Back
2025 Supreme(Online)(DEL) 605
HIGH COURT OF DELHI
Yashwant Varma, Ravinder Dudeja, JJ
THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -2 – Appellant
Versus
NOKIA CORPORATION (FORMERELY KNOWN AS NOKIA NETWORK OY) – Respondent
ITA-785/2019
The court ruled that a Permanent Establishment requires a fixed place of business at the disposal of the enterprise, and mere control or ownership does not suffice to establish tax liability.
Headnote:(A) Income Tax Act, 1961 - Sections 9(1)(i), 142(1), 143(3) - Double Taxation Avoidance Agreement (DTAA) between India and Finland - Permanent Establishment (PE) - The court addressed whether Nokia OY had a Fixed Place PE in India, whether its subsidiary constituted a Dependent Agent PE, and the taxability of interest and software revenue. The court found that the Liaison Office did not constitute a PE, and NIPL was not a DAPE as it operated independently. The court ruled that no income was taxable in India from offshore supplies and that interest from vendor financing was not taxable as it was not realized. (Paras 1, 11, 12, 60, 61)
(B) Permanent Establishment - The court emphasized that a PE must have a fixed place of business through which the enterprise's business is carried out, and that mere control or ownership does not suffice to establish a PE. (Paras 34, 45)
Facts of the case:
The appeals arose from assessments concerning Nokia OY's operations in India, focusing on its relationship with its subsidiary, NIPL, and the nature of its business activities. The Revenue argued that Nokia OY had a PE in India through its Liaison Office and NIPL, while Nokia OY contended that it operated independently and that its offshore supplies were not taxable.
Findings of Court:
The court upheld the Tribunal's findings that NIPL did not constitute a PE and that the income from offshore supplies was not taxable in India.
Issues: The main issues included the existence of a Fixed Place PE, the classification of NIPL as a DAPE, and the taxability of interest and software revenue.
Ratio Decidendi: The court concluded that the existence of a PE requires a physical location at the disposal of the enterprise, and that the activities of NIPL were independent and did not constitute a PE for Nokia OY.
Result: Appeals dismissed.
J U D G M E N T
YASHWANT VARMA, J.
1. This set of appeals give rise to the following four principal questions: -
(A) Whether the assessee in the concerned Assessment Years, [AY]
had a Fixed Place Permanent Establishment, [PE] in India?
(B) Whether Nokia India Private Limited, [NIPL], a wholly owned subsidiary of the assessee constituted a Dependent Agent Signature Not Verified
Permanent Establishment, [DAPE] of the assessee?
(C) Whether interest from delayed consideration of supply of equipment and licensing of software was taxable in the hands of the assessee as interest earned from vendor financing?
(D) Whether the revenue from supply of software could be classified as royalty or fee for technical services under the Income Tax Act, 1961, [Act] read along with the India-Finland Double Taxation Treaty, [DTAA]
2. Mr. Bhatia and Mr. Mann, learned counsels who appeared for the appellants, had placed for our consideration the following chart which delineates the questions which arise in each of these appeals and also encapsulates details of the AYs to which they pertain. That chart is extracted hereinbelow: -
Signature Not Verified
3. The litigation spawning these appeals has had a chequered history and saw not just a previous round of litigation landing at the doorstep of this Court but also witnessed two references to Special Benches of the Income Tax Appellate Tribunal, [Tribunal] itself. It would thus be appropriate to take note of some of the salient facts leading up to the institution of these appeals. For the sake of brevity, we propose to take note of the facts as disclosed in ITA No. 786 of 2019 and which with the consent of learned counsels appearing for respective sides was designated as the lead appeal.
4. ITA No. 786 of 2019 was concerned with a common order passed by the Tribunal for AYs 1997-98 and 1998-99. From the disclosures made in that order, we gather that Nokia Networks OY, [Nokia OY] the respondent assessee, was a company incorporated under the laws of Finland and engaged in the manufacture of advanced telecommunication systems and equipment. The GSM equipment manufactured was used in relation to fixed and mobile phone networks. Nokia OY was also engaged in the trading of telecommunication hardware and software.
5. 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.
6. Post incorporation of NIPL in May of 1995, the installation Signature Not Verified
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.
7. 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 Of
