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THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 vs NOKIA CORPORATION (FORMERELY KNOWN AS NOKIA NETWORK OY)

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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: October 24, 2024
Judgment pronounced on: February 21, 2025

+ ITA 785/2019
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Ruchir Bhatia, SSC.

versus

NOKIA NETWORK OY …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates.
+ ITA 786/2019
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Ruchir Bhatia, SSC.

versus

NOKIA NETWORK OY …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates.
+ ITA 882/2019
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Ruchir Bhatia, SSC.

versus

NOKIA CORPORATION (FORMERELY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates
+ ITA 883/2019
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Ruchir Bhatia, SSC.

versus

NOKIA CORPORATION (FORMERELY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Appearance not given.
+ ITA 884/2019
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Ruchir Bhatia, SSC.

versus

NOKIA CORPORATION (FORMERELY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates
+ ITA 885/2019
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Appearance not given.

versus

NOKIA CORPORATION (FORMERELY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates
+ ITA 887/2019
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Appearance not given.

versus

NOKIA CORPORATION (FORMERELY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates.
+ ITA 166/2020
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Aseem Chawla, SSC with Ms. Pratishtha Chaudhary, Advocate.

versus

NOKIA CORPORATION (FORMERLY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates.
+ ITA 170/2020
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Aseem Chawla, SSC with Ms. Pratishtha Chaudhary, Advocate.

versus

NOKIA CORPORATION (FORMERLY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates.
+ ITA 171/2020
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Aseem Chawla, SSC with Ms. Pratishtha Chaudhary, Advocate.

versus

NOKIA CORPORATION (FORMERLY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates.

+ ITA 60/2023
THE COMMISSIONER OF INCOME TAX – INTERNATIONAL TAXATION -2 …..Appellant
Through: Mr. Aseem Chawla, SSC with Ms. Pratishtha Chaudhary, Advocate.

versus

NOKIA CORPORATION (FORMERLY KNOWN AS NOKIA NETWORK OY) …..Respondent
Through: Mr. Deepak Chopra, Mr. Ankit Goyal and Mr. Priyam Batnagar, Advocates.
CORAM:
HON’BLE MR. JUSTICE YASHWANT VARMA
HON’BLE MR. JUSTICE RAVINDER DUDEJA

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 1 had a Fixed Place Permanent Establishment2 in India?
(B) Whether Nokia India Private Limited3, a wholly owned subsidiary of the assessee constituted a Dependent Agent Permanent Establishment4 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, 19615 read along with the India-Finland Double Taxation Treaty6?
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: –

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 Tribunal7 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 OY8, 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 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 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 adverse findings so returned by the AO have been succinctly captured by the Tribunal in paragraph 3 of its order and which reads as under: –
“3. The Assessing Officer completed the assessment u/s. 143(3) vide order dated 2.3.2000 in the following manner (as summarised by the Hon’ble High Court): –
(a) Nokia was carrying on business In India through a Permanent Establishment (PE). Both the Indian Liaison Office and Indian subsidiary were held to constitute a PE of Nokia in India. ‘Installation PE’ was also constituted on the basis that Nokia had supported Indian subsidiary in discharging its obligation under the installation contracts.
(b) 70% of total equipment revenue (comprising of hardware and software) was attributed to sale of hardware and 40% of the same was estimated as income of Nokia from supply of hardware. Further 30% of the profits so determined were attributed to the PE of Nokia in India. The remaining 30% of the equipment revenues were attributed towards supply of software and the same was taxed as ‘royalty’ (on a gross basis) both u/s 9(1)(vi), of the Income-tax Act & under section 13 of the India-Finland DTAA, holding that software was not sold but licensed to the Indian telecom operators.
(c) In addition, income from vendor financing and delayed payment was imputed at Rs.50,000,000/- for each assessment year on account of specific clause in this regard in the offshore supply contracts. The said income was classified as commercial income and added to the income from sale of equipment and licensing of software and taxed at the rate of 55%.”
8. Basis the aforesaid conclusions, 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.
9. Reverting then to the assessment made by the AO, Nokia OY aggrieved by the same petitioned the Commissioner of Income Tax (Appeals)10 and which came to hold that the Liaison Office constituted a Fixed Place PE of the respondent. Insofar as the connect between Nokia OY and NIPL was concerned, the CIT(A) took into consideration the fact that the latter was a wholly owned subsidiary and it thus being liable to be presumed that the latter was not acting independently. It consequently came to hold that the view of the AO that NIPL constituted a DAPE of the respondent was liable to be affirmed.
10. In the course of consideration of the appeal which came to be taken against the aforesaid decision, the matter came to be referred to a Special Bench of the Tribunal which rendered its judgment on 22 June 2005. The critical findings which the Special Bench came to return are duly noted by the Tribunal in Para 6.1 and which is extracted hereinbelow: –
“6.1 These questions have been decided by the Special Bench vide judgment dated 22.06.2005; however, in so far as the appeal relating to the assessee is considered, the following findings have been given by the Special Bench which finding too has been summarized in the judgment of the Hon’ble High Court in the following manner: –
(1) Liaison Office neither constituted a business connection under the Act nor a PE of the Nokia under Article 5 of the India-Finland DTAA, as it merely carried on advertising activities in India.
(2) Sale of hardware took place outside India and no income from sale of hardware accrued to Nokia in India.
(3) Nokia was not responsible for installation of telecom equipment and Nokia’s arrangement with the Indian Telecom Operators did not constitute a works contract. NIPL is a separate corporation entity and is also assessed separately for its installation income.
(4) However, Nokia was held to have a PE in India in the form of NIPL on the basis that Nokia virtually projected itself in India through NIPL and guarantees given by Nokia that it will not ‘dilute its shareholding in NIPL below 51% without written permission of Indian Telecom Operators was used as the main basis to hold that Nokia was in a position to control and monitor NIPL’s activities.
(5) While upholding NIPL as a PE of Nokia, the Special Bench observed that it did not matter that there was no direct evidence for the control of NIPL by Nokia. For purposes of PE, what is relevant is only the perception that NIPL was a projection of Nokia, whether or not in fact and in truth its activities were being controlled/ monitored by Nokia. Following discussion ensued on this aspect: –
‘… We only meant to convey that because of the close connection between the assessee and NIPL, it was possible to look upon NIPL as a “virtual projection” of the assessee in India. We have in fact clarified in the same paragraph that what matters is that there was scope for previewing the assessee’s soul in the body of NIPL and that it did not matter that there was no direct evidence for the control of NIPL by the assessee. For purposes of PE, what is relevant is only the perception that NIPL was a projection of the assessee, whether or not in fact and truth its activities were being controlled / monitored by the assessee. Our observations are therefore confined to the question of PE. Otherwise, both the assessee and NIPL remain separate corporate entities and NIPL has also been assessed separately for its installation income. Thus the observations in para 274(b) have no relevant to what has been discussed in this paragraph.’
(6) Payment for supply of software was not in the nature of royalty because the same was for a copyrighted article and ‘not for a copyright. Further, software was held to be integral part of GSM equipment. Payment for supply of software was held not taxable both under the provisions of the Act and under DTAA.
(7) Interest income from vendor financing was held to have been correctly added.
(8) Following 3 activities were held to have been carried out by NIPL, the PE of Nokia in India:
(a) Network Planning;
(b) Negotiations in connection with the sale of equipment; &
(c) Signing of supply and installation contracts.
(9) 20% of the net profit determined on the basis of the global net profit of Nokia (10% towards signing of the contract and 10% towards other two activities) was attributed to the PE in India. This margin was directed to be applied on the Indian sales of Nokia (clarified by the Special Bench of the ITAT to mean revenues arising from supply of hardware and software).”
11. It thus becomes apparent that the Special Bench of the Tribunal essentially held that the Liaison Office would neither qualify the test of a business connection nor was it liable to be viewed as a PE under Article 5 of the India Finland DTAA. It further pertinently held that the sale of equipment took place outside India and thus no income derived therefrom could be said to have accrued to Nokia OY in India. However, it held that NIPL would constitute a Fixed Place PE and answer to the test of virtual projection as enunciated by courts. It observed that notwithstanding the absence of direct evidence establishing control of NIPL by Nokia OY, perception of the former as a projection of the parent entity would suffice.
12. The judgment of the Special Bench of the Tribunal was thereafter assailed before this Court by both the assessee as well as the Revenue in a batch of appeals in which the lead matter was ITA No. 512 of 2007. Those appeals came to be disposed of by a detailed judgment rendered by the Court on 07 September 2012. Para 7 of the order of the Tribunal identifies the substantial questions of law on which that appeal set came to be admitted and the manner in which they were ultimately answered by this Court. The table which appears in Para 7 is reproduced below: –
“7.
Revenue Appeals before the Hon’ble High Court ( lead case ITA 512/2007 )
Substantial Question of Law admitted by Hon’ble High Court
Conclusions
Q1. Whether on a true and correct interpretation, of section 9(1)(i) of the Income Tax Act, the Respondent can be said to have a business connection in India in the form of a Liaison Office?
Decided in favour of assessee
(Para 23 of HC Order)
Q2. Without prejudice, whether the respondent has a ‘permanent establishment’ in India because of its Liaison Office within the meaning of the relevant provision of DTAA between India and Finland?

Q3. Whether any part of the consideration for supply of software stated by the Respondent to be integral to the equipment is taxable as (royalty’ either under section 9(l)(vi)or the relevant provision
Decided in favour of assessee
(Para 30 of HC Order)
Q4. Whether on facts and in law without prejudice, the Tribunal is correct in law in attributing only 20% of the Global Net Operating Profits to the PE in the form of NIPL (Nokia India Pvt. Ltd.) a subsidiary
Issue remitted back to AO
(Para 31 of HC Order)
Q5. Whether on facts and in law interest under section 234B is leviable?
Decided in favour of assessee
(Para 30 of HC Order)

Asseessee Appeals before Hon’ble High Court (ITA 1137 & 1138 / 2007)
Q1. Whether on a true and correct interpretation of the relevant DTAAA the Tribunal’s reasoning is right in law in holding that NIPL, (the subsidiary of the Appellant) is a permanent establishment?
All these Issues have been remitted back to ITAT (Para 38 of High Court order)
Q2. Whether the Tribunal was right in law in holding that a perception of virtual projection of the foreign enterprise in India results in a permanent establishment?

Q3. Whether prejudice, if the answers to Q.1 & Q.2 are in affirmative, is there any attribution of profits on account of signing, network planning and negotiation of offshore supply contracts in India and if yes, the extent and basis thereof?

Q4. Whether in law the notional interest on delayed consideration for supply of equipment and licensing of software is taxable in the hands of assessee as interest from vendor financing?

13. It would also be apposite to reproduce the following salient passages which formed part of the judgment handed down by this Court: –
“34. We may recapitulate that there are four contracts which have been referred to in the orders of the authorities below. The same are:
i. Supply contracts between the assessee and various customers.
ii. Installation Contract between he Indian subsidiary and the customers directly. Only two contracts with Modi Telstra and Skycell executed in February and March, 1995 were separate from the supply contracts and installation portion was assigned to the Indian subsidiary with the consent of all concerned.
iii. Marketing support Agreements dated 19.4.1996 and 6.11.1997 between the assessee and its Indian subsidiary, and
iv. Technical support agreement between Indian subsidiary and the customers.
Whereas the marketing support ensures to the benefit of the assessee the technical support ensures to the benefit of the Indian customer, the technical support is in respect of the projects installed and has nothing to do with the supply contract. The consideration accruing or arising under the contracts already assessed in the hands of the Indian subsidiary and there is no adverse action in respect thereof The technical support agreement referred to supra has not even been referred to by the authorities below in support of any of the allegations. Only general or loose reference has been made by the Tribunal.
The dispute hence only pertains to the consideration under the Supply Agreement entered between the assessee and the various customers.
35. It was the submission of Mr. Syali that although the Tribunal held that with the Indian subsidiary there was a business connection, they did not go into the issue of how much income can be attributed to the activities earned out in India because that analysis was only made in respect of the subsidiary constituting a PE. Even though a business connection exists, if there is no income accruing or arising directly or indirectly through or from that business connection in India, nothing can be taxed in the hands of the assessee. It was the argument of Mr. Syali that Section 90(2) of the Act clearly stipulates that the treaty regime can be opted if it is more beneficial to the assessee and, therefore, it was necessary to ascertain as to whether any income was attributable to the PE. It was argued that no such income could be attributed to PE in India and these aspects were not correctly appreciated by the Tribunal Learned Senior Counsel submitted that the conclusion arrived at by the Tribunal was erroneous as it was based on various factual errors has crept in the orders of the lower authorities. According to him, the factual errors of the orders of the AO were specifically pointed out in the submissions to the CIT (A) and specific grounds were also taken before him which are as under :
(i) The Indian subsidiary was executing contracts on behalf of the appellant through its employees.
(ii) All the contracts with the operators were signed in India.
(iii) The employees of Indian Office (LO) were compensated by some other entity
(iv) From 1996 onwards all the expenses of the Indian office were shifted to Indian subsidiary
(v) The employees of the Indian Office were responsible for execution of the contracts with operators.
(vi) No compensation was paid to IC for marketing and support services prior to 1997.
(vii) PSC was set up in India to supervise the supply contact with TATA.
(viii) Certificate of acceptance was signed by Indian subsidiary on behalf of the appellant.
(ix) The appellant has accepted that the license of customized software is not sale, but royalty, and
(x) The appellant has equally earned interest from Vendor Financing an on account of delayed payments by the operators in the relevant previous year.
36. Mr. Parasaran, learned ASG appearing for the Revenue could not controvert the aforesaid pleas of Mr. Syali. We find that the aforesaid errors on facts have crept in. It is primarily for the reason that the Tribunal had taken the facts in the case of Ericsson case and on the presumption that those facts were common the case of Nokia as well and the legal questions in the appeals of Nokia were decided therefore the actual inaccuracy has crept in the fact findings of the Tribunal. We find justification in the argument of Mr. Syali that the clear cut impact of such assumptions is evident from the fact that findings (i), (iv), (v) and (vi)are all suppositions in the absence of appreciating that there was a marketing support agreement in operation from 1.1.1996 to the 31-12.1996. Even as per the AO after the later agreement of 1997 there is no allegation made as regards shifting of expenses, no compensation paid to Indian subsidiary, etc. In other words, once there was an agreement the issue only revolved on the nature of the agreement. Once it is accepted that the position in 1997 and 1996 is pari-materia, there will not remain any such allegation.
37. We would like to record that the CIT (A)proceeded on the basis that Indian subsidiary incurred huge loss and the parent assessee was aware of its profitability. The CIT (A) also observed that since NPL was 100% subsidiary and the assessee had wide experience in this area of business, it is logical that a transaction between the assessee and the Indian subsidiary did not occur at arm’s length. Mr. Syali argued that there was no basis for drawing such inference and at the time of arguments, the learned ASG conceded that there was no evidence to support that losses were absorbed by the Indian company. Again, pertinently, the Tribunal also observed that NIPL could be considered PE of assessee in India being subsidiary as it is the virtual projection of the company in India. Further, the accounts of the Indian subsidiary show that the company incurred huge losses as it was not compensated properly for the installation work carried on by it. In the opinion of the ITAT since it was a wholly owned subsidiary, the assessee would have direct and complete control over the activities of this subsidiary. The learned ASG also conceded that it was not correct.
38. As we find that the order of the Tribunal is based on many factual errors which are even accepted by the Revenue before us, it would be appropriate to refer the matter back to the Tribunal for fresh consideration on the issues as to whether the subsidiary of the assessee would provide business connection or is Permanent Establishment and even if it is so, is there any attributes of profits on account of signing, under working, planning and negotiation of off-shore supply contracts in India. If yes, to what extent and basis thereof Likewise, the question of notional interest on delayed consideration of supply of equipment and liaisioning of software taxable in the hands of assessee as interest from vendor financing would be considered afresh. The appeals of the assessee are thus disposed of with the aforesaid direction remitting the case rack to the Tribunal for fresh consideration on these issues.”

14. As would be apparent from a reading of the 2012 decision, the aspect of offshore supplies came to be decided in favour of the respondents. Our Court also held that the Liaison Office would not constitute a PE within the meaning of the relevant provisions of the DTAA. However, all issues relating to the interconnect between NIPL and Nokia OY and whether the former would constitute a PE were remitted back for the consideration of the Tribunal. Our Court also remanded back the issue pertaining to attribution of global net operating profits to NIPL. This led to the Special Bench of the Tribunal coming to be reconstituted. It is the judgment so rendered by the Special Bench pursuant to the remand by the Court which is impugned in these appeals.
15. As we read the judgment so rendered, the first issue which the Tribunal framed for consideration was whether NIPL would constitute a PE of Nokia OY. It has in this connection taken note of the conclusions as originally arrived at by the AO and who had held that while NIPL was liable to be treated as DAPE, the Liaison Office constituted a Fixed Place PE. Firstly taking up the issue of whether the Liaison Office could be treated as a PE, the Tribunal observed that since the said question had been answered in favour of Nokia OY by this Court, the same no longer survived for consideration.
16. Since elaborate arguments appear to have been addressed with respect to the engagement of Mr. Hannu Karavitra in the course of transactions which were entered into by Nokia OY, we deem it apposite to note that the said individual, the Tribunal has found, was employed as a Country Manager in the Liaison Office between 01 February 1994 and 31 December 1994. It has further been found on facts that Mr. Hannu Karavitra was subsequently employed in NIPL between 01 January 1996 and 31 July 1999 and whereafter he is stated to have assumed the office of its Managing Director and functioned as such between the period 01 January 1996 to 31 July 1999. The Modi Telstra and Sky Cell contracts were signed on 23 March 1995 and 17 February 1995 and thus undisputedly at a time when he was not even employed with NIPL. The Tribunal further pertinently noted that the AO appears to have proceeded under the mistaken assumption of Mr. Hannu Karavitra being the Country Manager of NIPL between 01 February 1994 and 31 December 1999 ignoring the indisputable position of NIPL itself having come into existence only in May 1995.
17. The Tribunal further held that there was no material on the basis of which it could have been said that Mr. Hannu Karavitra had signed any supply contracts on behalf of Nokia OY after assuming the office of Managing Director of NIPL. It has in this connection encapsulated the principal contracts entered into between Nokia OY and NIPL in paragraph 13 of its judgment. It is pertinent to note that the aforenoted facts which emerge from the record were not questioned by the appellants before us.
18. Proceeding ahead, the Tribunal at the outset posed for its consideration the question whether NIPL was liable to be viewed as a PE of the respondent assessee by virtue of being a wholly owned subsidiary. It took note of the conclusions of the AO rendered in this respect and who had observed that the wholly owned subsidiary was liable to be viewed as a DAPE. For the purposes of appreciating the issues which arise in this regard, we deem this to be an appropriate juncture to extract Article 5 of the DTAA. It would also be relevant to bear in mind the subtle and yet significant amendments which came to be introduced in Article 5 and which becomes evident upon a review of the following comparative table: –
“ARTICLE 5
PERMANENT ESTABLISHMENT
THE ORIGINAL ARTICLE
POST AMENDMENT
1. For the purposes of this Convention, the term ‘permanent establishment’ means a fixed place of business through which the business of an enterprise is wholly or partly carries on.
2. The term ‘permanent establishment’ includes especially –
(a) a place of management;
(b) a branch ;
(c) an office ;
(d) a factory ;
(e) a workshop ;
(f) a mine, a quarry or any other place of extraction of natural resources ;
(g) a warehouse ;
(h) premises used as a sales outlet or for receiving or soliciting orders.

3. The term ‘permanent establishment’, also includes –
(a) a building site, a construction, assembly or installation project or supervisory activity in connection therewith, but only where such site, project or activities continue for a period of more than six months ;
(b) a building site, a construction, assembly or installation project or supervisory activity being incidental to the sale of machinery or equipment, where such site project or activity continues for a period not exceeding six months and the charges payable for the project or supervisory activity exceed 10 per cent of the sale price of the machinery or equipment.
4. Notwithstanding the preceding provisions of this Article, the term ‘permanent establishment’ shall be deemed not to include –
(a) the use of facilities solely for the purpose of storage or display of goods or merchandise belongings to the enterprise;
(b) the main tern of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display ;
(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information or for scientific research, being activities, solely of a preparatory or auxiliary character in the business of the enterprise.
5. Notwithstanding the provisions of paragraphs (1) and (2), where a person – other than an agent of an independent status to whom paragraph (7) applies – is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of any activities which that person undertakes for the enterprise, if such a person:
(a) has and habitually exercises in that State an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph (4) which, if exercised through a fixed place of business, would not make the fixed place of business a permanent establishment under the provisions of that paragraph ; or
(b) has no such authority, but habitually maintains in the first-mention State a stock of goods or merchandise on behalf of enterprise .

6. Notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to reinsurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than agent of an independent status to whom paragraph (7) applies.

7. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he shall not be considered an agent of an independent status within the meaning of this paragraph.

8. The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company or a permanent establishment of the other.”

1.For the purposes of this Agreement, the term “permanent establishment “means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
2.The term “permanent establishment” includes especially: —
(a) a place of management;
(b) a branch;
(c) an office;
(d) a factory;
(e) a workshop;
(f) a sales outlet;
(g) a warehouse in relation to a person providing storage facilities for others;
(h) a farm, plantation or other place where agricultural, forestry, plantation or related activities are carried on; and
(i) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.
3. The term ‘permanent establishment’ likewise encompasses: —
(a)A building site or construction, installation or assembly projector supervisory activities in connection therewith only if such site, project or activities last more than six months.
(b) The furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or connected project) within the country for a period or periods aggregating more than 183 days within any 12 month period.
4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include: —
(a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the enterprise;
(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display;
(c)the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;
(e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;
(f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.
5. Notwithstanding the provisions of paragraphs 1 and 2, where a person – other than an agent of an independent status to whom paragraph 7 applies-is acting in a Contracting State on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned Contracting State in respect of any activities which that person undertakes for the enterprise, if such a person:—
(a) has and habitually exercises in that State an authority to conclude contracts in the name of the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; or
(b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise;
(c) habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself.
6.Notwithstanding the preceding provisions of this Article, an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated there in through a person other than an agent of an independent status to whom paragraph 7 applies.
7. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it caries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.
However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph.
8.The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

19. The Tribunal before proceeding to rule on this aspect firstly identified the four principal contracts which merited examination and in the context of which the issue of PE and attribution of profits was liable to be answered. These were, in our opinion, correctly identified as being (a) supply contracts between the assessee and various customers (b) installation contracts entered into between NIPL and customers directly (c) marketing support agreements between Nokia OY and NIPL and (d) the technical support agreement between NIPL and customers.
20. Proceeding ahead, the Tribunal firstly found that the supply of telecom equipment by Nokia OY was on a principal-to-principal basis founded on independent buyer and seller contracts. This becomes evident from a reading of para 39 of the judgment of the Tribunal and which reads as under: –
“39. Under this backdrop we would like to briefly recapitulate the relevant facts and the contentions raised by the party. The assessee company Nokia Networks Oy has been incorporated in Finland. At that point of time, it was a leading manufacturer of advance telecommunications systems and equipments (GSM Equipment) which were used in fixed and mobile phone networks. These GSM equipments manufactured by the assessee were sold to the Indian telecom operators from outside India on principal to principal basis under independent buyer-seller arrangements. These facts have been noted by the Hon’ble High Court also in paragraph 2 of its judgment and are also borne out from the order of the authorities below. Apart from supply of the equipments there were also installation contracts and for this purpose of installation activity and other connected activities, assessee had established a Liaison Office on 30th March, 1994. Two such agreements were signed between the assessee (through LO)and Indian Cellular Operators viz., Modi Telstra India Ltd. on 30.03.1995 and Skycell Communication Ltd. on 17.02.1995. These contracts were signed by the assessee during the period when there was a LO of the assessee in India. Later on a wholly own subsidiary in the name of Nokia India Pvt. Ltd. was incorporated on 23.05.1995. After the incorporation of NIPL, all the contracts for installation were either assigned or separately entered by the NIPL with the customers. Marketing Support Agreement was also entered in the year 1996 and 1997 between the assessee and NIPL for providing marketing services to assessee for whom NIPL was compensated with cost plus markup. Technical support agreement had also been entered by the NIPL with the Indian customers in respect of projects installed again on principle to principal basis. However, the off-shore supply contract of GSM equipments between the assessee and Indian customers continued to be done by the assessee. In the light of the facts and background discussed in detail in the foregoing paragraphs, we shall endeavor to examine whether the assessee company has any kind of business connection or permanent establishment in India either in terms of Section 9(1) of Income Tax Act; and/ or under Article 5 of then India- Finland DTAA.”

21. This set the stage for it to consider the aspect of PE. The Tribunal notes that the aforesaid question was liable to be answered in the context of signing of contracts, network planning and negotiation of offshore contracts in India. It firstly bore in consideration the assertion of the Revenue that it was the Liaison Office which was engaged in activities of network planning, negotiation and signing of contracts. However, it held that once and in the first round of litigation itself, the Liaison Office was found as not constituting a PE at all, those aspects would clearly pale into insignificance.
22. It thereafter reiterated its findings on facts pertaining to the engagement of Mr. Karavitra and held: –
“45. First of all, in so far as the allegation that the Country Manager of the LO continued to be the Managing Director of the Indian Company, the same has with reference to one employee, namely, Mr. Hannu Karavitra who was the Country Manager in LO and in that capacity has signed two contracts in the month of February and March, 1995. These contracts were signed when NIPL was not even in existence. After the incorporation of NIPL on 23.05.1995, not an iota of evidence has been brought on record that Mr. Hannu Karavitra ,.had signed any contract on behalf of the assessee. He was a Managing Director of NIPL from 01.01.1996 to 31.07.1999 and after he was employed with NIPL, he has not signed any supply contracts with the Indian customers. All the installation contracts which have been signed by the NIPL have been executed by the NIPL independently with the Indian customers on principal to principal basis and any Income received or accrued thereof, was subject to tax In India. During the course of the hearing, it was brought to our notice that on one assignment letter dated 24.05.1995 was signed by Mr. Hannu Karavitra whereby on shore services were assigned to NIPL and while working in India ,he was receiving salary from assessee only. First of all, Mr. Hannu Karavitra was employed with the LO earlier, prior to the incorporation of NIPL and he was not employed with the Indian company. In any case assignment was from assessee to NIPL and no authority was being exercised on behalf of the assessee company vis-a.-vis the customers. Whether Mr. Hannu Karavitra was representative of the assessee and was working for NIPL or was receiving salary from assessee, same would have some relevance in the context of ‘Service PE’, but certainly not while examining the ‘ fixed place PE’. Even if the arguments sake it is accepted that he was a seconded employee to NIPL, then also if he had worked under the control of NIPL despite lien was maintained with assessee company, then also it does not lead to an inference that assessee company was having any kind of a PE, leave alone under paragraph 1 of Article 5. Similarly the allegation has been made by the Assessing Officer as well as strongly contended by the learned CIT-DR that employees of the NIPL were mostly belonging to the assessee company as some of the expatriates / technical persons were working on installation contract of NIPL for which activities, salaries were paid and managed by assessee. This concept perhaps may assume some significance while deciding the concept ‘Service PE’ for which reliance was also placed by the learned CIT-DR on Morgan Stanley and Centrica off-shore Pvt. Ltd, however as per the then existing provision of Article 5 between India and Finland treaty, there was no such concept of ‘Service PE’ per se except for certain activities mentioned in clause (a) and (b) of Paragraph 3 of Article 5, which ostensibly are not applicable at all. Since none of the on-shore activities are carried out by the assessee in India albeit was done by its Indian subsidiary, provisions of paragraph 3 of Article 5 will also not attract. Once there is no concept of ‘Service PE’ (though there is no allegation by the Assessing Officer or CIT (A)that there is any kind of service PE), then such plea of the learned CIT-DR has no legs to stand. His core argument was on the point that installation activities done through employees of the assessee constitutes a ‘Service PE’ and assessee was unable to furnish the details of employees working in NIPL alongwith the details of their duration and therefore, in absence of such details adverse view should be drawn for treating these employees constituting PE in India. The entire thrust of his argument simply whittles down for the reason that firstly, there is absolutely no~.concept of ‘Service PE’ in the then existing provision of Article 5; and secondly, other than off-shore supply of equipment, no other activities has been carried out by the assessee after the incorporation of the Indian subsidiary NIPL and this fact has been accepted by the Hon’ble High Court also. Thus, any activities relating to NIPL under the independent contract cannot be reckoned to constitute a PE in the context of Article 5(1); and even if for argument sake it is accepted that the activities of NIPL were managed by assessee, then also, it does not constitute PE qua activities of supply contract or any activity from where it can be held that any income has been received or accrued to the assessee in India or through or from any asset in India. NIPLis an independent entity and all its income from India operation is liable for tax in India”

23. The Tribunal pertinently observed that Article 5 as it then existed in the DTAA had not incorporated or adopted the principles of a Service PE. This becomes evident when one views the pre and post amendment Article 5 and which we have sought to highlight by way of the comparative table extracted above. As is evident on a perusal of the comparative table, the Article as it stood during the period in question contained no stipulation in respect of the posting of personnel for the purposes of rendering consultancy services.
24. However, and more importantly, it found that Nokia OY had only entered into offshore supply of equipment and with no other activity having been carried out by that assessee in India post the incorporation of NIPL. It was in the aforesaid backdrop that it held that the contracts executed and activities undertaken by NIPL under independent and separate contracts would be wholly irrelevant for the purposes of answering the question of whether it constituted a PE. It is these fundamental findings and conclusions which stand encapsulated in Para 45 which we have extracted above.
25. It also brushed aside the specious argument relating to NIPL providing access to telephones, faxes and conveyances and those being liable to be treated as germane or even sufficient for the deployment of the ‘force of attraction rule’. It thus held that that administrative support services would not meet or qualify the test of ‘at the disposal of’ and which is essential for the purposes of examining whether a Fixed Place PE had come into existence. The Tribunal in this context also rested its decision on the judgments of the Supreme Court in Formula One World Championship Ltd. v. CIT11 and ADIT v. E-Fund IT Solution12. This becomes evident from a reading of paragraph 46 which reads thus: –
“46. Another set of allegations which can said to have some significance is that; whenever the employees of the assessee were visiting India in the context of networking, assigning or negotiation of off-shore supply contract, the employees of the NIPL were either assisting by providing certain administrative support services made available in the form of telephone, fax, conveyance; or the NIPL was providing technical and marketing support services to assessee and hence it is assisting in sale of equipments of the assessee in India and therefore, NIPL per se by ‘force of attraction rule’ will constitute a PE, because even if one sale of the assessee is through Indian company then by virtue of this rule as enshrined in Article 7 of India-Finland DTAA, PE will get constituted and there would be a deemed PE in the form of Indian company whose income has to be attributed accordingly. This second part of allegation does not hold ground at all, because; firstly as stated stat in the earlier part of the order, assessee and NIPL have entered into separate marketing and technical support agreements in respect of the projects installed and has no correlation with the supply contract. This has been specifically held so by the Hon’ble High Court also in paragraph 34 reproduced in the earlier part of the order; secondly, not only that, for rendering these services NIPL was compensated with cost plus mark up of 5% which though has been adversely commented by the Assessing Officer and Id. CIT (A) but there has been no determination of ALP under transfer pricing mechanism. This inter alia means that the remuneration paid by the assessee to NIPL for these services has to be reckoned at arm’s length; and lastly, not one off-shore sale has happened in India through NIPL and this fact has again been accepted by the Hon’ble High Court in its order that no part of off-shore supply was concluded in India with any business connection in India as it was independent contract between Assessee and Telecom operators in India. In so far as allegation of administrative support services provided to employees of assessee in India for supply contract by NIPL and hence it leads to fixed place PE, strong reliance has been placed by Ld. CIT-DR on the statement of the then Managing Director, Mr. Simon Bresford. From the relevant statement he had pointed out that how the marketing support services chaver been provided by the Indian company to the astotsee see and also the administrative support services were provided by NIPL to assessee. Regarding marketing support services by NIPL to assessee we have already discussed above that it was done under separate contract and NIPL was remunerated at arm’s length. In so far as administrative facilities being provided by the NIPL to the expatriates coming for signing of contract on behalf of the Nokia Finland, he had stated that, administrative support like office support, cars, telephones, etc. was being provided by NIPL; and earlier office of liaison office of NIPL are at the same premise in the year 1995. Relying on such statement, Id. CIT-DR has vehemently contended that this material facts itself goes to prove that there is a fixed place PE which was at the disposal of the assessee. In light of such contention, we have to see whether any place of business was provided by NIPL to the assessee which can be said to be at a disposal of the assessee for carrying out its business wholly or partly in India. The sequitur of the judgment of Hon’ble Apex Court as incorporated above is that, in order to ascertain as to whether an establishment being a fixed place for PE or not is that physically located premises have to be ‘at the disposal of the enterprises’. Nowhere the disposal test has been diluted by the Hon’ble Apex Court rather it has been reiterated at various places not only in the Formula One World Championship judgment but also in the subsequent judgment of E-Fund. As culled out from the certain observations of the Assessing Officer as well as the statement of the MD that the employees of the assessee whenever came to India for the purpose of supply contract for negotiation on network planning, then, they were provided administrative services like telephone, fax and conveyance. Now, whether such kind of facilities can at all be treated to be a fixed place of business of the assessee company. Telephone or fax or a car cannot be reckoned as physically located premise. The word used in Article 5(1) is fixed place of business through which business of enterprise is wholly or partly carried out’. A fixed place alludes to some kind of a particular location, physically located premise or some place in physical form. Nowhere is it borne out that any kind of physically located premise or a particular location was made available to the assessee which was at the disposal of the assessee for carrying out wholly or partly its business through that place. Not only there should be an existence of a fixed place of business but also through that fixed place business of the enterprise should be wholly or partly carried out. No such material has been brought on record that any kind of such fixed place was made available. Providing telephone or fax or conveyance services can ever be equated with fixed place. Even the co-location of earlier LO office and the Indian subsidiary company was only in the initial year of 1995 and later on LO office has moved out which is also evident from the statement of the Managing Director. Thus, providing such kind of administrative support services to the assessee’s employees visiting India will not form fixed place PE, and therefore, the great emphasis by the leaned DR on this point is not much of credence as it lacks any further material support or evidence that any physical place was made available which can be said to be at the disposal of the assessee for carrying out its off-shore supply contract in India. In fact the entire allegation of fixed place was qua the LO and never in the context of NIPL by the Assessing Officer. The entire case of the Assessing Officer was that NIPL is a DAPE of the assessee, because all employees of the assessee were either working for the NIPL or NIPL was undertaking certain marketing and technical support services for the assessee. The concept of DAPE would be discussed in succeeding paragraphs. However, so far as the issue of fixed place PE is concerned the same does not get established at all by making to reference of providing of telephone, fax and car facility to the employees of assessee visiting India. As regards allegation that expatriates employees of assessee in India were assisting the NIPL and hence used the office of NIPL, is of no relevance qua assessee’s business, because, the technical expatriates were in India to assist/help NIPL with performance of installation activities of NIPL and not to carry out the business of the assessee which was manufacturing and sale of network equipments. This activity per se cannot be reckoned that the Indian office was being used for the purpose of assessee’s business or assessee was undertaking business in India through fixed place of business. The test laid down by the Hon’ble Supreme Court does not get satisfied in this case as nothing has been brought on record by the AO or Id. CIT-DR that any physical space was made available which can be said to be at the disposal of assessee for assessee’s own business of supply and sale of equipments”

26. It then proceeded further to observe that the peripheral activities and administrative assistance which was extended by NIPL would fall within the meaning of preparatory and auxiliary services and which forms part of Article 5(4) of the DTAA. It thus came to conclude that NIPL would not constitute a Fixed Place PE.
27. It then turned its attention to the question of whether a DAPE could be said to have come into existence. As would be evident from a reading of Article 5(5), the prerequisite for a DAPE to be acknowledged to exist is that of a person, other than an agent of independent status, who acts on behalf of an entity in a Contracting State and has or habitually exercises in that territory an authority to conclude contracts. It in this regard observed: –
“50. Admittedly, paragraph 6 of Article 5 is not applicable. Paragraph 7 of Article 5 deals with ‘agent of independent status.’ Independence of an agent has to be both legal as well as economic independence. Legal independence has to be seen from the context, whether the agent’s commercial activities for his principal are subject to detailed instructions or comprehensive control by the principal or not; or to what extent the agent exercises freedom in the conduct of his business on behalf of principal; or the agent’s scope of authority is affected by limitations on the scale of business which may be conducted by the agent. Economic independence has to be seen from the context as to what extent the agent bears the “entrepreneurial risk” or “business risk” and agent’s activities are not integrated with those of the principal; and whether the agent acts exclusively for the principal. The tests for determining the independent status has to be seen from what kind of activities is being carried out by the agent for his principal. Here in this case, first of all we have to borne in mind that installation activity carried out by NIPL is not generating any revenue or income for the assessee in India albeit any income from such activity is already subject to tax in India. The off-shore supply contract is carried out by assessee on FOB basis from Finland and as discussed in foregoing paragraphs NIPL is carrying out various onshore activities, like installation activity, marketing and technical support services, which fact has been clearly highlighted by the Hon’ble High Court in para 34, that these activities have nothing to do with supply contract. The consideration accruing or arising under the contracts undertaken by NIPL is already assessed in the hands of NIPL in India and there is no adverse inference in this respect. The dispute as highlighted by the Hon’ble High Court only pertains to the consideration under the Supply Agreement entered between the assessee and the various customers. Qua the supply contract nothing is being performed by the NIPL in India as agent of the assessee. None of the onshore activities of NIPL can be said to be devoted wholly and almost wholly on behalf of the assessee, because, the contracts undertaken and signed by NIPL in India independent and on principal to principal basis with the Indian customers and assessee has not signed any kind of installation contract with the Indian customers for which it could be said that the installation activity of NIPL was wholly and almost wholly on behalf of the assessee. The two contracts which were signed earlier prior to the incorporation of NIPL were separate and assigned to it and income from such installation has been shown in the hands of NIPL in India. There is no income whatsoever from installation activities has been earned by the assessee in India or can be attributed either directly or indirectly through NIPL. Insofar as other activities like marketing and technical support services are concerned, same has been transacted at arm’s length as discussed in detail in foregoing paras, hence no profit can be attributed from these activities as held by the Hon’ble High Court. Even if NIPL is held to be; subject to significant control with respect to the manner in which work is to be carried out; is subject to detail instructions from the assessee as to the conduct of work; is exercising less freedom in the conduct of business on behalf of assessee; seeking approval from the assessee for the manner in which the ‘business is to be conducted; etc., then all such control if at all could be only in relation to the contracts carried out by the NIPL in India to ensure technical quality of the contact work done. When there is absolutely no income generated to the assessee from installation contract work done in India by the NIPL, then all such comprehensive control does not have much relevance. Article 5(7) will apply only when some of the activities of the foreign enterprise are done by an agent wholly or almost wholly on behalf of that enterprise. Here the crucial test is that activities of the assessee must be carried out through the agent wholly and almost wholly for the assessee. When installation activity is not carried out by the assessee in India and is done by NIPL on principal to principal basis with the customers then there is no question of examining the installation activity for purpose of PE. The activity carried out by the assessee through an agent in India would be key factor for examining PE. Thus, provision of paragraph 7 of Article 5 will also not apply.”

28. As is evident from the above, what appears to have weighed upon the Tribunal in holding against the appellants in this respect was that the revenue being earned by NIPL from installation activities undertaken did not constitute revenue or income of Nokia OY. Insofar as the offshore supply contracts was concerned, the Tribunal found that the same were on FOB basis from Finland as opposed to the onshore activities which NIPL undertook. The income so generated from onshore activities undertaken by NIPL, the Tribunal records, had already been subjected to tax and assessed in its hands. It thus came to conclude that since no income had accrued to the respondent assessee from the installation and contract work undertaken in India, it would be wholly incorrect to assume that a DAPE had come into existence. It has also and in unequivocal terms found that NIPL in any case had not been shown to have been accorded the authority to conclude contracts in the name of Nokia OY. It is these principal findings which stand reflected in the judgment handed down by the Tribunal.
29. Having broadly noticed the conclusions which were rendered by the Tribunal with respect to Fixed Place PE and DAPE, it would be pertinent to briefly advert to its conclusions on the aspect of vendor financing and which the Tribunal has answered in the following terms:-
“60. Now coming to the last issue of taxability of interest from Vendor Financing ,we find that the Assessing Officer in his order has made the addition on the ground that assessee provided credit facilities to its customers for which it should have charged the interest on the same. For coming to this conclusion, he has referred to one clause given in paragraph 6.9 of the contract between the assessee and Modi Telstra to conclude that purchaser were liable to pay interest @180/0 for each day elapsed from the due date of actual payment. Thus, the only reason for making such an addition was existence of a particular clause in the agreement signed between the assessee and some of the Indian Cellular Operators. The ld. CIT (A) too has confirmed the said addition on the ground that, since the assessee is following a mercantile system of accounting and as per the contract assessee was entitled to receive such interest, and therefore, same should have been accounted for and in support he has relied upon the judgment of Hon’ble Supreme Court in the case of State Bank of Travancore (supra). Ld. counsel for the assessee had submitted that the said judgment has already been distinguished in the subsequent judgment of Hon’ble Supreme Court in the case of DCa Bank vs. CIT (supra) and secondly, only the real income can be brought to tax and not something on hypothetical basis, because there has to be corresponding liability to the other party to whom the income becomes due and here such a clause was never enforced by the parties. Already the arguments of both the parties have been incorporated in earlier part of the order; therefore, same is not being discussed again.
61. After considering the relevant finding and rival contentions, we find that, it has been brought on record that in any of the contract the assessee had charged any interest on delayed payment or providing any credit facilities to its customers or any customer has paid any such amount for each day elapsed from the due date to the actual payment. Once none of the parties have either acknowledged the debt or any corresponding liability of the other party to pay, then it cannot be held that any income should be taxed on national basis which has neither accrued nor received by the assessee. Whence the benefit of credit period given to the customers has neither accrued to the assessee nor acknowledged by the other person, then it cannot be said that interest on notional basis should be calculated for the purpose of taxation. Otherwise, it is a well settled proposition that income cannot be generated, actual or accrued if no income has actually been accrued or received to the a