The Commissioner Of Income Tax International Taxation -2 v. Nokia Network Oy

$~ * 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. 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. 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 Goyal and Mr. Priyam Batnagar, Advocates + ITA 883/2019 Signature Not Verified Page 1 of 66 THE COMMISSIONER OF INCOME TAX - INTERNATIONAL TAXATION -2 .....Appellant Through: Mr. Ruchir Bhatia, SSC. versus + NOKIA CORPORATION NOKIA NETWORK OY) (FORMERELY KNOWN AS .....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 NOKIA NETWORK OY) (FORMERELY KNOWN AS .....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 INTERNATIONAL TAXATION -2 OF INCOME TAX - .....Appellant Through: Appearance not given. versus NOKIA CORPORATION Signature Not Verified Digitally SignedITA 785/2019 & other connected matters By:KAMLESH KUMARSigning Date:21.02.202518:09:56By:KAMLESH KUMARSigning Date:21.02.202518:09:56 (FORMERELY KNOWN AS Page 2 of 66 + 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 Signature Not Verified Page 3 of 66 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 VARMAHON'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: - versus Signature Not Verified Page 3 of 66 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 VARMAHON'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 Establishment[2] in India? (B) Whether Nokia India Private Limited[3], a wholly owned subsidiary of the assessee constituted a Dependent Agent 1 AY 2 PE 3 NIPL Signature Not Verified ITA 785/2019 & other connected matters Digitally SignedBy:KAMLESH KUMARSigning Date:21.02.202518:09:56 Permanent Establishment[4]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[5] read along with the India-Finland Double Taxation Treaty[6]? 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: - 4 DAPE 5 Act 6 DTAA Signature Not Verified ITA 785/2019 & other connected matters Page 5 of 66 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[7] 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[8], 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 7 Tribunal 8 Nokia OY Signature Not Verified 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 7 Tribunal 8 Nokia OY 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 Officer[9], 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. 9 AO Signature Not Verified (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%.” (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 10 CIT(A) Signature Not Verified 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: - Signature Not Verified “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 connectionunder the Act nor a PE of the Nokia under Article 5 of theIndia-Finland DTAA, as it merely carried on advertisingactivities 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 telecomequipment and Nokia's arrangement with the IndianTelecom Operators did not constitute a works contract.NIPL is a separate corporation entity and is also assessedseparately for its installation income. (4) However, Nokia was held to have a PE in India in theform of NIPL on the basis that Nokia virtually projecteditself in Indiathrough NIPL and guarantees given by Nokiathat it will not „dilute its shareholding in NIPL below 51%without written permission of Indian Telecom Operatorswas used as the main basis to hold that Nokia was in aposition to control and monitor NIPL's activities. Page 9 of 66 Signature Not Verified (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. Forpurposes of PE, what is relevant is only the perception thatNIPL was a projection of Nokia, whether or not in fact andin truth its activities were being controlled/ monitored byNokia. Following discussion ensued on this aspect: - Page 9 of 66 Signature Not Verified (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. Forpurposes of PE, what is relevant is only the perception thatNIPL was a projection of Nokia, whether or not in fact andin truth its activities were being controlled/ monitored byNokia. 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 ofroyalty because the same was for a copyrighted article and„not for a copyright. Further, software was held to beintegral 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 theglobal net profit of Nokia (10% towards signing of thecontract and 10% towards other two activities) wasattributed 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).” Page 10 of 66 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: - Signature Not Verified “7. Signature Not Verified Q2. Without prejudice, whether the respondent has a „permanentestablishment‟ in India because of its Liaison Office within the meaning of the relevant provision of DTAA between India and Finland? „permanent Signature Not Verified “7. Signature Not Verified Q2. Without prejudice, whether the respondent has a „permanentestablishment‟ in India because of its Liaison Office within the meaning of the relevant provision of DTAA between India and Finland? „permanent 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? Page 12 of 66 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: - Signature Not Verified "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 assesseethe technical support ensures to the benefit of the Indian customer,the technical support is in respect of the projects installed and hasnothing to do with the supply contract. The consideration accruingor arising under the contracts already assessed in the hands of theIndian subsidiary and there is no adverse action in respect thereofThe technical support agreement referred to supra has not even beenreferred to by the authorities below in support of any of theallegations. Only general or loose reference has been made by theTribunal. 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 Signature Not Verified 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 Signature Not Verified 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 Page 14 of 66 Tribunal. We find justification in the argument of Mr. Syali that theclear cut impact of such assumptions is evident from the fact thatfindings (i), (iv), (v) and (vi)are all suppositions in the absence ofappreciating that there was a marketing support agreement in-operation from 1.1.1996 to the 3112.1996. Even as per the AO afterthe later agreement of 1997 there is no allegation made as regardsshifting of expenses, no compensation paid to Indian subsidiary, etc.In other words, once there was an agreement the issue only revolvedon the nature of the agreement. Once it is accepted that the position-in 1997 and 1996 is parimateria, there will not remain any suchallegation. Page 14 of 66 Tribunal. We find justification in the argument of Mr. Syali that theclear cut impact of such assumptions is evident from the fact thatfindings (i), (iv), (v) and (vi)are all suppositions in the absence ofappreciating that there was a marketing support agreement in-operation from 1.1.1996 to the 3112.1996. Even as per the AO afterthe later agreement of 1997 there is no allegation made as regardsshifting of expenses, no compensation paid to Indian subsidiary, etc.In other words, once there was an agreement the issue only revolvedon the nature of the agreement. Once it is accepted that the position-in 1997 and 1996 is parimateria, there will not remain any suchallegation. 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 NPLwas 100% subsidiary and the assessee had wide experience in thisarea of business, it is logical that a transaction between the assesseeand the Indian subsidiary did not occur at arm's length. Mr. Syaliargued that there was no basis for drawing such inference and at thetime of arguments, the learned ASG conceded that there was noevidence to support that losses were absorbed by the Indiancompany. 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 manyfactual errors which are even accepted by the Revenue before us, itwould be appropriate to refer the matter back to the Tribunal forfresh consideration on the issues as to whether the subsidiary of theassessee would provide business connection or is PermanentEstablishment and even if it is so, is there any attributes of profits on-account of signing, under working, planning and negotiation of offshore supply contracts in India. If yes, to what extent and basisthereof Likewise, the question of notional interest on delayedconsideration of supply of equipment and liaisioning of softwaretaxable in the hands of assessee as interest from vendor financingwould 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 Signature Not Verified 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. 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 Signature Not Verified 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 Signature Not Verified 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 the following comparative table: - “ARTICLE 5 PERMANENT ESTABLISHMENT THE ORIGINAL ARTICLE POST AMENDMENT 1.For the purposes of this Convention, the 1.For the purposes of this term „permanentestablishment‟ means a Agreement, the term "permanent fixed place of business through which the establishment “means a fixed business of an enterprise is wholly or place of business through which partly carries on. the business of an enterprise is 2.The term „permanentestablishment‟wholly or partly carried on. includes especially - 2.The term "permanent (a)a place of management; establishment" includes —(b)a branch ; especially: (c) an office ; (a) a place of management; (d)a factory ; (b) a branch; (e)a workshop ; (f)a mine, a quarry or any other place of extraction of natural resources ; (c) an office; (d) a factory; (e) a workshop; (f) a sales outlet; (g)a warehouse ; (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 (h)premises used as a sales outlet or for receiving or soliciting orders. 3.The term 'permanent establishment', also includes - includes - (a) a building site, aconstruction, assembly orinstallation project orsupervisory activity inconnection therewith, but only where such site, project or activities continue for a period of more than six months ; (b) a building site, aconstruction, assembly orinstallation project orsupervisory activity beingincidental to the sale ofmachinery 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 Signature Not Verified 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 orauxiliary character in thebusiness 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 Signature Not Verified ITA 785/2019 & other connected matters Digitally SignedBy:KAMLESH KUMARSigning Date:21.02.202518:09:56 Signature Not Verified ITA 785/2019 & other connected matters Digitally SignedBy:KAMLESH KUMARSigning Date:21.02.202518:09:56 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 Page 19 of 66 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 (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 . 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. 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 Signature Not Verified Digitally SignedITA 785/2019 & other connected matters By:KAMLESH KUMARSigning Date:21.02.202518:09:56By:KAMLESH KUMARSigning Date:21.02.202518:09:56 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 Signature Not Verified Digitally SignedITA 785/2019 & other connected matters By:KAMLESH KUMARSigning Date:21.02.202518:09:56By:KAMLESH KUMARSigning Date:21.02.202518:09:56 - 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. Page 20 of 66 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." 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 Signature Not Verified 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: - 20.Proceeding ahead, the Tribunal firstly found that the supply of Signature Not Verified 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 therelevant facts and the contentions raised by the party. The assesseecompany Nokia Networks Oy has been incorporated in Finland. Atthat point of time, it was a leading manufacturer of advancetelecommunications systems and equipments (GSM Equipment)which were used in fixed and mobile phone networks. These GSMequipments manufactured by the assessee were sold to the Indiantelecom operators from outside India on principal to principal basis-under independent buyerseller