DIRECTOR OF INCOME TAX Vs. ERICSSON A B

JUDGEMENT

(1.) The assessee M/s. Ericsson Radio Systems A.B. is a company incorporated in Sweden and is a tax resident of Sweden. The company is a 100% subsidiary of Telefonakitiebolaget L.M. Ericsson. The main business of the assessee company is the supply of hardware and software which is used in the business of rendering telecommunication services and for this purpose, it undertakes projects on turnkey basis. In telecommunication projects, the activities involved are supply of hardware and software, installation and commissioning of the two and after sales service. In the assessment year 1997-97, the assessee company entered into agreements with ten cellular operators collectively called "operators" as follows:- <FRM>JUDGEMENT_4956_ILRDLH21_2011_1.html</FRM>

(2.) Pursuant to the aforesaid contracts, the assessee has supplied various hardware and software to the above mentioned cellular operators during the relevant assessment year. In regard to tax liability in India, the assessee claimed that it is not liable to tax under the provisions of the Income-Tax Act, 1961 and the Double Taxation Avoidance Agreement between Sweden and India (the "DTAA"). It is necessary to highlight that the assessee, as stated above, is a wholly owned subsidiary of the L.M. Group of Companies with whom the cellular operators had entered into supply agreements. The Ericsson Telephone Corporation India AB is also a foreign company with a branch in India and is a subsidiary of the parent company of the assessee, viz., Telefonakitiebolaget L.M. Ericsson. There is one more entity, namely, Ericsson Communications Limited, which is an Indian company and is a wholly owned subsidiary of the parent company. For the purpose of brevity, Ericsson Radio System AB is referred to as the assessee, whereas Ericsson Telephone Corporation India AB is referred to as EFC and Ericsson Communications Limited is referred to as ECL and the company Telefonakitiebolaget L.M. Ericsson is referred to as LME.

(3.) The assessee, a non-resident company, supplies equipment to the operators, while the other two companies (EFC and ECL) are in the business of installation of the equipment and granting marketing support to the assessee. Thus, for the first three months, the work of installation and marketing support was done by the EFC, and for the remaining nine months, the same work was done by ECL. The contracts undertaken by EFC, which were pending on 30 th June, 1996 were assigned to ECL, which was incorporated in India.