The Delhi High Court has held that assurances were clearly not liable to be viewed as being evidence of Nokia OY using Nokia India Private Limited (NIPL) as a vehicle for its own enterprise.
The bench of Justice Yashwant Varma and Justice Ravinder Dudeja has observed that a parent or a holding company would invariably be expected to have an interest and concern in the working of an overseas subsidiary. This essentially represents its right of oversight, supervision and protection of shareholder interest. However, the exercise of those powers does not denude the subsidiary of its independent economic existence. As Article 5(8) explains, the mere fact that the enterprise is a subsidiary of another would not in itself be sufficient to recognise it as a PE.
In 1994, Nokia OY is stated to have established a Liaison Office and which was followed by the incorporation of a fully owned subsidiary, NIPL on 23 May 1995. According to the Respondent, in the period in question and while the Liaison Office was still operational, GSM equipment manufactured in Finland was sold to various Indian telecommunication operators from outside India on a principal-to-principal basis under independent buyer-seller arrangements.
Post incorporation of NIPL in May of 1995, the installation activities were undertaken by the said entity in terms of independent contracts which it entered into with Indian telecom operators. The details of the contracts which were entered into by the Respondent assessee stand duly captured in paragraph 2 of the judgment of the Tribunal.
The assessee, Nokia OY, is stated to have consistently maintained the position that the said installation activities were undertaken by NIPL in terms of separate agreements which it had entered into with Indian telecom operators. The two exceptions to such contracts were those entered into with Modi Telstra (India) Limited and Skycell Communications Ltd. and which were signed prior to the incorporation of NIPL.
Undisputedly, Nokia OY did not file any Return of Income for the concerned period taking the position that offshore supplies were not exigible to tax. A return was ultimately filed consequent to notices which came to be issued under Section 142(1) of the Act on 03 November 1999. The Assessing Officer9, while drawing up an order dated 02 March 2000 referable to Section 143(3), came to hold against Nokia OY on the question of taxability, the existence of a PE and attribution of income.
The AO proceeded to make additions under the head of profit on sale of hardware, profits on licensing of software as well as interest income. Nokia OY assailed the view so taken asserting that equipment supply contracts with at least two of the Indian telecom operators were signed even before NIPL had been incorporated and consequently it was only the installation activities undertaken pursuant to the original equipment supply contract having subsequently been assigned to NIPL that could have formed subject matter of taxation.
It had further averred that all the equipment supplied by Nokia OY fell in the category of offshore supplies and profits earned from those transactions were thus not taxable in India. According to Nokia OY, it is this which led to the Revenue seeking to discover the existence of a PE.
The court has held that the appellants had failed to establish the existence of a DAPE. It has, however, in this respect observed that while the view expressed in the previous round, stricto sensu, may not have been wholly accurate or tenable, the question of PE would still be liable to be answered basis the essence of the arrangement between Nokia OY and NIPL as was discerned by the AO and the CIT(A).
“Mere fact that Nokia OY held out an assurance in respect of a fledgling venture in its formative years fails to convince us to hold that the former constituted its PE. The assurances were clearly not liable to be viewed as being evidence of Nokia OY using NIPL as a vehicle for its own enterprise,” the court said.
Case Details
Case Title: The Commissioner Of Income Tax – International Taxation -2 V/S Nokia Network Oy
Case No.: ITA 785/2019
Date: February 21, 2025
Counsel For Appellant: Ruchir Bhatia, SSC
Counsel For Respondent: Deepak Chopra, Ankit Goyal and Priyam Batnagar