ZTE CORPORATION,NOIDA V. ACIT, INT. TAXATION, GURGAON

SA 102/DEL/2025

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The case involves ZTE Corporation, a tax resident of the Republic of China, which sought to keep the outstanding demand for the Assessment Year 2022-23 in abeyance. The demand arose from the final assessment under sections 143(3) and 144C(13) of the Income Tax Act, which included additions on account of profit attributable to an alleged Permanent Establishment (PE), receipts from the supply of software taxed as equipment royalty, and receipts taxed as Fees for Technical Services (FTS). The assessee contested the existence of a PE and the attribution of profits, argued against the taxation of software receipts as equipment royalty, and challenged the classification of certain reimbursements as FTS. The tribunal considered the precedents and ongoing litigation on similar issues and decided in favor of granting the stay.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33970 (ITAT-DELHI)
• Appeal Type: Stay Application
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2022-2023
• Other Referred Cases: PCIT Vs. Boeing India Pvt. Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH
• Assessee Lawyers: HARPREET S. AJMANI
• Keywords: TDS; Application of stay
• Section: 143(3)

Judgement Text

"INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER SA No. 102/Del/2025 (In ITA No. 1074/Del/2025) (Assessment Year: 2022-23) M/s ZTE CORPORATION, 3F, A WING, ZTE PLAZA KEJI ROAD SOUTH HI TECH INDUSTRIES PARK, NANSHAN DISTRICT SHENZIN, P.R. CHINA C/O 8TH FLOOR, TOWER – D GLOBAL BUSINESS PARK, MEHARULI - GURGAON ROAD, SIKANDARPUR GURGAON, HARYANA, INDIA - 122002 Vs. ACIT, International Taxation, Gurugram (Appellant) (Respondent) PAN:AAACZ4115A Assessee by : Shri Harpreet S. Ajmani, Adv Ms. Ashmita Sharma, Adv Revenue by: Shri Om Prakash, Sr. DR Date of Hearing 07/03/2025 Date of pronouncement 07/03/2025 O R D E R PER M. BALAGANESH, A. M.: 1. By virtue of this stay application, the assessee seeks to keep the outstanding demand raised for AY 2022-23 in abeyance. 2. We have heard the rival submissions and perused the material available on record. The Applicant (\"ZTE Corporation, China\") is a tax resident of Republic of China engaged in the business of providing telecom solutions. The applicant has complete telecommunications product line in the world, covering every vertical SA No. 102/Del/2025 M/s ZTE Corporation Page | 2 sector or wireless networks, core networks, access & bearer networks, services and terminal markets. During the relevant assessment year, the applicant was engaged in supply of telecommunication equipment-Network Equipment, Terminal Equipment (Handsets to Indian telecom operators. It is pertinent to mention that the Indian subsidiary of Applicant, ie, ZTE Telecom India Pvt. Limited (“ZTE India”), is engaged in installation, commissioning and testing of the equipment in India which are supplied by the Applicant. 3. The final assessment stood completed u/s 143(3) read with Section 144C(13) of the Act on 21.01.2025 determining the total income at Rs. 142,97,98,189/- and raising a demand thereon. The three major additions that were made in the said assessment are as under:- a. Addition on account of profit attributable to alleged Permanent Establishment (PE)- Rs. 16,02,05,864/- having a tax demand of Rs. 2,58,01,080/-; b. Addition of receipts from supply of software to be taxed as equipment royalty- Rs. 120,63,65,532/- having a tax demand of Rs. 19,42,85,102/-; c. Receipts for ZTE India to be taxed as FTS- Rs. 5,80,72,303/- having a tax demand of Rs. 93,52,385/-. 4. The ld AR before us pleaded that the existence of PE is disputed and contested by the assessee together with attribution of profit of 35% of net global profitability thereon. In the earlier years i.e. for AYs 2004-05 to 2017-18, similar attribution of profit was made and the issue is pending for adjudication before Hon'ble Delhi High Court. The ld AO in the final assessment order had conceded on the same facts the issue of “software royalty” as “business profit” has been confirmed up to the stage of Hon'ble Supreme Court in assessee’s own case for SA No. 102/Del/2025 M/s ZTE Corporation Page | 3 earlier years, has tried to make out a new case for alleging that payment should be alternatively taxed as equipment royalty. The ld AR drew our attention in this regard to the specific ground taken by the revenue even before the Hon'ble Supreme Court in earlier years and even in the Review Petition, which was dismissed by the Hon'ble Supreme Court. As such the entire issue is already squarely covered in favour of the assessee by the decision of this Tribunal for AYs 2004-05 to AY 2009-10 which is also confirmed by Hon'ble Delhi High Court and Hon’ble Apex court. He drew our attention to the necessary pages of the appellate orders of Hon'ble Delhi High Court and Hon'ble Supreme Court. Further, with regard to taxability of receipts as FTS, the ld AR submitted that the ld AO in the final assessment order, had treated the reimbursement of salary paid by ZTE India to assessee as FTS, which is squarely covered in favour of the assessee vide decision of the Hon’ble Jurisdictional High Court in the case of PCIT Vs. Boeing India Pvt. Ltd reported in 146 taxmann.com 131 (Del HC). Dehors these submissions, he also submitted that the entire TDS credit of Rs. 15.43 is sufficient to cover the demand that would ultimately survive. Hence, he requested that the stay of demand be granted for a period of 180 days or till the disposal of the appeal, whichever is earlier. 5. Considering the aforesaid submissions, which stood uncontroverted by the revenue, we are inclined to keep the demand in abeyance for a period of 180 days from the date of receipt of this order or till the disposal of the appeal, whichever is earlier. The main appeal is listed today for hearing on 28.04.2025. Both the parties are informed in the open court and no fresh notice would follow. Paper book, if any, need to be filed by the either side with an advance copy to the respective parties. We would like to make it very clear that the observations made hereinabove shall not be considered as having any precedent value for the main SA No. 102/Del/2025 M/s ZTE Corporation Page | 4 appeal and the main appeal shall be decided by the respective Bench, uninfluenced by the observations made hereinabove. 6. In the result, stay application of the assessee is allowed. Order pronounced in the open court on 07/03/2025. -Sd/- -Sd/- (VIKAS AWASTHY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 07/03/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "