ITAT: Huawei India Liable to Pay Tax on Income from Provision of technical Services as ‘FTS’

ITAT: Huawei India Liable to Pay Tax on Income from Provision of technical Services as ‘FTS’

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) has ruled that Huawei is liable to pay tax on income from the provision of Technical Services to Huawei Indian as ‘FTS.’

Huawei Technologies Co. Ltd., the assessee had challenged the final assessment order dated 28 February, 2022 passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (‘the Act’) about the assessment year 2018-19, in pursuance to the directions of Dispute Resolution Panel (DRP).

The assessee had challenged the decision of departmental authorities in holding the existence of fixed place Permanent Establishment (PE), installation PE, service PE, dependent agent PE and attribution of profit to the PE.

The assessee is a nonresident corporate entity incorporated in the People’s Republic of China and a tax resident of that country. The assessee is engaged in sales of telecom equipment comprising of nonterminal products, i.e., advanced telecommunication network, namely, core and access network equipment, mobile network equipment and data communications equipment etc. to customers in various countries, including India.

Further, the assessee also provides technical consultancy services to its subsidiary in India, viz., Huawei Telecommunications (India) Co. Pvt. Ltd. (‘Huawei India’).

It was further submitted that Huawei India was engaged in the provision of integration installation and commissioning services for telecom network equipment supplied by the assessee from outside India. These services were provided to Indian telecom operators under independent contracts between Huawei Indian and Indian telecom operators. The assessee filed its return of income offering the income received from the provision of technical services to Huawei Indian as Fees for Technical Services (FTS) and royalty income on a gross basis. It also offered interest on Income Tax Refund as income and paid taxes at the rate of 10% in terms of Article 12 of the Indian-China Double Taxation Avoidance Agreement (DTAA).

The Assessing Officer concluded that Huawei India constitutes a fixed place PE, installation PE, service PE and dependent agent PE. Thus, he held that the entire revenue on account of the supply of equipment and handsets is through a business connection in India and has taken place through the PEs in India. The AO worked out the weighted average net operating profit to 2.51% and attributed 20% of such profit to the PE in India. Accordingly, he made the addition of an amount of Rs.4,25,84,960.

The division bench of G.S. Pannu (President) and Saktijit Dey (Judicial Member) after referring to catena of decisions passed by the Coordinate Bench in the assessee’s case on an identical set of facts and circumstances upholding the decision of the Revenue Authorities about the existence of PE and attribution of profit, as a Bench of equal strength.

In this regard, the bench observed, “thus, when there are decisions of the Coordinate Bench in assessee’s own case on identical set of facts and circumstances upholding the decision of the Revenue Authorities with regard to existence of PE and attribution of profit, as a Bench of equal strength, we are bound by such decisions. Therefore, norms of judicial discipline, decorum and propriety demand that we have to follow the earlier decisions of the Tribunal.”

The Tribunal upheld the decision pf the Departmental authorities.

The next ground taken up by the assessee was the challenge to the addition made of Rs.363,19,79,570/- towards royalty on sale of software.

The Tribunal pointed out that this issue has been consistently decided in favor of the assessee by the Tribunal in past assessment years and held that the receipts were not in the nature of royalty.