The commissioner of Income Tax (appeals) has dismissed Nokia India’s plea against the Rs 2,100 crore tax claim by the Income Tax (IT) department, reports Times of India.
This rejection follows a Delhi High Court order which had directed Nokia India to file an appeal with the Commissioner of Income Tax (Appeals) last month.
The report says that the commissioner found the IT department’s argument to be valid and has asked the department to issue the tax notice by May 31, however the High Court has apparently asked the tax department to not issue the notice for at least the next seven days and has directed them not to take any coercive action against the company.
In a statement to the publication, Nokia India said that it was disappointed with the IT commissioner’s judgment and is now considering all viable options, including taking back the case to the Delhi High Court. The company also pointed out that Finland’s finance ministry had launched a mutual agreement procedure with its Indian counterpart under the bilateral Double Taxation Avoidance agreement to resolve this issue, however the company will now take decisive action to protect its interests in the country.
For the uninitiated, Double taxation is the levying of tax by two or more jurisdictions on the same declared income which is often mitigated by tax treaties between countries. However, it should be noted that this Double Taxation Avoidance Agreement doesn’t cover royalties, fees or other similar payments in return for the use of patents or other rights.
Nokia Tax Case Till Now
In January 2013, the Income Tax department had asked Nokia India for a clarification on non-payment of ‘tax deducted at source’ (TDS) on software supplies and on change in accounting model. Its officials had also conducted tax raids on Nokia India’s Sriperumbudur (Tamil Nadu) plant and offices in Chennai. The Indian authorities claims that the tax invasion involves payment for royalty on software to Nokia’s parent company in Finland.
In February 2013, Nokia Corporation sent letters of complaint to Indian tax authorities saying that tax officials in January raided its manufacturing facility in Chennai without giving a reason suggesting that this was illegal. At that time, Nokia also claimed that its transfer pricing policies are in accordance to the Indian and Finnish laws.
In April 2013, Nokia had filed a petition with the Delhi High Court last month and had received an interim stay order. However, the company had apparently withdrew its application later and the Delhi High Court had directed Nokia to file an appeal with the Commissioner of Income Tax (Appeals), as indicated by a NDTV report.
In its appeal, Nokia had apparently claimed that the payment made by the Indian subsidiary to its Finnish headquarter was not royalty and the good used should be considered as raw materials, since they were used to make mobile phone components, as indicated by the TOI report.