No DAPE in India if Local Subsidiary Pursued Independent Business With Indian Customers | HC

Case Details: Commissioner of Income-tax vs. Nokia Network OY - [2025] 171 taxmann.com 757 (Delhi)

Judiciary and Counsel Details

• Yashwant Varma & Ravinder Dudeja, JJ.
• Ruchir Bhatia, Aseem Chawla, SSC & Ms Pratishtha Chaudhary, Adv. for the Appellant.
• Deepak Chopra, Ankit Goyal & Priyam Batnagar, Advs. for the Respondent.

Facts of the Case

Assessee, a foreign company, was engaged in manufacturing advanced telecommunication systems and equipment. It had established a liaison office in India in 1994, which was followed by incorporation of a fully owned subsidiary, NIPL, in India. The Assessee filed its return of income, taking a position that offshore supplies were not exigible to tax.

Assessing Officer (AO) held that NIPL was liable to be treated as Dependent Agent Permanent Establishment (DAPE). He further held that 70% of total equipment revenue was attributed to the sale of hardware, 30% of the same was attributed to the supply of software, and the same was taxed as royalty.

The matter reached before the Delhi High Court.

High Court Held

The Delhi High Court held that NIPL was pursuing an independent line of business with Indian telecom operators. AO had abjectly failed to prove that NIPL had conferred the authority to bind or conclude contracts on the assessee’s behalf.

NIPL was not generating any revenue or income for the assessee. Onshore activities of NIPL were totally disconnected from the assessee’s supply contracts. There was thus a clear and discernible distinction between activities undertaken by NIPL and supply contracts executed by the assessee.

On facts, no DAPE could be said to have come into existence and, thus, assessee could not be said to have a Fixed Place PE in India. Thus, income derived from the sale of equipment and licensing of software licensing in India could not be taxed by the assessee.

List of Cases Reviewed

• CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146 (Para 36)
• Progress Rail Locomotive Inc. v. Deputy Commissioner of Income-tax (International Taxation) and Others [2024 SCC OnLine Del 4065] (Para 37)
• Hyatt International Southwest Asia Ltd. v. Additional Director (Para 38)
• Director of Income Tax, International v. Western Union Financial Services Inc [2024 SCC Online Del 8913] (Para 41)
• Ishikawajama–Harima Heavy Industries Ltd. v. Director of Income Tax, Mumbai [(2007) 3 SCC 481] (Para 58)
• Nortel Networks India International Inc. v. Director of Income Tax [2016 SCC OnLine Del 2607] (Para 58)
• Engineering Analysis Centre of Intelligence Private Limited v. Commissioner of Income Tax and Anr. (2022) 3 SCC 321 (Para 61) followed.