DIT vs. Nokia Networks OY (Delhi High Court)
The assessee, a Finnish company, sold GSM equipment manufactured in Finland to Indian telecom operators from outside India on a principal to principal basis, under independent buyer-seller arrangements. Installation activities were undertaken by the assessee’s Indian subsidiary. The AO & CIT(A) held that the assessee’s liaison office and subsidiary constituted a Permanent Establishment (PE) and that a portion of the revenue was attributable to sale of hardware and a portion to the supply of software. A part of the equipment revenue was held attributable to the PE and the whole of the software revenue was held assessable as “royalty” u/s 9(1)(vi) & Article 13. The Special Bench (Motorola Inc 95 ITD 269 (Del)) held that, in view of Ishikawajima-Harima 288 ITR 408 (SC) no part of the equipment profits was taxable in India as the title had transferred abroad and no part of the software royalty was taxable in India as it was for supply of a “copyrighted article” and not a “copyright“. The Special Bench verdict was approved by the High Court in DIT vs. Ericsson AB 343 ITR 370 (Del). Before the High Court, the department argued that Ericsson AB should not be followed because (a) Ishikawajima-Harima 288 ITR 408 (SC) was no longer good law in view of the larger Bench judgement in Vodafone International 345 ITR 1 (SC) as held in Roxar Maximum (AAR) & Alstom Transport (AAR) and (b) s. 9(1)(vi) had been retrospectively amended by the Finance Act 2012 to provide that even supply of a copyrighted article was assessable as “royalty“. HELD by the High Court dismissing the appeal.
The assessee, a Finnish company, sold GSM equipment manufactured in Finland to Indian telecom operators from outside India on a principal to principal basis, under independent buyer-seller arrangements. Installation activities were undertaken by the assessee’s Indian subsidiary. The AO & CIT(A) held that the assessee’s liaison office and subsidiary constituted a Permanent Establishment (PE) and that a portion of the revenue was attributable to sale of hardware and a portion to the supply of software. A part of the equipment revenue was held attributable to the PE and the whole of the software revenue was held assessable as “royalty” u/s 9(1)(vi) & Article 13. The Special Bench (Motorola Inc 95 ITD 269 (Del)) held that, in view of Ishikawajima-Harima 288 ITR 408 (SC) no part of the equipment profits was taxable in India as the title had transferred abroad and no part of the software royalty was taxable in India as it was for supply of a “copyrighted article” and not a “copyright“. The Special Bench verdict was approved by the High Court in DIT vs. Ericsson AB 343 ITR 370 (Del). Before the High Court, the department argued that Ericsson AB should not be followed because (a) Ishikawajima-Harima 288 ITR 408 (SC) was no longer good law in view of the larger Bench judgement in Vodafone International 345 ITR 1 (SC) as held in Roxar Maximum (AAR) & Alstom Transport (AAR) and (b) s. 9(1)(vi) had been retrospectively amended by the Finance Act 2012 to provide that even supply of a copyrighted article was assessable as “royalty“. HELD by the High Court dismissing the appeal.
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