO off....
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.... a fixed place of business solely either; a) for the purpose of advertising; b) for the supply of information or for scientific research; c) being activities solely of a preparatory or an auxiliary character in the business of the enterprise. This clause clearly excludes any activities solely for preparatory or auxiliary in nature and if one goes by scope of remand by the Hon'ble High Court, i.e., to see, whether signing, networking planning and negotiation constitutes a PE and also whether profits can be attributed to such activities, then such kind of an activity ostensibly falls within the scope and realm of preparatory or auxiliary in nature, because mere signing, planning and negotiation or networking before supply of goods, are preliminary activities and therefore, under this all pervasive exclusion clause there cannot be any PE which can be deemed either in terms of Paragraphs 1, 2 and 3 of Article 5. Under the present DTAA if activities are in the nature of preparatory and auxiliary character, then same have been specifically excluded from being treated as PE. Hence, even if for the argument's sake it is accepted that there can be some kind of fixed place under Arti....
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....said to be binding upon the assessee. NIPL is an independent entity carrying out activities of installation, technical support services for the equipments installed are being carried out on principal to principal basis independently with Indian customers; and marketing support agreement is an independent agreement with the assessee for which it is remunerated at arm's length and none of its activities even remotely relate to supply of equipments, leave alone habitually exercising any authority to conclude contract. Lastly, it bears its own entrepreneurial risks. 49.We shall in brief examine various allegations of the AO, which has been harped upon by the Ld. CIT-DR also to contend that there is some kind of PE in the form of DAPE. First of all, Assessing Officer as discussed in the earlier part of this order has time and again referred to the employment details of Mr. Hannu Karavitra which we have already clarified that he was the employee of the assessee as Country Manager in LO till the time NIPL was not incorporated and after the incorporation of NIPL, he became the Managing Director and his period and designation of employment is contained in page 369 (9 to 11) of the pa....
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....uestion no. 9 has clearly stated that network planning was a service which could be provided by NIPL; however he categorically emphasized that it is pre-bid exercise which was only exercised to request for quotation. Nowhere it has been said in the statement that NIPL in anyway had authority to conclude contract on behalf of the assessee. In so far as the other allegation of the Assessing Officer which has been discussed in the earlier part that, NIPL has concluded contracts with cellular operators for installation services and it becomes responsibility of assessee to get the contracts executed by the NIPL; and further assessee had issued guarantee to the Indian customers that it will get the contracts executed by NIPL, again has no significance for determination of DAPE, because such a contention of the Assessing Officer may have been relevant for composite contract situation which is not the consideration in the present case and does not have any bearing whatsoever in this matter. Even otherwise also assisting in performance of the installation services of NIPL does not make Indian Company DAPE of assessee under Article 5(5); and revenues from installation is any way being tax....
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...."business risk" and agent's activities are not integrated with those of the principal; and whether the agent acts exclusively for the principal. The tests for determining the independent status has to be seen from what kind of activities is being carried out by the agent for his principal. Here in this case, first of all we have to borne in mind that installation activity carried out by NIPL is not generating any revenue or income for the assessee in India albeit any income from such activity is already subject to tax in India. The off-shore supply contract is carried out by assessee on FOB basis from Finland and as discussed in foregoing paragraphs NIPL is carrying out various onshore activities, like installation activity, marketing and technical support services, which fact has been clearly highlighted by the Hon'ble High Court in para 34, that these activities have nothing to do with supply contract. The consideration accruing or arising under the contracts undertaken by NIPL is already assessed in the hands of NIPL in India and there is no adverse inference in this respect. The dispute as highlighted by the Hon'ble High Court only pertains to the consideration unde....
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.... principal basis with the customers then there is no question of examining the installation activity for purpose of PE. The activity carried out by the assessee through an agent in India would be key factor for examining PE. Thus, provision of paragraph 7 of Article 5 will also not apply. 51. Lastly, coming to paragraph 8 of Article 5, it clearly states that mere fact that company which is a resident of a contracting status controls or is controlled by a company which is resident of the other contracting states or which carries on the business in other state, whether through a PE or otherwise shall not of itself constitutes either company or a PE of other. This inter alia means that if the NIPL, i.e., an Indian company is controlled by assessee who is resident of Finland, then this by itself will not constitute a PE. Thus, a subsidiary cannot be reckoned to constitute PE merely because it is controlled by a foreign enterprise. In other words simply because NIPL is a subsidiary and is controlled by assessee it will not be treated as a PE. Even the OECD and UN Model Conventions clarify that mere existence of foreign enterprise's subsidiary in a source state should not give ris....
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....y discern that it was a virtual projection of a foreign enterprise, namely, Formula One on the soil of this country. All the characteristic of the fixed place PE including the physical location and disposal test stood satisfied. The concept of virtual projection cannot be in vacuum dehors any other parameters of PE. In other words, virtual projection is in relation to either fixed place or in relation to any other parameters or conditions envisaged in Article 5. As in the case of Vishakapatnam Port Trust, it was in relation to fixed place. The 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, the concept of virtual projection brought in by the AO will not lead to any kind of establishment of PE. In so far as allegation of the department that employees of assessee were responsible for all the activities, it has been already dealt by us that if at all it may have some bearing or relevance when examining Service PE, whi....
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....arkup basis which has not been disturbed; and in the later agreement there is an independent contracts by NIPL with Indian customers which has nothing to do with the assessee. The income arising from both the contracts are taxable in the hands of the NIPL in India. Thus, the finding and the ratio of the Hon'ble High Court would apply mutatis mutandis though rendered in the context of LO will also apply in the case of NIPL as qua the supply contract there is no material change in any case. 58. Apart from the judgment of Hon'ble Delhi High Court in the case of assessee as discussed above, we find that, Hon'ble High Court in Nortel Network India International Inc. (supra) somehow on similar set of facts has reiterated the same principle. Before that the relevant facts in the said case were as under:- The assessee was incorporated in the USA and was a tax resident of the USA. The assessee was a part of the N group which was stated to be a leading supplier of hardware and software for global system for mobile communication cellular radio telephone systems. The assessee was a step-down subsidiary of N, a company incorporated in Canada. N(C) also had an indirect subsidia....
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.... the income which is reasonably attributable to operations carried out in India would be taxable. Thus, if it is accepted that the Assessee has received only the consideration for the equipment manufactured and delivered overseas, it would be difficult to uphold the view that any part of Assessee's income is chargeable to tax under the Act as no portion of the said income could be attributed to operations in India. 44. There is little material on record to hold that Nortel India habitually exercises any authority on behalf of the Assessee or Nortel Canada to conclude contracts on their behalf. There is also no material on record which would indicate that Nortel India maintained any stocks of goods or merchandise in India from which goods were regularly delivered on behalf of the Assessee or Nortel Canada. Thus, by virtue of Explanation 2 read with Explanation 3 to Section 9(1) (i) of the Act, no part of Assessee's income could be brought to tax under the Act. It is only when a non-resident Assessee's income is taxable under the Act that the question whether any benefit under the Double Taxation Avoidance Treaty is required to be examined. 47. As noticed earlier, t....
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....ices of Nortel India were at the disposal of the Assessee or Nortel Canada. Even if it is accepted that Nortel India had acted on behalf of the Assessee or Nortel Canada, it does not necessarily follow that the offices of Nortel India constituted a fixed place business PE of the Assessee or Nortel Canada. Nortel India is an independent company and a separate taxable entity under the Act. There is no material on record which would indicate that its office was used as an office by the Assessee or Nortel Canada. Even if it is accepted that certain activities were carried on by Nortel India on behalf of the Assessee or Nortel Canada, unless the conditions of paragraph 5 of Article 7 of the Indo-US DTAA is satisfied, it cannot be held that Nortel India constituted a fixed place of business of the Assessee or Nortel Canada. 70. The AO has further alleged that the offices of Nortel LO and Nortel India were used as a sales outlet. In our view, this finding is also unmerited as there is no material which would support this view. The facts on record only indicate that Nortel India negotiated contracts with Reliance. Even assuming that the contracts form a part of the single turnkey contra....
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....exhaustive mechanism for determining the Arm s Length Price in case of related party transactions for ensuring that real income of an Indian Assessee is charged to tax under the Act. Thus, the income from installation, commissioning and testing activities as well as any function performed by expatriate employees of the group companies seconded to Nortel India would be subject to tax in the hands of Nortel India and the same cannot be considered as income of the Assessee." This judgment of Hon'ble Delhi High Court clearly clinches the issues in hand, both on the point of taxability u/s. 9(l)(i) and also in the context of PE. Thus, respectfully following the ratio laid down in aforesaid judgment of Hon'ble High Court in the case of assessee as well as in the case of Nortel, we hold that income of the assessee from off-shore supply of equipments in pursuance of supply contract cannot be brought to tax in India. " 75. The AO has also held that Nortel India constituted Dependent Agent PE of the Assessee in India. The aforesaid conclusion was premised on the finding that Nortel India habitually concludes contracts on behalf of the Assessee and other Nortel Group Companies. ....
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....ed in India on account of absence of any activities pertaining to such supply being carried out in India the said issue has become academic. 31. Despite the fact that both AO as well as Ld. CIT(A) have categorically relied upon findings returned by their predecessors qua AY 1997-98 and 1998-99 as discussed in the preceding paras, Ld. DR has tried to distinguish the fact of AY 1999-2000 to 2001- 2002. First contention raised by Ld. DR that AO has brought on record material vide para 4.10 at page 12 of assessment order that there is a PE in case of NIPL. The Ld. DR also referred to the findings returned by Ld. CIT(A) in the para 4.1 of the impugned order which are as under :- "4.1 In all the years under appeal, the appellant has carried on its business in systematic and continuous manner in India. Simply assigning some of the work of installation to Nokia India (wos) does not mean that the appellant was not carrying on core activities in India. It is the appellant who has assigned some installation project to the Indian subsidiary but the main responsibility is of the appellant only. The installation work is only a part of total project undertaken by the appellant. Nokia India ....
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....aterial whether employees stayed here or not but the supervisory activity in connection with Installation Project has continued for more than six months. It is the continuance of activity which is the required condition and not the stay of employees. As the installation and supervisory activity has been continued for more than the prescribed period as per treaty, the appellant also had PE as per provisions of article 5(3) of the treaty. 32. Ld. DR for the revenue laid emphasis on the findings given by special bench vide order dated 05.06.2018 that AO as well as CIT(A) in A.Y. 1997-98 & A.Y. 1998-99 have not given categoric finding that are existed a fixed place PE qua NIPL, whereas in the instant case AO / CIT(A) have given categoric finding in para 4.10 of assessment order and para 4.1 of impugned order passed by ld. CIT(A). 33. However, when we read the order passed by special bench 05.06.2018 in totality question raised by Ld. DR has been duly replied by extensively dealing with the arguments raised by Ld. DR with regard to existence of fixed place PE in the form of NIPL and has given categoric finding that there is nothing on record to show that the premises of NIPL were ....
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....35. So far as question of Assisting Nokia India Pvt. Ltd. by expatriates employees of the assessee by using office of Nokia India Pvt. Ltd. as contended by Ld. DR, is concerned this issue has also been duly decided by special bench vide order dated 05.06.2018 by returning following findings :- "As regards allegation that expatriates employees of the assessee in India were assisting the Nokia India Pvt. Ltd. and hence used the office of Nokia India Pvt. Ltd., is of no relevance qua the assessee's business, because, the technical expatriates were in India to assist/help Nokia India Pvt. Ltd. with performance of installation activities of Nokia India Pvt. Ltd. and not to carry out the business of the assessee which was manufacturing and sale of network equipments. This activity per se cannot be reckoned that the Indian office was being used for the purpose of the assessee's business or the assessee was undertaking business in India through fixed place of business. The test laid down by the hon'ble Supreme Court does not get satisfied in the case as nothing has been brought on record by the Assessing Officer or the learned Commissioner of Income-tax- Departmental representative that....
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....e income from installation activities have been shown in the hands of NIPL in India and there is no income whatsoever from the installation activities which has been earned by the assessee in India or can be attributed either directly or indirectly through NIPL. Moreover, before Hon'ble High Court in first round of litigation "dispute in the assessee's case only pertains to the consideration under the supply agreement entered into between the assessee and the various customers. 41. In so far as the question of agitating the findings returned by Ld. CIT(A) that facts of the case under consideration are similar to A.Y. 1997-98, 1998-99 by the assessee is concerned it is contended by Ld. AR for the assessee that this stand was taken by the assessee only to show that the cases under consideration were on stronger footing as during the year under assessment assessee has only entered into "standalone supply contracts" and there was no turnkey contracts. This contention of the Ld. AR for the assessee appears to be sustainable because ground no. 2 on factual matrix has been taken by the assessee on without prejudice basis. 42. It is further contended by Ld. DR for the revenue that no....
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....ng planning and negotiation constitutes a permanent establishment and also whether profits can be attributed to such activities, then such kind of an activity ostensibly falls within the scope and realm of preparatory or auxiliary in nature, because mere signing, planning and negotiation or networking before supply of goods, are preliminary activities and therefore, under this all pervasive exclusion clause there cannot be any permanent establishment which can be deemed either in terms of paragraph 1, 2 and 3 of article 5. Under the present double taxation avoidance agreement if activities are in the nature of preparatory and auxiliary character, then same have been specifically excluded from being treated as permanent establishment. Hence, even if for the argument's sake it is accepted that tlliere can be some kind of fixed place under article 5(1), then such a place cannot be reckoned as permanent establishment, because the activities carried out from such a place are in the nature preparatory and auxiliary. Accordingly, in terms of article 5(4), there could not be any fixed place permanent Establishment under article 5(1) because the activities of the assessee in India were ....
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....ditions of paragraph 1 of Article 5 being met. Insofar as sub-paras (h) and (i) of paragraph 2 of Article 5 are concerned, the test of permanence as required under paragraph 1 of Article 5 is substituted by a specified minimum period of nine months. Thus, places of business as specified under sub-paras (h) and (i) of paragraph 2 of Article 5, cannot be construed as a PE of an enterprise unless they exist for a period of atleast nine months. 17. Paragraph 3 of Article 5 is an exclusionary clause and is intended to exclude certain places of business from the scope of the expression 'Permanent Establishment'. Paragraph 3 begins with a non-obstante clause- "Notwithstanding the preceding provisions of this Article". Thus, the exclusions provided under paragraph 3 would override the provisions of paragraph 1 & 2 of Article 5 of the DTAA. In other words, even if a place of business squarely falls within the definition of paragraph 1 of Article 5 and is specifically listed in paragraph 2 of the said Article, the same would, nonetheless, not be construed as a PE of an enterprise, if it falls within any of the exclusionary clauses contained in sub-paras (a) to (e) of paragraph 3 o....
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....gning of contracts, however in the earlier round it has been categorically held that liaison office is not a permanent establishment qua these activities and nowhere there is a categorical and specific finding by the Assessing Officer or by the learned Commissioner of Income-tax (Appeals) in the entire order that there exist any fixed place permanent establishment qua the Indian subsidiary, i.e., Nokia India Pvt. Ltd., except for stating that office of the liaison office and Nokia India Pvt. Ltd. were co-located, employees of the assessee were working with Nokia India Pvt. Ltd. and therefore, it constituted a fixed place permanent establishment. If that reasoning alone is to be taken into consideration, then such an inter pretation of permanent establishment did not found judicial favour either by the earlier Special Bench or by the hon'ble High Court qua the liaison office, hence on same reasoning and principle, Nokia India Pvt.. Ltd. would also cannot be reckoned as fixed place permanent establishment." So in view of the matter we are of the considered view that the contention raised by Ld. DR is not sustainable. 51. It is further contended by Ld. DR for the revenue tha....
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.... in the office and a DAPE in the form of NIPL from which assessee's business activities are being carried out in India and such a fix place PE under Article 5(1) of the DTAA. 56. No doubt, AO as well as the Ld. CIT(A) have retuned the finding that there exists a fix place PE but when we read the order of AO as well as Ld. CIT(A) as a whole ultimately they have relied on order passed by Ld. CIT(A) in assessee's case for A.Y. 1997-98, 1998-99 which has further been decided by SB II in favour of the assessee that "assessee had no PE in the form of NIPL". The relevant finding of Special Bench II at page no. 72 of the order are extracted for ready perusal as under :- "As regards allegation that expatriates employees of the assessee in India were assisting the Nokia India Pvt. Ltd. and hence used the office of Nokia India Pvt. Ltd., is of no relevance qua the assessee's business, because, the technical expatriates were in India to assist/help Nokia India Pvt. Ltd. with performance of installation activities of Nokia India Pvt. Ltd. and not to carry out the business of the assessee which was manufacturing and sale of network equipments. This activity per se cannot be reckoned that t....
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....L. To repel this argument, Ld. AR for the assessee contended that this contention has already been dealt with by the Special Bench in para 36 page 49 of the order and no adverse view was taken. 62. In para 36 to 38 at page 49 of order passed by SB-II aforesaid contention raised by Ld. DR was duly dealt with and decided in favour of the assessee by returning following findings : "36. In sum and substance his arguments on permanent establishment can be summarized in the following manner : • The assessee's employees were stationed in India and provided services in India, which is evident that expatriates deputed were on payroll Nokia Ltd. • Various expatriate employees visited India to provide services regarding supply of equipments, for which Nokia India Pvt. Ltd. provided administrative support, like telephone, cars etc. • Setting up of GSM network is very complex and technical project which was carried out by highly skilled employees of the assessee company sent to the India from time to time. • Supply contacts and related agreements were signed in India by the employees of the assessee. • The services claimed t....
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....rs were signed in India. (iii) The employees of Indian Office (LO) were compensated by some other entity. (iv) From 1996 onwards all the expenses of Indian office were shifted to the Indian subsidiary. (v) The employees of the Indian Office were responsible for execution of the contracts with operators. (vi) No compensation was paid to IC for marketing and support services prior to 1997. (vii) PSC was set up in India to supervise the supply contract with TATA. (viii) Certificate of acceptance was signed by Indian subsidiary on behalf of the appellant. (ix) The appellant has accepted that the license of customized software is not sale, but royalty, and (x) The appellant has actually earned interest from Vendor financing and on account of delayed payments by the operators in the relevant previous year. 38. After noting the aforesaid facts, the hon'ble High Court observed that the finding of fact by the Special Bench specifically with regard to point Nos. (i), (iv), (v) and (vi) are purely based on assumption which are completely divorced from the facts for arriving to the conclusion on Nokia India Pvt. Ltd. being permanent establishment." So, the content....
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....s under :- "62. Now coming to the last issue of taxability of interest from vendor financing, we find that the Assessing Officer in his order has made the addition on the ground that the assessee provided credit facilities to its customers for which it should have charged the interest on the same. For coming to this conclusion, he has referred to one clause given in paragraph 6.9 of the contract between the assessee and Modi Telstra to conclude that purchaser were liable to pay interest at 18 per cent, for each day elapsed from the due date of actual payment. Thus, the only reason for making such an addition was existence of a particular clause in the agreement signed between the assessee and some of the Indian Cellular Operators. The learned Commissioner of Income-tax (Appeals) too has confirmed the said addition on the ground that, since the assessee is following a mercantile system of accounting and as per the contract the assessee was entitled to receive such interest, and therefore, same should have been accounted for and in support he has relied upon the judgment of the hon'ble Supreme Court in the case of State Bank of Travancore (supra), learned counsel for the asses....
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....42 (SC), CIT v. Messrs. Shoorji Vallabhdas and Co. [1962] 46 ITR 144 (SC) and Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746 (SC). Further, the judgment of the hon'ble Supreme Court in the case of State Bank of Travancore v. CIT reported in [1986] 158 ITR 102 (SC) which has been relied upon by the learned Commissioner of Income-tax (Appeals), has not been treated to be correct enunciation of law by the hon'ble Supreme Court in the case of Godhra Electricity Co. Ltd. v. CIT [1997] 225 ITR 746 (SC) and UCO Bank v. CIT (supra). Here in the present case, the assessee itself has not treated the amount of interest to be due from any of the telecomm operators either recognised as a debt or as a legal claim. Even the conduct of the parties show that such a clause even though may have been agreed upon has never been enforced or acted upon. In such a situation, in our opinion, the amount of interest cannot construe a debt due to the assessee. Further, the assessee has not debited the account of any customer with interest which can be treated as income of the assessee. Nowhere has it been held by the Assessing Officer/Commissioner of Income-tax (Appeals) that such an interest i....