Delhi High Court Derails Attempt At Taxing Nokia’s Indian Operations

The Delhi High Court has dismissed the tax department's appeal against Nokia Solutions and Networks OY. The department had approached the high court against the order of the Delhi Bench of Income-Tax Appellate Tribunal, which had set aside the tax on Nokia’s Indian operations.

The Delhi ITAT had found that since Nokia incurred losses in its Indian operations, the revenue department couldn't have taxed the Finnish company's domestic business. The high court has upheld this conclusion. 

Taxability in Nokia’s hands would have arisen if it had earned net profits from its Indian operations and had a permanent establishment, that is a fixed place of business, in India. 

The tax department sought to tax Nokia's Indian operations basis the gross profit margin. 

But the Delhi ITAT had found it incorrect and arrived at a loss figure by allowing various expenditures against the gross profit. It pointed out that even if Nokia had a PE in India, there could not be any tax liability in India as Nokia incurred losses from Indian operations.

The ITAT had also observed that Nokia recorded a ‘global net loss’ in the relevant assessment year, and therefore no profit could have possibly been attributed to it.  

The Delhi High Court, without delving much into the factual and legal details, upheld the order of the ITAT.

It noted that "a plain reading of Article 7(1) [of the India-Finland Tax Treaty] would show that the issue of taxability would arise qua the respondent/assessee only if profits accrue to the respondent/assessee, and that too only to the extent they can be attributed to its PE in India. Given this position, we are not inclined to entertain the appeal.” 

(Published in collaboration with Taxsutra)