TaxTMI 
TaxTMI 
2022 (8) TMI 889
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....nd also to its group company Nokia Solutions and Networks India Private Limited ('NSN India'). 3. Nokia Corporation is a public listed company, incorporated in Finland, and is the ultimate parent entity of the Nokia group. Presently Nokia corporation is in business of manufacturing and sale of mobile phones through its subsidiaries worldwide. Upto AY 2007-08, Nokia Corporation was also in the telecom network business and was filing returns with DCIT, Circle-2(1), International taxation, New Delhi. However, w.e.f. 1.4.2007, the said telecommunication network business was transferred by Nokia Corporation to Nokia Siemens Networks B.V. [later changed to Nokia Solutions Networks BV] [NSN BV for short], Nokia Siemens Networks Oy [Later changed to Nokia Solutions and Networks Oy] [NSN Oy for short] is the wholly owned subsidiary of NSN BV and is incorporated in Finland. NSN Oy is the business principal and operational headquarters company of NSN group. However, NSN Oy did not voluntarily filed its return of income for AY 2008-09 or later assessment years. 4. When this fact came to light, a notice under section 142(1) of the IT Act, 1961 dated 02.06.2011 was issued to NSN Oy to ....
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....ising of hardware and software) and spare parts etc. to India telecom operators. It is submitted that this NSN Oy does not have a PE in India and thus supply of equipment from outside India is not liable for tax in India. Total supplies made during the year to Indian customers is shown at Euro 544,435,298 (equivalent to INR 32,464,676,820 taking Euro 1 = INR 59.63). Out of the total supplies of 544,435,298 Euros made by NSN Oy to India telecom operators- * 152,340,455 Euros is in respect of software (INR 9,739,403,046); and * 392,094,843 Euros is in respect of hardware (INR 23,380,615,488) [approx. 72%]. 7. In addition to the above, NSN Oy has also sold network equipment worth INR 9,861,132,884 to NSN India Pvt. Ltd. Taking the same proportion as above, hardware sales to NSNIPL would come to INR 7,100,015,676 and software portion will come to INR 2,761,117,208. 8. Provision of services to NSNIPL (Network support services). Total payments received by NSN Oy on this account is INR 244,195,397. This international transaction was referred to the Transfer Pricing Officer who has not suggested any adjustment in this respect vide his order dt. 24.01.2014. Revenue o....
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.... 13. Total tax deducted on account of software comes to Rs. 52,878,899 and for network support services comes to Rs. 25,782,150. The network support services have been offered for taxation in Income Tax Return. It may be mentioned here that the group company NSNIPL is deducting tax on payment of software, however, the assessee claims it to be its business income. 14. Heard the arguments of both the parties and perused the material available on record. 15. We have gone through the draft order of the AO, order of the ld. DRP in the case of the assessee and also order u/s 92CA(3) in the case of NSNPL. We have gone through the issue with regard to the tax receivable to the exchequer of India from the assessee keeping in view the global profits earned by the assessee, provisions of DTAA and also various judgments of the Courts on the issue of PE and attribution of profits thereof. 16. Arguments at length have been taken up before the Tribunal by both the parties. Coming to the relevant core issue, we find that Appeal before us involve to the following two straight issues, (a) Does the assesee has Permanent Establishment (P.E) in India and (b) If so, what is ....
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....dgment of the Hon'ble Supreme Court of Italy in Phillip Morris (supra) wherein it has been held that: "the participation of representatives or employees of a resident company in a phase of the conclusion of a contract between a foreign company and another resident entity may fall within the concept of authority to conclude contracts in the name of the foreign company, even in the absence of a formal power of representation". C5. The expression 'an authority to conclude contracts' has not been defined in the DTAA. Para 5 of Article 5 of OECD Model Convention also uses the similar expression, namely: 'an authority to conclude contracts.' Para 31-35 of the OECD commentary deal with para 5 of the OECD Model Convention whose language, is similar to para 4 of Article 5 of the DTAA. C6. It is pertinent to mention here that India has clarified its position in 2008 on para 33 of the OECD commentary by making it clear that it does not agree with both these sentences from para 33 of the OECD commentary as in its view the mere fact that a person has attended or participated in negotiations in a State between an enterprise and a client, can, in cer....
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....ngible asset. Section 92B of I.T. Act provides that market intangible includes client list. Indian AE has performed this function of maintaining and up keeping the client list in the capacity of PE entity. C10. This shows that Indian AE is responsible for protecting, development & maintenance of the intangible assets (copyright, brand, patent & confidential data of customers) in India. The risk of receivables from customers also exists in India. However, there is no compensation made for such functions. 18. Now, taking the second issue first, we find that the AO has attributed the profits in the following way: "9.1 As discussed above, the assessee has PE in India, wherein R&D is being carried out on behalf of the assessee and the assessee earns income from utilizing the inventions so developed worldwide. There are no details available on record for such type of income which is attributable to its permanent establishment in India for the above mentioned activities. Under the above circumstances Rule 10 of the Income Tax Act is invoked for computing the profit of the assessee attributable to its activities in India relating to Research and development. For arrivi....
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....udited accounts are to be applied for determining the quantum of the income to be attributed to the P.E. The effect being if the Appellant Company is in net loss as per its audited accounts or the calendar years 2009 and 2010, which relate to the present A.Y. 2010-11, there would be no profit or income attributable to the P.E. There are losses in both years as per the audited accounts. PB- Volume A of Compilation page 164, at 169 and page 180, at 185. 21. The relevant portion of the said Special Bench Judgment is quoted herein below (page 287 of Volume C, at page 949-950): "287....Taking all these into consideration, we consider it fair and reasonable to attribute 20% of the net profit in respect of the Indian sales as the income attributable to the PE. The following steps are involved in computing the income attributable to the PE: First the global sales and the global net profit have to be ascertained. From the accounts presented before us as well as before the Income-tax authorities, the global net profit rate has been ascertained at 10.8% and 16.1% by the CIT (Appeals), to which no objection has been taken by either side. This percentage has to be ....
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....business n the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment." 25. Article 7(1) thus provides as under: "(a) The profits of an enterprise can ordinarily be taxed only by the country in which it is located. (b) If however, the enterprise has a P.E. located in another country (which is also a signatory to the DTAA), through which it carries on its business, then a portion of its profits, to the extent it is attributable to the P.E. can be taxed in the other country." 26. On a plain reading of Article 7(1) of the DTAA, the question of attributing profits to the P.E. arises only if the foreign enterprise is making a profit. This is the condition precedent. If it is making a loss then no question arises at all of attributing any profit to the P.E., which would be taxable in India. 27. The Assessing Officer has taken gross profit margins of the Appellant Company for 2009 and 2010 as per its audited accounts instead of the net profit margins. The....
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....e materials referred to in clause 2.1. It is expressly understood that the Subcontractor shall use such documents, drawings, models or nay other materials only for the purpose of fulfilling the subcontracting work for NSN and for no other purpose whatever and that such materials are subject to confidentiality as set out in Clause 15." 31. Thus, the AO concluded that the office premises of NSNIPL is nothing but a branch of assessee which is virtually under the control of assesse because no independent party would give such unfettered rights to any other independent party. 32. The appellant has relied on the decision of Hon'ble Delhi High Court in the case of Adobe Systems Incorporated vs. Assistant Director of Income-tax 69 taxmann.com 228 whereas the revenue held that the contract clause 2.2 providing unfettered rights to enter any premises and this case distinguishes it from the cited case. 33. It may be important to note that the decision of Hon'ble bench in the case of the assessee on this issue for AYs 2004-05 to 2006-07 is based on R&D activities for the assessee in terms of the different "Research and Development Subcontracting Agreement". The case in hand is....