A foreign enterprise must generate profits for tax attribution to a permanent establishment in another country; losses negate any such tax obligations under relevant treaties.

JUDGMENT

[Physical Hearing/Hybrid Hearing (as per request)]

Rajiv Shakdher, J. (Oral)

CM Appl.52239/2022

1. Allowed, subject to just exceptions.

CM Appl.52240/2022

2. This is an application filed on behalf of the appellant seeking condonation of delay in re-filing the appeal.

2.1. According to the appellant/revenue, there is delay of 90 days.

3. For the reasons given in the application, the delay is condoned.

4. The application is disposed of in the aforesaid terms.

ITA 503/2022

5. This appeal is directed against the order dated 07.12.2021 passed by the Income Tax Appellate Tribunal [in short "Tribunal"].

6. The appellant/revenue has proposed, for consideration of this Court, the following questions of law:

"A. Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT erred in holding that the assessee does not have a permanent establishment within the meaning of Article 5 of the India-Finland Double Taxation Avoidance Agreement?

B. Whether on the facts and circumstances of the case, the Ld. ITAT erred in holding that no profits are attributable to the PE of the Assessee relying on the decision of the Hon'ble Special Bench of the Ld. ITAT in case of Nokia Corporation for A Y. 1997-98 and A.Y. 1998-99?

C. Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT has erred in following the decision of the Ld. ITAT in case of Nokia Corporation for A.Y. 2004-05 to 2006-07 and the decision of the Hon'ble Delhi High Court in the case of Adobe Systems Incorporated Vs. ADIT, W.P.(C) No. 2384/2013 while holding that the activities of Research and development activities do not constitute a PE of the assessee in India?

D. Whether on the facts and circumstances of the case, the Ld. ITAT erred in holding that revenue from software supplies are not taxable as Royalty under Article 12 of the India-Finland Double Taxation Avoidance Agreement?"

7. Even according to Mr Sanjay Kumar, who appears on behalf of the appellant/revenue, insofar as the questions of law set forth as `C' and `D' above are concerned, they are covered against the appellant/revenue.

7.1. The question of law set out as above is covered by the decision dated 16.05.2016 rendered by this Court in W.P (C) 2384/2013 titled: Adobe Systems Incorporated Vs. Assistant Director of Income Tax and Anr..

8. Likewise, insofar as the substantial question of law referred in `D' above is concerned, it is admittedly covered by the decision of the Supreme Court rendered in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Anr., (2022) 3 SCC 321.

9. This brings us to the remaining questions of law, as proposed by the appellant/revenue i.e.,`A' and `B'.

10. We may note, that the impugned order passed by the Tribunal has proceeded on the basis, albeit on a demurrer, that the respondent/assessee has a Permanent Establishment ["PE"] in India, and thereafter gone on to discuss, as to whether any profits could be attributed to it.

11. The Tribunal has returned a finding of fact, that the respondent/assessee recorded a "global net loss" in the relevant assessment year, and therefore no profit could have possibly been attributed to it.

11.1. A discussion on this aspect is set forth in the following paragraphs of the impugned judgment passed by the Tribunal:

"19. The assessee emphatically denies that the Appellant has a P.E. in India. However, without any prejudice to that basic contention, the assessee submitted that even assuming without conceding that the assessee has a P.E in India, no profit or income can at all be attributed to the P.E as the net profit of the assessee is loss and there are no taxable attrib