No disallowance for Marketing Expenses incurred by Nokia India on purchase of Mobile phones and Accessories under India-Finland DTAA: ITAT

ITAT - marketing expenses - Nokia India - mobile phones - Taxscan

The Income Tax Appellate Tribunal (ITAT), Delhi Bench held that the Assessing Officer (AO) erred in disallowing marketing expenses incurred by Nokia India on the purchase of mobile phones and accessories.

The assessee company, Nokia India Pvt. Ltd. was incorporated in 1995 and is a wholly-owned subsidiary of Nokia Corporation, Finland. The company is primarily engaged in the business of trading and manufacturing of mobile handsets, spare parts, and accessories. In addition to this, the company also undertakes contract software development for its associated enterprises.

It is also to be noted that a survey was conducted on the assessee at the Gurgaon Corporate Office and the Chennai factory premises and it was noted during the course of a survey that ever since the commencement of operations at the manufacturing facility in Chennai, the assessee had been incurring expenditure on account of software and had been making payments for the same to Nokia Corporation, Finland totaling for use in manufacturing operations.

The Department was of the opinion that the payment towards software was in the nature of royalty on which the assessee was liable to deduct withholding tax as per the provisions of the Income Tax Act, 1961.

On the basis of the survey report, the jurisdictional TDS Assessing Officer passed an order under section 201(1)/201(1A) of the Act holding that the software remittances were in the nature to royalty and that the assessee was liable to deduct tax at source at the time of remittance as per Sec.9 (i)(vi) read with section 195 of the Act and India Finland Double Taxation Avoidance Agreement (DTAA).

The issue raised in this case was that AO erred in disallowing expenses amounting to INR 25,43,20,06,000 incurred by the appellant, for purchase of mobile phones and accessories from Nokia Corp, under Section 40(a)(i) of the Act.

The two-member bench headed by the Vice-President, G.S. Pannu set aside the order passed by the AO and held that the said cost was rightly taken as business expenditure by the assessee and was rightly reduced from the inventory.

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