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January, 10th 2014

+                  WRIT PETITION (CIVIL) NO. 6150/2013

                                       Reserved on: 11th December, 2013
%                                  Date of Decision: 12th December, 2013

      NOKIA INDIA PRIVATE LIMITED                  .... Petitioner
                   Through Mr. Vikas Srivastava, Mr. J.P. Singh,
                          Mr. Parag Mohanty & Ms. Leenshwari
                          Makhijani and Ms. Varsha Bhattacharya,


                   Through Mr. Mohan Parasaran, Solicitor General
                           with Mr. Sanjeev Sabharwal and
                           Mr. N.P. Sahni, Sr. Standing Counsel
                           and Mr. Nitin Gulati, Advocate,
                           Mr.P. Roy Choudhary, Jr. Standing Counsel.



CM No. 15485/2013 (for modification of interim orders dt.26.9.13)

      This order disposes of the application filed by Nokia India Pvt. Ltd.

(Nokia India, for short) seeking modification of interim order dated 26th

September, 2013, passed in the aforementioned writ petition.

WPC 6150/2013                                        Page 1 of 36
2.    The writ petition impugns and challenges order dated 25 th

September, 2013, passed by the Additional Commissioner of Income Tax,

Range 13 under Section 281B of the Income Tax Act, 1961 (Act, for

short). The impugned order records that in the interest of Revenue, the

following assets, properties and bank accounts of Nokia India stand

provisionally attached:

            2.6    In view of the above, I am of the considered
            opinion that for the purpose of

            protecting the interests of revenue, it is necessary to attach
            provisionally u/s 281B of the Income Tax Act, 1961 the
            following assets/properties/bank accounts of the assessee
            company, for which prior approval has been accorded by the
            Commissioner of Income Tax, Delhi-V, New Delhi vide letter
            F. No. UT/Delhi-V/2013-14/1390 dated 24.09.2013:-

            A.     All book debts including Trade Receivables, Short
            Term Loans & Advances and

            Long Term Loans & Advances appearing in the books of
            accounts of the assessee company as on date.

            B.      Ownership/Leasehold rights in respect of the
            following immoveable properties

            including land and building to the extent of the interest of the
            assessee company in the property  :-
            (i) No. A-1, Nokia Telecom SEZ, S1PCOT Industrial Park,
                Sriperambudur, Chennai, Tamilnadu -- 600 001.

            (ii) No.4, Nokia Telecom SEZ, Phase-3, National Highway
                 No. 4, Sriperambudur, Chennai, Tamilnadu 600 001.

            (iii) 392/1, Green Gardens, Anna Nagar East, Chennai,
                  Tamilnadu -- 600 001.

WPC 6150/2013                                                     Page 2 of 36
            (iv) No. 2-A, Jupiter Block, 3rd Floor, Prestige Tech Park,
                 Marathalli, RNG Road, Bangalore, Karnataka -- 560 001.

            (v) 1st & 2nd Floor, Tower A, SP lnfocity, Industrial Plot No.
                243, Udyog Vihar, Phase 1, Dundahera, Gurgaon -- 122

            (vi) 5F, Tower A&B, Cybergreens, DLF Cybercity, Sector
                 25-A, Gurgaon.

            (vii) 2nd Floor, A Wing, Commercial Plaza, Radisson Complex,
                  Mahipalpur, New Delhi.

            (viii)   Flat No. 1204, 12th Floor, Kailash Buiding, Kasturba
                  Gandhi Marg, New Delhi -- 110 001.

            (ix) Unit No. 123, Building No. 2, Millenium Biz Park, Sector-
                 1, Mahape, Navi Mumbai, Maharashtra 400 612.

            (x) Any other immoveable asset in the nature of land and
                building owned/teased by the assessee company other than
                those mentioned above.

            C.     Plant & Machinery located at any of the properties
            mentioned at B. above. 

The attachment is effective from 25th September, 2013 till 24th March,

2014. Contents of this order will be referred to subsequently.

3.    Nokia India, a subsidiary of Nokia Corporation, Finland (Nokia

Finland, for short), was incorporated on 23rd April, 1995. Nokia India

was/is primarily engaged in manufacture and sale of mobile devices/

phones. It has a factory in Chennai employing about 8000 persons.

During the period 2005-06 to 2011-12, it had cumulative turnover/sales

of Rs.150700.44 crores.

WPC 6150/2013                                                   Page 3 of 36
4.    Income earned by Nokia India being a resident in India, is taxed in

India. Nokia Finland, being a resident of Finland is primarily taxed in

Finland. Nokia India has paid about Rs. 2181 crores as corporate tax

during the Assessment years 2001-02 to 2012-13.

5.    On 8th January, 2013, survey under Section 133A of the Act was

conducted at Chennai and report of Director General of Income Tax

(Investigation), Chennai, the respondents submit, records that significant

defaults were noticed. Assessment for assessment years 2006-07 and

2007-08 stands reopened.          Proceedings have been initiated by issuing

notice under Section 143(2) of the Act for the Assessment years 2009-10

to 2012-13. Impugned order records that action under Section 148 was

contemplated for the assessment year 2008-09. On question of estimated

tax liabilities and assets of Nokia India, the impugned order u/s 281B of

the Act, records:-

             2.2     Estimated position of demands likely to arise in
             the above-referred proceedings is as follows:

             S.No.   Asstt.     Estimated     Estimated       Major Issues on
                     Year      Additions to    Demand         which additions are
                                Returned                      anticipated         on
                                 Income     (in Rs. crores)   account of Survey
                1    2006-07     (in Rs.
                                      15.15            5.00   findings
                                                              Disallowance u/s 40(a)(i) of
                2    2007-08     crores)
                                    1484.30          499.00   the Act is anticipated on
                                                              account of non-deduction of
                3    2009-10        2336.51          786.00
                                                              TDS u/s 195 on royalty
                4    2010-11        2770.59          933.00

WPC 6150/2013                                                     Page 4 of 36
                 5      2011-12     3693,90           1243.00   payments     for    software
                 6      2012-13      1577.33           531.00   licensing representing the
                                                                payee's income deemed to
                                                                accrue/ arise in India u/s
                                                                9(1)(vi) of the Act, being
                                                      3997.00   projected as raw material
                                                                purchased by the assessee

            The above mentioned estimated additions do not include additions
            on the basis of transfer pricing adjustments, adverse findings in
            respect of which have also been noticed during the course of
            survey u/s 133A as referred to above. Besides, the quantum of
            demand will increase further once the interest u/s 234A/B/C of the
            Income Tax Act and penalty as applicable is also levied in the
            case of the assessee company.

            2.3     Position of assets of the assessee company as on
            31.03.2012 is as follows:

                S.No.                   Asset
                                                           (in Rs. crores)
                 1      Total Fixed Assets                                 586.30
                 2      Inventories                                        928.60
                 3      Trade Receivables                                 6592.20
                 4      Cash and Bank Balances                            1642.20
                 5      Short Term Loans & Advances                        102.20
                 6      Long Term Loans & Advances                         580.40
                                           Total                         10431.90

            2.4     Balance Sheet of the assessee company as on 31-03-
            2012 shows reserves amounting to Rs. 6220 crores. The
            assessee company has distributed Rs. 3500 crores as
            dividend out of its reserves as well as paid Rs. 595 crores
            as Dividend Distribution Tax. Thus, the cumulative outgo
            of Rs. 4095 crores is anticipated to have brought down the
            balances available with the assessee company in the form
            of cash and bank reserves as well as trade receivables. At
            the same time, the assessee company has current liabilities
            of Rs. 4491.60 crores in the form of trade payables and the
            other current short term provisions and liabilities. After
            excluding the figures of cumulative outgo on account of
            dividend distribution and the current liabilities of the
            assessee company, the assessee company would be left
            with assets of nearly Rs. 2000 crores. As the figures
            mentioned above pertain to the previous financial year, the
            possibility of the availability of assets being even lower as
            on 31.03.2013 cannot be ruled out. As against this, the

WPC 6150/2013                                                       Page 5 of 36
             anticipated demand as mentioned above comes to Rs. 3997
             crores apart from an existing demand of Rs. 654.18 crores.
             Thus, it appears that the assessee company does not have
             adequate assets to recover the anticipated demand.

6.    The respondents` claim that they were prompted and compelled to

issue provisional attachment order in light of the fact that Nokia India had

remitted Rs.3500 crores as dividend to Nokia Finland. This fact came to

their notice when Nokia India paid dividend tax of Rs.595 crores on 10th

September, 2013, leading to a cumulative outgo of Rs.4095/- crores (the

figure is mentioned in paragraph 2.5 of order dated 25 th September,

2013). The respondents felt and apprehend that Nokia India did/does not

have sufficient assets to meet anticipated tax liabilities on completion of

pending assessments.

7.    Some more facts are also relevant. After the survey on 8th January,

2013, proceedings under Section 201/201(1A) read with Section 195 of

the Act were initiated against Nokia India and within a span of two

months on 15th March, 2013, orders were passed in respect of financial

years 2006-07 to 2011-12 raising a total demand of Rs.1912 crores.

Demands in respect of financial year 2006-07, 2010-11 and 2011-12 were

sought to be enforced by curtailing the period of 30 days under Section

156 of the Act, to 5 days. It appears that similar attempt was made in

respect of financial year 2009-10. These orders were made subject matter

WPC 6150/2013                                                 Page 6 of 36
of challenge before the High Court in several writ petitions including

WP(C) No. 2004/2013.       By interim order, dated 22nd March, 2013,

relying upon the decision of this court in Sony India Ltd. vs.

Commissioner of Income tax (2005) 276 ITR 278 (Del.), the respondents

were restrained from taking coercive measures, for recovery of demand.

The court also recorded statement on behalf of Nokia India, on

instructions, that they would refrain from transferring or remitting

anything out of India except in the normal course of business till the next

date of hearing. These writ petitions were disposed of, vide order dated

17th April, 2013 with the direction that the demands shall be enforced

after the normal period of 30 days.

8.    Subsequently, another set of writ petitions including WP(C) No.

2402/2013 along with applications for stay for recovery of demands

under Section 201/201(1A) were filed.       It was directed that till the

pending first appeals are heard by the Commissioner (Appeals) under

Section 246A(1), no coercive measures would be taken. Commissioner

(Appeals) should dispose of the appeals as early as possible and latest by

31st May, 2013.

WPC 6150/2013                                        Page 7 of 36
9.    Commissioner (Appeals) has dismissed appeals of the applicant

Nokia India by orders dated 31st May, 2013. Appeals preferred by Nokia

India are pending adjudication before the Income Tax Appellate Tribunal.

10.   On 21st June, 2013, two orders on application for stay of demand

were passed by office of Director General of Income Tax (International

Taxation) and Deputy Director of Income Tax, International Taxation

Circle 2(1), New Delhi. By the first order relating to financial years

2007-08 to 2012-13, it was directed that Nokia India shall pay 35% of the

total outstanding demand of Rs.2080 crores i.e. Rs 700 crores in monthly

installments of Rs.50 crores each, from June, 2013 till December, 2013

and Rs.100 crores, Rs.120 crores and Rs.130 crores in the months of

January, February and March, 2014 respectively. In other words, Rs.700

crores out of the demand will be paid by March, 2014. It is accepted that

payments in terms of the said order are being made. There was no

stipulation or restriction on repatriation of the reserves to Nokia Finland

by way of dividend.

11.   In the interim order dated 26th September, 2013, we noticed that the

bank accounts of the applicant (15 in number) had been provisionally

attached in addition to all book debts including trade receiveables, short

term loans and advances, long term loans and advances.              Learned

WPC 6150/2013                                        Page 8 of 36
Counsel for the applicant had pointed out that Nokia India has huge

investments in India and total value of fixed assets was Rs.586.30 crores.

Thus, attachment had brought to grinding halt banking operations of

Nokia India or for that matter paralyzed and crippled the entire business

activity. Garnishee notices were issued. Nokia India had submitted that

valuation of assets and liabilities in India by the break-up method did not

reflect true and correct valuation.         Nokia India wanted to continue

manufacture, sales and exports from India. In fact about 50% of Nokia

hand-sets were manufactured in India and 40%/50% of the production

was exported. Nokia India asserted that they had no intention or desire

to close their operations in India. Referring to future projected demand

under Section 40(a)(i), it was submitted that it would be duplication.

Keeping in view and recording the aforesaid facts, the following interim

directions were issued:

              11. Noticing the fact that the petitioner is an operating and
             a running company, we pass the following interim order till
             the next date of hearing:

             (1) The petitioner will not surrender the lease hold rights or
             transfer the ownership rights in respect of any of the
             immovable asset or transfer the fixed asset to any third

             (2) The petitioner will be entitled to receive debts
             created receivables, loans and advances but the amount so

WPC 6150/2013                                               Page 9 of 36
             received will be deposited in the bank accounts mention in
             sub-para D of para 2.6 of the impugned order.

             (3) The petitioner will not transfer, sell or alienate movable
             plant or machinery located in the immovable properties
             mentioned in Clause B of para 2.6 of the impugned order.

             (4) The petitioner will be entitled to operate the bank
             accounts in normal course of business and will file monthly
             statement of bank accounts with the assessing officer in
             hard copy as well as by sending details via e.mail at the
             address which may be provided by the assessing officer to
             the petitioner.

             (5) The petitioner before repatriating any money abroad will
             inform the assessing officer atleast two working day in
             advance. The assessing officer, in case, finds the transfer of
             money concerning or questionable, he will be at liberty to
             approach this Court for appropriate orders.

             (6) No dividend will be transferred abroad without
             permission of the Court till the next date of hearing.

             12. At the suggestion of the revenue, learned counsel for
             the petitioner will obtain instructions whether any
             declaration can be furnished by the foreign principal or a
             third party to protect the interest of the revenue in case there
             is any shortfall or failure to pay tax arrears.

             13. Without prejudice to the rights and contention of the
             parties the petitioner will continue to deposit instalments in
             terms of order dated 21.6.2013. We clarify that the stand of
             the respondent is that the instalments fixed by the said order
             have no relation or connection with the impugned order
             under Section 281B of the Act which has been passed on the
             basis of future demands which may be created in view of
             the pending assessments.

12.   As noticed above, by the present application Nokia India seeks

modification of the interim directions (1) and (3) inter alia pleading that

Nokia Finland, their parent company has received an offer from

WPC 6150/2013                                                Page 10 of 36
Microsoft Corporation (Microsoft, for short), a company incorporated in

United States of America for purchase of substantial portion of devices

and services business of Nokia Finland on global basis. Thereupon an

agreement was concluded for sale of Nokia Finland`s substantial portion

of devices and services business at global level to Microsoft International

Holdings B.V. (Microsoft International, for short), a subsidiary of

Microsoft. Relevant extracts of the agreement have been enclosed with

the application and the full agreement was shown to the officers of the

respondents. As per the agreement, Microsoft International had an option

to either purchase the assets, properties, claims and rights of Nokia India

or purchase equity shares of Nokia India held by Nokia Finland. (Equity

shareholding of Nokia Finland in Nokia is attached, but the said

attachment is not under challenge).          It is stated that Microsoft

International has decided not to purchase equity shares of Nokia India

held by Nokia Finland and has concluded first and second amendment in

form of Stock and Asset Purchase Agreement dated 14th November, 2013.

It is highlighted that Microsoft International has made it clear that it is

only interested in purchasing assets etc. provided approvals are granted

by the relevant authorities and they are also aware of the liens etc., on the

assets.   It has been agreed that in case necessary approvals are not

WPC 6150/2013                                         Page 11 of 36
received, Microsoft International shall not purchase the Indian assets.

Paragraphs 6(f) to (i) of the application, read:-

             f.      It has been clearly understood that in case the
             purchase of Indian assets does not go through,
             Microsoft International would have to reallocate
             production volumes of phones to other manufacturing
             facilities (outside India, to jurisdictions where it would
             as a consequence of the transaction have its own
             manufacturing facilities) and this will be achieved
             within 12 months of the closing of the global deal
             between Microsoft International and Nokia Corp. In the
             meantime, if so required by Microsoft International, the
             Petitioner/Applicant will act as a temporary transitional
             contract manufacturer of phones for Microsoft
             International and in no event shall this arrangement
             continue beyond 12 months from the closing of the global
             deal between Microsoft International and Nokia Corp,
             unless Nokia Corp would find another buyer for the

             g.     If the Relevant Assets are not transferred to
             Microsoft International, consequence will be a gradual
             ramp down of the Petitioner/Applicant's device
             manufacturing business operations leading to a winding up
             of its business operations within 12 months from the
             closing of the global deal between Microsoft International
             and Nokia Corp.

             h.      Microsoft International and Nokia Corp urgently
             need clarity on whether or not the Relevant Assets can be
             transferred to Microsoft International as part of the global
             transaction, as this will impact a number of operative
             issues on how the business is run and organized going
             forward. For this reason, the Amendment specifies a date
             (namely 12.12.2013) by which the parties must have final
             resolution on this issue.

             i.      If the liens placed on the assets of the
             Petitioner/Applicant have not been released by this date,
             Microsoft International will not be able to purchase the
             Relevant Assets of the Petitioner/Applicant, and Nokia
             Corp will retain the same.

WPC 6150/2013                                              Page 12 of 36
13.   Applicant pleads that technology is the most valuable input in a

mobile phone/device. Similar phones are available at a fraction of the

price but Nokia phones command premium and goodwill because of

superior technology developed and constantly upgraded by Nokia

Finland. However, as Nokia Finland, the holding company is exiting the

said line of manufacturing and sale of mobile phone globally, the

technology will no longer be available. Production and sales in India by

Nokia India will stop. Value of the Indian company i.e., Nokia India will

decline sharply and tangible assets on sale may only fetch fraction of their

value in use. In case Microsoft refuses and does not purchase Indian

assests etc., Nokia India will have no option but to wind up

manufacturing operations within a period of 12 months. Microsoft

International would be at liberty to commence or start production in other

countries. Nokia India has 8000 employees, apart from 25000 people

who are employed in ancillary supplier units etc. In case assets are taken

over by Microsoft International, employees presently working for Nokia

India will become employees of Microsoft International or their

associates. Land, building, plant and machinery of Nokia India is located

on SEZ land, which is incapable of transfer on stand-alone basis. The

assets if sold in such circumstances will not fetch substantial value. The

WPC 6150/2013                                         Page 13 of 36
applicant has offered to deposit surplus proceeds realized after adjusting

outstanding liabilities and obligations from Microsoft International on

sale of assets in India with a minimum deposit of Rs.2250 crores in an

escrow account to meet liabilities, if any, of the Income Tax Department.

The said deposit will be made within one month of the confirmation of

sale. It is stated that the Income Tax Department will have first lien.

14.   The respondents have not accepted the suggestion or offer made by

Nokia India. They have questioned bonafides of Nokia India and Nokia

Finland, alleging that agreement dated 2nd September, 2013 was prior to

the interim order passed on 26th September, 2013 but the said details were

not brought to notice. Decision of Microsoft, not to purchase equity

shares of Nokia Corporation and to rather purchase assets, is a convenient

coincidence and an act of internal collusion between the two. Trigger

date i.e. 12th December, 2013, it is stated that, is wholly irrelevant and the

Revenue cannot be compelled to take a decision in haste without

ascertaining complete facts. Furthermore, Nokia India on 26th September,

2013 had stated that the manufacturing operations would continue,

asserting that 50% of the hand-sets are manufactured in India and were

also exported. They had assured that Nokia India had no intention to

close their operations in India. But, now a different and contradictory

WPC 6150/2013                                          Page 14 of 36
stand has been taken.     It is alleged that term surplus sale proceeds`

coined by Nokia India is vague and fanciful and as per the calculations of

the respondents the figure of Rs.2250 crores is not a sufficient and

legitimate deposit, keeping in mind the existing and anticipated tax

demands and hence, the application does not have any merit and should

be dismissed.      Along with reply, the respondents have also filed

annexures R1 to R5 setting out projected tax demands which may be

payable by both Nokia India and Nokia Finland with and without penalty

and interest. We shall refer to the said calculations subsequently.

15.   At the outset, we notice that there are apprehensions and

misgivings.     The two parties are reluctant to believe and accept the

statements made by each other. This has not helped in resolving the

matter.    The grievance and apprehension of the respondents, it is

apparent, is primarily because the applicant had withdrawn from reserves

and repatriated Rs.3500 crores as dividend to Nokia Finland. The said

grievance of the respondents is not baseless or without foundation, inspite

of the contention of the applicant that they had every right to declare

dividend from the profits earned and on which full tax had been paid.

Applicant has submitted that no dividend had been declared and paid

from date of incorporation of Nokia India in 1995 till 2013. Rs.595

WPC 6150/2013                                         Page 15 of 36
crores was paid as dividend tax to the respondents. The apprehension and

fear of the applicant is that the respondents have been unfair on two/three

occasions when direction was given that the tax demands be paid within 5

days, curtailing 30 days period specified under Section 156 of the Act and

such an action necessitated filing of writ petitions and a stay order. The

apprehension is also founded on the allegation that the orders under

Section 201/201(1A) were passed in great haste and hurry and it is

alleged that the demand as computed includes amount of Rs.3100 crores

for which there was no credit entry in the books of accounts of Nokia

India and no payment was in fact made by Nokia India to Nokia Finland.

Reference is made to the order under Section 281B which virtually had

the effect of seizure of bank operations, dishonor of cheques etc.

16.   At this stage, we only record that prima facie we find that there is

partial truth in the allegations made by both sides against each other. In

fact, the oral submissions made on behalf of the applicant at the time of

initial hearing were to the effect that the offer made by them was final,

give it or take it after. It is a favour and if the offer made is rejected,

consequences and warnings as stated will follow. The said statements

have certainly not helped and are completely unexceptionable. As noticed

below, the applicant and Nokia Finland, have benefitted and should not

WPC 6150/2013                                        Page 16 of 36
be oblivious to the profits made from the India operations. Taxes in India,

as per law have to be and must be paid. Every tax payer or person

residing in India or doing business with Indian residents must comply

with the law, meet their obligation and share their due tax burden. Of

course they are entitled to and will be dealt with fairly and in a just

manner. In subsequent hearings, the applicant has sought to clarify that

the impression given during the earlier hearings was not their intention

and both Nokia India and Nokia Finland firmly believe and hope that

manufacture of devices and Indian operations should be taken over by

Microsoft International.

17.   Nokia Finland has substantially benefitted from the sales and

manufacturing activities in India.    Nokia Finland had made an initial

investment of Rs.35.6 crores in Nokia India starting in 1996. Thus, in

monetary terms investment by Nokia Finland was not substantial. As per

the details filed, total investment in India by Nokia India has increased to

Rs 1858.95 crores which includes production, work paid resources and

parked assets. These assets have been created from internal accruals i.e.

from profit earned from commercial activities, manufactures, sales and

exports from India. It is apparent that doing business in India has been

extremely profitable and beneficial for Nokia Finland who have received

WPC 6150/2013                                         Page 17 of 36
dividend of Rs.3500 crores in the current financial year. Nokia Finland

has also commercially benefited from the purchases made by Nokia India

from them and their associated enterprises. Total quantum of purchases

including raw material purchases from Nokia Finland and their associated

enterprises is about Rs.57924.48 crores. This includes assembly to order

and raw material but does not include labour or depreciation.           In

comparison Nokia Finland had paid paltry income tax of about Rs 71

crores for the period between 1997-98 to 2007-08. After 2008-09, no tax

has been paid in India by Nokia Finland.

18.   At the same time, Nokia India has paid corporate tax of Rs.2181

crores for the Assessment Years 2002-03 to 2013-14.       They have also

paid dividend distribution tax of Rs.595 crores. Nokia India directly

employs 8000 employees and indirectly employs about 25000 persons in

India. The total production or sales by Nokia India between 2006-07 to

2012-13 was Rs.150700.44 crores and the total purchases from third

parties i.e., parties other than Nokia Finland and associated enterprises

during this period i.e. Assessment Years 2006-07 to 2012-13 was

Rs.74,447 crores. Nearly 40 to 50% of the hand devices/mobile phones

manufactured by Nokia India were/are exported worldwide. Figures with

regard to indirect taxes in form of excise duty, customs duty, service tax

WPC 6150/2013                                       Page 18 of 36
or value added tax paid by Nokia India are not available but the said taxes

paid would be substantial and significantly more than the corporate tax


19.       Quantum of tax demand or the project demand before us has been

contested. Respondents during the course of hearing before us had filed

the following chart:

(1) Intl Tax        Tax (A)   Interest (B)   C=A + B   Penalty (D)   Total (C+D)
(i) NIPL (201       1912      737            2649      1912          4561
+ 201A)
(ii) Nokia Corp     1912      1330           3242      1912          5154
(2) CIT-V
(iii)        NIPL   4292*     2000           6292      4292          10584
Total                                        12183     8116          20299
(iv)         NIPL   2274**    995            3269      2274          5543
Total                                        9160      6098          15258
[ALL FIGURES IN Rs.CRORE], *without S.10AA deduction, **with S10AA deduction.

20.       The aforesaid figures, it is submitted on behalf of the applicant are

highly debatable, overlapping and inflated to cause prejudice.               The

figures do overstate the projected tax demand to some extent. Besides the

respondents presume and assume that they shall succeed on all accounts,

fair and square. The respondents have taken the figure of Rs.1912 crores

twice, as payable by Nokia India as tax at source whereas if this payment

is made by Nokia India, Nokia Finland would not be liable to pay the

WPC 6150/2013                                            Page 19 of 36
same as tax. Similarly, as noticed above, the applicant has contended that

the total payments made by Nokia India to Nokia Finland for software

has been wrongly enhanced by Rs.3100 crores. This submission gets

support from the details of remittances filed by the respondents before us.

As per the said details Nokia India during the period 1st April, 2006 to

31st March, 2012 has paid Rs.15046 crores to Nokia Finland.           If this

figure is taken as correct, then the TDS or tax, if payable, by Nokia

India/Nokia Finland would be about Rs.1600 crores. However, this is

only a prima facie view and not a conclusive firm opinion.

21.   In the aforesaid computation, the Revenue has computed addition

which may be made in the assessment/reassessment proceedings of Nokia

India by the Assessing Officer by invoking Section 40(a)(i) of the Act.

The said provision stipulates that if an assessee fails to deduct tax at

source on royalty etc. payable to a person resident outside India or fails to

deposit tax, the amount paid as royalty etc., will not be allowed as an

expenditure while computing income chargeable as profits and gains

from business or profession`. The said expenditure will be allowed as a

deduction in computing income of the previous year in which the said tax

is paid.   In nutshell, the effect of the said provision is that Rs.15046

crores paid by Nokia India to Nokia Finland during the period 2006-07 to

WPC 6150/2013                                         Page 20 of 36
2011-12 would be disallowed as expenditure in the hands of Nokia India,

inspite of the fact that payment was made. This is because Nokia India

had failed and did not deduct tax at source of Rs.1600/1912 crores.

Rs.15046 crores would be allowed as expenditure in the profit and loss

account in the year in which tax at source of Rs.1600/1912 crores is paid.

This is the legal consequence of Section 40(a)(i). However, first the

question and the hurdle which the respondents must meet and cross is

whether the amount paid was royalty as submitted and was not business


22.   As per the computation made by the respondents, addition under

Section 40(a)(i) would result in a tax demand of Rs.4292 crores against

Nokia India and interest of Rs.2000 crores on the said demand. Further

if, penalty for concealment under Section 271(1)(c) @100% of the tax is

imposed, Nokia India would be liable to pay another Rs.4292 crores.

Thus making a cumulative total demand of Rs.10584 crores for addition

under Section 40(a)(i) of the Act.    Another penalty of Rs.1600/1912

crores can be imposed as per the respondents under Section 271C of the

Act for failure to deduct TDS.

23.   As per the computation filed by the respondents, the Nokia India

would be liable to pay interest as noticed above of Rs.2000 crores on tax

WPC 6150/2013                                       Page 21 of 36
demand of Rs.4292 crores and Rs.737 crores on late deposit of TDS.

Nokia Finland may not be liable to pay tax, if TDS is paid by Nokia

India, but they would still be liable to pay interest as per calculations

made by the respondents of Rs.1313 crores and also penalty under

Section 271(1)(c) of the Act of Rs.1912 crores (amount may be less in

case the tax payable is Rs.1600 crores and not Rs. 1912 crores).

24.   The cascading effect of the issue and impact of Section 40(a)(i) of

the Act is apparent. It is a stringent and burdensome provision. However,

in case contention of the respondents is rejected, and the stand of the

applicant, that the payment made was not royalty is accepted, the entire

calculation would be futile and no amount would be payable.

25.   In the aforesaid chart, the respondents have also computed figure

of the tax payable by Nokia India after computing tax under Section

10AA. The figure given is Rs.2274 crores. After including interest and

penalty computed under Section 271(1)(c) of the Act, the figure comes to

Rs.5543 crores. In the assessment already made, benefit of the said

Section has not been denied to Nokia India. The computation made by

the respondents itself indicates that substantial production undertaken by

Nokia India, is exported. It is accepted that Nokia India has paid Rs.350

crores in terms of order dated 21st June, 2013 and have to make balance

WPC 6150/2013                                        Page 22 of 36
payment of Rs.350 crores as per the installments agreed on or before

March, 2014.

26.   It is clear from the aforesaid table and computation made by the

respondents that the entire case is based upon their plea and contention

that payments made for software by Nokia India to Nokia Finland of

Rs.15046 crores was taxable in the country at source i.e. India, as it was

royalty for right to use copy right. The stand of the applicant is that this

payment was not royalty for right to use the copyright under the Double

Taxation Avoidance Agreement between India and Finland. We only

note that the issue or the contentions raised by both sides are debatable

and arguable. It would not be fair or proper to give even a tentative

opinion without exhaustive hearings as it might prejudice a party. The

issue however is not new but appears to be recurrent.           Order under

Section 201/201(A) refers to decisions on this point including decision of

Delhi High Court in the case of Nokia itself but the adjudicating officer

has not been accepted and applied the ratio.          The order refers to

explanations incorporated to Section 9(1)(vi) of the Act by Finance Act,

2012 with retrospective effect from 1st June, 1976/1st April, 2001. The

order also states that the said explanations or definitions can be applied to

construe provisions/articles of Double Taxation Avoidance Agreement.

WPC 6150/2013                                         Page 23 of 36
Question of limitation etc. have also been raised. Another issue which

arises for consideration is whether penalties can be and should be

imposed under Section 271C or 271(1)(c) of the Act as the defence/plea

of the applicant/Nokia Finland is legally plausible and relates to

interpretation of law.    These contentions and issues will have to be

adjudicated and decided in the assessment, penalty and the appellate

proceedings.     Assessee`s appeals in respect of orders passed under

Section 201/201(1A) are pending before the tribunal and the decision on

the said aspect will have a relevant and vital bearing on the assessment/

re-assessment proceedings against Nokia India and Nokia Finland. But

the aggrieved party is likely to file appeals before the High Court and

then the Supreme Court. We have referred to the orders and issues raised

to highlight and point the controversy and that the questions and issues

are debatable and will require indepth adjudication. We also do not wish

to express any opinion on merits as this can prejudice to a party.

27.   Section 281B of the Act is a provision which permits provisional

attachment in respect of property belonging to the assessee during

pendency of the proceedings for assessment or reassessment when the

Assessing Officer is of the opinion that it is necessary to do so to protect

the interest of the Revenue. He requires permission/previous approval of

WPC 6150/2013                                         Page 24 of 36
Commissioner/Chief Commissioner etc. The provisional attachment is

effective for a period of six months.      But Commissioner or Chief

Commissioner or Director for reasons to be recorded in writing can

extend the aforesaid period provided the total period of extension should

not exceed 2 years. The provision is primarily to protect interest of the

Revenue but has to be exercised with care and caution.

28.   We have quoted relevant portion of the interim order dated 26 th

September, 2013. In paragraph 12 thereof, we had mentioned that the

counsel for the petitioner i.e. the applicant, would obtain instructions

whether any declaration could be furnished by the foreign principal or

third parties to protect the interest of the Revenue in case there is any

shortfall or failure to pay tax arrears.   During the course of hearing

before us, learned counsel appearing for the applicant was asked to obtain

instructions whether Nokia Finland is ready and willing to furnish any

letter of guarantee to the respondents, which would be also treated as an

undertaking given to the court, in addition to ensuring the minimum

deposit of Rs.2250 crores. Learned counsel has informed us that Nokia

Finland is ready and willing to give letter of guarantee and has furnished

a draft of the same, which reads:

WPC 6150/2013                                       Page 25 of 36
            We, M/s Nokia Corporation, a company incorporated
            under the laws of Finland and currently having our offices
            at Keilalahdentie 2-4, 02150 Espoo, Finland, state and
            affirm as follows:

            1. We understand that the Indian Income Tax authorities
               have initiated proceedings under Section 201 of the
               Indian Income Tax Act, 1961, against M/s Nokia India
               Private Limited (NIPL), a company incorporated
               under the laws of India and having its current offices at
               SP Infocity, Industrial Plot No. 243, Udyog Vihar,
               Phase 1, Dundahera, Gurgaon, Haryana ­ 122016 India,
               on the ground the NIPL was liable for withholding tax
               at source from the payments made to Nokia
               Corporation during the financial years 2006-07 to 2011-
               12 for purchase of copies of software.

            2. We understand that the Indian Income Tax authorities
               contend that the said payments constitute royalty under
               the provisions of the domestic income tax laws of India
               and the Double Taxation Avoidance Agreement entered
               into between India and Finland (Indo-Finland

            3. We also understand that aforesaid proceedings are
               currently pending in appeal before the Income Tax
               Appellate Tribunal, Delhi.

            4. Nokia has always recognized that its own long-term
               interests and those of its various stakeholders depend on
               strict adherence to applicable regulation, the Rule of
               Law and on following the highest standards of ethics.
               As a responsible corporate citizen committed to paying
               taxes in accordance with applicable national and
               international laws and treaties, we are obliged to pay
               the income tax liabilities which may ultimately be
               found to be payable by us pursuant to the aforesaid
               proceedings after exhausting all legal remedies
               available to us and without prejudice to our rights under
               the Indo-Finland DTAA (and more specifically Artile
               26 of the said DTAA) and any other applicable treaty or

            5. Signed in Espoo, Finland on 11th December, 2013

WPC 6150/2013                                             Page 26 of 36
                NOKIA CORPORATION

29.   During the course of hearing, learned counsel for the applicant

accepted and agreed that Nokia Finland shall make payment of tax,

interest and penalty if due and payable as determined under Section

201/201(1A) and the relevant provisions; the tax liability interest and

penalty of Nokia Finland, if determined, due and payable. They have

expressed their inability to furnish any such letter of guarantee in respect

of tax demand which may become due and payable by Nokia India

pursuant to any assessment or reassessment on account of invocation of

Section 40(a)(i) of the Act.

30.   At this stage, it would be relevant to refer to Article 26 of the

Double Taxation Avoidance Agreement between India and Finland which

postulates assistance in collection of taxes due and payable by a State

from a resident of another contracting State.       The respondents have

submitted that there may be resistance and obstruction in collection of the

taxes, even if the demand is confirmed and has attained finality.

31.   Section 170(3) of the Act relates and deals with succession. The

said provision being statutory will provide some and limited protection to

WPC 6150/2013                                         Page 27 of 36
the Revenue if the assets are purchased by Microsoft International from

Nokia India. However, we are told that the protection under the said

Section will not be effective and will not cover substantial period and the

amount relatable to the period specified is insignificant.

32.   We had asked learned Solicitor General whether the respondents

have valued the assets of the applicant Nokia India. The respondents

were also asked whether they have any alternative plan(s) and what they

intend to do in case Nokia India stops manufacturing or decides to close

down their operations. It was stated that the assets of Nokia India will be

sold but on the question of market value of the assets, the respondents

were silent. It was stated that no such study or examination has been

made. They have not ascertained and visualized the consequences, and

how and in what manner interest of the income tax department is

advantageously protected.

33.   As per the order dated 25th September, 2013 under Section 281B,

the total assets of the applicant were valued at Rs 10431.90 crores but the

applicant had liabilities of Rs 4491.60 crores in form of trade payables

and other short term provisions. The applicant had reserve of Rs.6220

crores from which cumulative outgo of Rs.4095 crores on account of

dividend of Rs.3500 crores and dividend tax of Rs.595 crores stands paid.

WPC 6150/2013                                         Page 28 of 36
In the said order, the tentative/anticipated demand has been computed at

Rs.3997 crores apart from existing demand of Rs.654.18 crores, which is

significantly less and different from demand now highlighted to us in the

chart. We have already commented on the said calculations. It is stated

that in the order under Section 281B after meeting the current liabilities,

the applicant will be left with assets of Rs.2000 crores. It is accepted that

net current assets of the applicant are Rs.2347 crores and the value of the

fixed assets is Rs.586.30 crores (The applicant had protested against the

valuation made by the respondents during the course of hearing on 26th

September, 2013 and submitted that the break-up method was not correct

and was not reflective of true and correct position. Respondents had

pleaded to the contrary. However, now their stands are reverse.)

34.   Nokia India, in the manufacturing unit, have directly employed

8000 workers and they indirectly, it is claimed, are providing

employment to another 25000 persons. Their employment is at stake and

this fact cannot be ignored. Neither can we ignore the fact that Nokia

India had repatriated Rs.3,500 crores, though they were aware that there

was a dispute and would be claims of the Income Tax Department. As of

now, the tax demand or issues are inchoate and it may take a considerable

time before the issue is finally settled. Possibly, the dispute will be taken

WPC 6150/2013                                         Page 29 of 36
to the Supreme Court for final adjudication and this is a time consuming

process. The final outcome is uncertain and not free from doubt. Even if

the matter is decided against Nokia India/Nokia Finland, the quantum of

demand itself in respect of deduction under Section 40(a)(i), interest and

penalty including penalty under Section 271C/271(1)(c) of the Act would

depend upon several factors. These may take their own time to decide.

35.   Closing down or keeping out Nokia India, when Nokia Finland is

globally transferring and disposing of their hand devices/mobile phones

business, may not be the sound and considered decision or even in the

interest of the Revenue as there could be sharp decline in the market

value of the assets of Nokia India. There would be a few purchasers and

invariably in such sales, proceeds are frugal. The respondents themselves

are not sure of the market value of the assets and have not undertaken any

calculation or examined what will be the consequences in case Microsoft

International does not take over the Indian assets.

36.   Nokia Finland or their affiliates have business all over the world

and there are involved in tax issues or litigations in other countries. Tax

proceedings in India have taken a centre stage. The respondents have

relied upon and referred to the settlement or understanding between

WPC 6150/2013                                         Page 30 of 36
Nokia Finland or their affiliates with the tax authorities in Brazil.    The

applicant, on the other hand, had stated that the figures and details

pointed out by the respondents in their note/chart are incorrect. There is

tax litigation or disputes in Brazil, but Nokia Finland/their affiliates have

furnished bank guarantee from a local bank to the extent of 5% of the

total tax, which is subject matter of dispute. The amount paid is equal to

Rs.320 crores.

37.   Nokia Finland, it is stated, will receive about Rs.31,000 crores

pursuant to the global transfer of hand devices/mobile phones from the

Microsoft International. Nokia Finland, it is stated, will continue to exist

and operate, even after handset/mobile phone business is sold to

Microsoft International.    Nokia Finland is a listed company having

several businesses and business interests. Nokia Finland, it was averred

but not disputed, has substantial assets and reserves.

38.   In view of the aforesaid position, we are inclined to modify our

interim order dated 26th September, 2013, in particular clause (1) and (3)

thereof.   We permit and allow sale of assets by Nokia India to

Microsoft/Microsoft International subject to fulfilment of the following


WPC 6150/2013                                            Page 31 of 36
(i)     Nokia Finland will be bound by the statement that they shall be

jointly liable and shall pay tax demand determined and payable under

Section 201/201(1A), interest and penalty thereon.

(ii)    Nokia Finland shall be liable to pay taxes including penalty and

interest due and payable by them as determined under the Act i.e. the

Income Tax Act, 1961.

(iii)   Nokia India/Nokia Finland will deposit atleast Rs.2250 crores in an

escrow account, details of which will be furnished to the respondents

with one month of the agreement with Microsoft/Microsoft International.

The amount of deposit will go up or increase upon higher consideration

being received from Microsoft/Microsoft International, as per valuation


(iv)    Copy of the valuation report will be furnished to the respondents

within 15 days of acceptance.

(v)     Rs.2250 crores or the higher amount, which will be deposited in

the escrow account, at the option of the respondents may not be adjusted

or appropriated against tax demands including interest and penalty

relating to TDS/order under Section 201/201(1A) or tax demands

determined and payable by Nokia Finland. Respondents can insist that the

escrow account shall be first adjusted or appropriated towards demand

WPC 6150/2013                                        Page 32 of 36
pursuant to assessments under Section 143(3)/147 of the Act against

Nokia India.

(vi)    In case of an adverse assessment or re-assessment order or tax

demand being created against Nokia India under Section 143(3)/147 of

the Act, the demand will be paid from the escrow account subject to stay

order, if any, against recovery of the said demand from appellate

authority or Indian courts and in case Nokia India pays any amount, or is

appropriated from the escrow account, and Nokia India subsequently

succeeds, the amount will be refunded with interest in accordance with

the provisions of the Act. Interest earned on the escrow account will be

also included in the amount payable.

(vii) Income Tax Department without prejudice to their rights and

without affecting the obligation of Nokia, Finland mentioned in clauses

(i)    and   (ii)   above,   can   in   the   case   of   non-payment,    seek

payment/appropriation of Rs.2250 crores or the higher amount in the

escrow account including interest towards dues under Section

201/201(1A), penalty and interest. The said appropriation or payment

would not affect the obligation of Nokia, Finland.

(viii) Nokia Finland, in addition to the undertaking or letter of guarantee

quoted above, will file another letter in form of guarantee/undertaking

WPC 6150/2013                                             Page 33 of 36
incorporating the terms and conditions mentioned herein and file the said

letter/undertaking with the income tax authorities i.e. Deputy Director of

Income Tax (International Taxation) and Commissioner of Income,

Delhi-V and in this writ petition. This will be treated as undertaking to

the Court. The letter/undertaking will clearly state that Nokia Finland will

abide by clauses (i) and (ii) above and will cooperate in payment of tax

dues payable under Section 201/201(1A) or the dues payable by Nokia

Finland. Copy of the letters/undertaking will be filed by Nokia Finland

with their Government.

(ix)   Nokia Finland will not be liable to pay the tax dues of Nokia India,

except to the extent permissible and recoverable under the provisions of

the Act i.e. the Income Tax Act, 1961. However, in case the total amount

due and payable by Nokia Finland in clause (i) is less than Rs.3,500

crores, and Nokia India is unable to pay dues under clause (vi), Nokia

Finland will be liable to pay tax dues of Nokia India upto but not

exceeding Rs 3500 crores. In other words, Nokia Finland will not be

liable to pay tax dues under clause (i), and the present clause exceeding

the figure of Rs.3,500 crores. This amount has been fixed as dividend of

Rs.3,500 crores stands paid by Nokia India to Nokia Finland. Demand

under clause (ii) stands excluded as the said liability is personal to Nokia

WPC 6150/2013                                         Page 34 of 36
Finland. This limit of Rs.3500 crores does not apply to demand under

clause (i).

(x)    Microsoft/Microsoft International will not be liable to pay tax dues

of Nokia India and Nokia Finland, except when any amount due and

payable as per the provisions of the Act.

(xi)   In case of non-compliance of clauses (i) and (ii) above or non-

payment of the settled demand in terms of clause (ix), Revenue can

approach the Court for appropriate orders. In such circumstances, the

Court will have the power to take action or directions as may be justified

and appropriate steps to ensure compliance.

(xii) Nokia India/Nokia Finland will continue and pay Rs.700 crores in

installments in terms of the order dated 21 st June, 2013 and this amount

has no co-relation with Rs.2250 crores or higher amount, which will be

deposited in the escrow account.

(xiii) Nokia India/ Nokia Finland will be entitled to contest the income

tax proceedings and demands under clauses (i) and (ii) against Nokia

India/Nokia Finland which can be enforced by the respondents in

accordance with law, subject to right of Nokia India/Nokia Finland to

plead and ask for stay. In absence of stay, demands will be recoverable.

(xiv) It is open to the parties to take recourse to mutual agreement

WPC 6150/2013                                        Page 35 of 36
procedure or mutually modify the terms and conditions of this order and

approach the Court in case modification or if any clarification is required.

(xv) Attachment of shares of Nokia India held by Nokia Finland is not

subject matter of this order.

(xvi) Other stipulations and directions in the interim order dated 26 th

September, 2013 will continue.

39.      The application is accordingly disposed of with no order as to


         W.P.(C) 6150/2013

         List on 3rd January, 2014, the date already fixed.

                                                       (SANJIV KHANNA)

                                                 (SANJEEV SACHDEVA)
December 12th, 2013

WPC 6150/2013                                           Page 36 of 36
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