METSO OYJ,FINLAND vs. ASSISTANT COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION), CIRCLE-1(2), KOLKATA

Brief facts of the case as appearing in the directions of the Ld. DRP are that the assessee M/s. Metso OYJ (Earlier known as "Metso Outotec OYJ") is a company incorporated in Finland and a tax resident of Finland. It claims to be a worldwide leader in providing innovative and environmentally sound solutions for a wide range of customers in metals processing industries. The return showing total income of ₹ ‘NIL’ was filed by Metso Outotec OYJ on 29.11.2022 for the impugned assessment year showing total taxable income of ₹ ‘NIL’ which was selected for complete scrutiny under Computer Assisted Scrutiny Selection (in short 'CASS') on the issue of large refund claimed by non- resident. During the year under consideration the assessee had earned revenue under the following heads in India: i. Recharge of group services fees, business area service fee and other centralized services ii. Guarantee fees iii. Reimbursement of External Training Cost

The Ld. AO proposed certain additions to the assessee and the assessee approached the Ld. DRP objecting to the same, which issued certain directions on 30.12.2024 to the Ld. AO, who incorporated the same and made an addition of ₹38,48,97,421/-. The addition was proposed on account of services provided under the Master Service I.T.A. No.: 616/KOL/2025 Assessment Year: 2022-23 Metso OYJ. Agreement (in short ‘MSA') which included provisions of certain centralised services to the subsidiaries of the assessee including but not limited to global communication and digital marketing, sales process and tool development, strategy and business intelligence, human resources, legal, treasury, finance and tax etc., which were named as group services. The Ld. AO examined Article 12 para 1 of the DTAA between India and Finland, the allocation rule of taxation between India and Finland as para 2 of the Article 12 and proposed an addition of ₹ 38,48,97,421/- to the income of the assessee as fee for technical services.

1 Regarding the taxability of income from IT services rendered under the service agreement with Outotec India Pvt. Ltd., the Ld. Panel upheld the Ld. AO’s view that the income from the technical services amounting to ₹38,48,97,421/- was taxable in India as services benefited Outotec India Pvt. Ltd. and clause 2 of the Service Agreement further affirmed the connection by linking the services to the buyer’s evolving business needs. The Ld. Panel concluded that the services are considered performed only when the beneficiary can utilise them. Since the legal and factual framework remained consistent across the years, the Ld. Panel reiterated its decision for AYs 2018-19, 2020-21 and 2021-22, dismissing the assessee’s objections.

Another sum of ₹ 16,28,920/- on account of bank guarantee fee for corporate guarantee to the bank for Outotec India and Metso India during the year under consideration was examined and a sum of ₹ 16,28,920/- was proposed on account of guarantee fee from Metso India Pvt. Ltd./Metso Outotec India Pvt. Ltd. (merged entity), as income from other sources. I.T.A. No.: 616/KOL/2025 Assessment Year: 2022-23 Metso OYJ.

1 On the 2nd issue of income of bank guarantee fees being business income and not taxable in India due to the absence of a permanent establishment (PE), the Ld. Panel examined the submissions along with the Articles of Association and additional evidence provided by the assessee and referred to earlier observations for AY 2013-14 wherein the income from corporate guarantees was categorised as “income from other sources” rather than business income. The Ld. Panel upheld the view that the guarantee provision was not a routine business activity but rather an obligation arising from the parent-subsidiary relationship and rejected the assessee’s reliance on article 7 of the DTAA, noting that the income did not qualify as business income and fell within the purview of Article 21(3). The Panel reasoned that the situs of utilization of the corporate guarantee service was in India, where the assessee earned the related income and emphasized that the corporate guarantees were utilized for the business of Outotec India, with the invoicing and related income accruing in India. Therefore, relying on the factual and legal framework established in prior assessments, the Ld. Panel upheld the Ld. AO's decision, reiterating its stance for AYs 2018- 19, 2020-21 and 2021-22. The objections raised by the assessee were dismissed and the Ld. AO added an amount of ₹16,28,920/- to the total income which was assessed at ₹38,65,26,341/-.

Aggrieved with the assessment order, the assessee has filed the appeal before the Tribunal. Before us, the Ld. AR appeared and stated that the issues are covered against the assessee by the order of the Coordinate Bench of ITAT, Kolkata in ITA No. 300/KOL/2022 for AY 2018-19 and 269/KOL/2023 for AY 2020-21 in the assessee’s own case. However, the assessee was agitating the same so as to keep the issues alive. Our attention was drawn to the written submission filed I.T.A. No.: 616/KOL/2025 Assessment Year: 2022-23 Metso OYJ. regarding the income from certain group services fee which is reproduced as under:

In view of the fact that the issue has been decided against the assessee on the basis of the directions in the past years in its own appeals in ITA N0. 300/KOL/ 2022 & ITA No. 269/KOL/2O23 as per paras 7 and 8 thereof and also in the cases of the group concerns as mentioned in para 10 of the written submissions, we find no infirmity in the directions of the Dispute Resolution Panel/the order of the Ld. AO and dismiss Ground No. 2 of the appeal.

As regards the issue relating to guarantee fees received by the assessee, the assessee has submitted as under:

Reliance in this regard is also placed on the decision of the coordinate bench of the Hon’ble Mumbai ITAT in the case of M/s Capgemini S.A vs ADIT (Mumbai ITAT) [ITA 7198/Mum/2O12], wherein the assessee, a French company had given guarantee to BNP Paribas, a French Bank, whose Indian branch had extended loans to the Indian group company of the assessee. Based on the facts of the case, it was held that since the guarantee has been given by the assessee in France, the income from guarantee fee earned by it clearly arose in France and did not accrue in India nor it could be deemed to be accrued in India.

Thus, the amount received by the Appellant in the present case as guarantee fees does not accrue or arise in India.

Coming to whether the guarantee fee can be deemed have accrued or arisen in India, attention is drawn to section 9(i)(i) of the Act which states as under: - "9(1) The following incomes shall be deemed to accrue or arise in India: (i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situated in India.

In the instant case, since the guarantee fees has been earned by the Appellant in the normal course of its business, it should be regarded as business income of the Appellant.

Coming to the question of whether or not the guarantee fees can be treated as a business income in the hands of the Appellant, it is important to note that the term “business” is a word of large import. It means almost anything which is an occupation or duty requiring attention as distinguished from sports or pleasure and is used in the sense of occupation continuously carried on for the purpose of profit. In the case of Barendra Prasad Roy vs ITO [1981] 129 ITR 295 (SC), it was held by the Apex Court that the word business is of wide import and it means an activity carried on continuously and systematically by a person by the application of his labour and skill with a view to earn an income. I.T.A. No.: 616/KOL/2025 Assessment Year: 2022-23 Metso OYJ.

Thus, the essential characteristics which are required to be fulfilled in order to qualify any receipt as a business income are as under. • Continuous and systematic exercise of activity • Profit motive • Transaction between two persons • Involves a twin activity

Applying the above in the instant case, it can be seen that the essential characteristics of business as spelt out above are being fulfilled to enable the transaction to get covered under the definition of business. In the instant case, it is humbly submitted that the Appellant gives similar guarantees to its various subsidiaries on a regular basis and as a continuous activity in order to protect its business interests which is also evident from Appellant’s Articles of Association which are enclosed at page 58 to 61 of the paperbook. Thus, the act of providing guarantees on a regular and continuous basis has a direct effect on the profitability of the Appellant. Accordingly, the transactions between the Appellant and MIPL/MOIPL constitute regular business transactions, carried out with a profit motive and therefore, the guarantee fee earned by the Appellant is in the nature of its business income

Reliance in this regard is place on the decision of the High Court of Madras in the case of Amalgamations (P.) Ltd. v. Commissioner of Income- tax 108 ITR 895 [affirmed by the Hon’ble Supreme Court in Commissioner of Income-tax vs. Amalgamation (P.) Ltd. [1997] 92 Taxman 132 (SC)] wherein the Hon’ble High Court referred its earlier decision in Amalgamations (P) Ltd. v. CIT [1969] 73 ITR 380 (Mad), wherein it was held that furnishing guarantees for loans obtained by subsidiary companies formed part of the assessee’s business. Applying this principle, the Court held that the guarantee was given in the ordinary course of the assessee’s business activities.

Further, the Hon’ble Chennai ITAT in the case of Assistant Commissioner of Income-tax, Company Circle HI (3), Chennai v. W.S. Industries (India) Ltd [2011] 128 ITD 98 (Chennai) held as under:- 13. “It was further found that in the articles and memorandum of association of the assessee, it had been clearly mentioned that it was one of the assessee’s business to give guarantees-financial or otherwise and/or to provide security to any person either on behalf of the company or on behalf of others on such terms and conditions as the company shall determine. Hence, giving corporate guarantee duly had the sanction of articles and memorandum of association of the company and as such it was a part of the assessee’s business. I.T.A. No.: 616/KOL/2025 Assessment Year: 2022-23 Metso OYJ.

Moreover, when the transaction had been entered into in a commercially expedient manner, the resultant expense/loss was allowable

Therefore, it was clear that giving corporate guarantee was not only one of the objects of the assessee-company but the same was given for its subsidiary company and it was in the interest of the assessee-company and, hence, the commercially expedient decision. Under the circumstances, there was no reason to interfere with the order of the Commissioner (Appeals)”.

However, as per the provisions of section 9(i)(i) of the Act, the guarantee fee earned by the Appellant can be deemed to have accrued or arisen only if the Assessee has a business connection in India. In this regard, it may be noted that the term “business connection” is not defined in the Act. However, in the case of Carborandum Co v. CIT 108 ITR 335, the Hon’ble Supreme Court of India has held that carrying of activities in India is essential to make non-residents have business connection in India.

Furthermore, it should be noted that as per Explanation 1(a) to Section 9(i)(i) of the Act, in case of a business of which all operations are not carried out in India, only such part of income can be deemed to accrue or arise in India that is reasonably attributable to the operations carried out in India. In other words, if no operation is carried out in India, no income can be deemed to have accrued or arisen in India. This interpretation is also in consonance with a decision of the Supreme Court of India in the case of Hon’ble Supreme Court in the judgment of Ishikawajma-Harima Heavy Industries Ltd. vs DIT [288 ITR 408].

In the instant case, as no operations were carried out in India in connection to the provision of guarantees, the question of attributing income to Indian operations does not arise at all. Accordingly, no portion of the guarantee fee earned by the Company can be deemed to have accrued or arisen in India. Therefore, the guarantee fee earned by the Appellant does not fall within the scope of total income, as outlined in section 5(2) of the Act, and the same is not chargeable to tax as per the provisions of the Act.

Applying the ratio of the aforesaid cases to the facts in the instant case, it is humbly submitted that the guarantee fees received by the Appellant cannot be brought to tax in the hands of the Appellant in India. Rebuttal to finding of the ITAT in Appellant’s own case of AY 2018-19 and AY 2020-21

It is pertinent to add that the issue of income from guarantee fee is decided against the Appellant by the Hon’ble Bench in Appellant’s own case for AY 2018-19 & AY 2020-21 (ITA No. 300/K0I/2022 & ITA No. I.T.A. No.: 616/KOL/2025 Assessment Year: 2022-23 Metso OYJ. 269/K0I/2023) wherein your Honors have held that the Income from Bank Guarantee fee received by the Appellant is not a business activity, as apart from the subsidiary the Appellant has not given Bank Guarantee to anybody else which can establish that it was engaged in the business of providing Bank Guarantee. The Tribunal further noted that the Appellant was just only safeguarding the business interest of a subsidiary and thus concluded that Income earned by the Appellant from provision of guarantee fee is taxable under the head “Income from other sources”. The relevant extract of the order is reproduced below for Honor’s kind consideration:

The assessee was required to inform whether it had charged a fee on the contract value and it was submitted that 0.1% of the contract I.T.A. No.: 616/KOL/2025 Assessment Year: 2022-23 Metso OYJ. value was charged as guarantee fee. The performance guarantee being the passive income, no PE is required and similar to fees for Bank Guarantee, is in the nature of ‘income from other sources’. The assessee contended that paras 25 and 29 of the written submission made may be considered, which have been considered. The Ld. DR relied upon the directions of the Dispute Resolution Panel and the order of the Tribunal in the assessee’s own case for AY 2018-19 & AY 2020-21. Since this issue has been decided against the assessee, therefore, following the findings in para 12 of the order of the Tribunal in I.T.A. No. 300/KOL/2022 Assessment Year: 2018-2019 and I.T.A. No. 269/KOL/2023 Assessment Year: 2020-2021, Ground No. 3 is also dismissed and the order of the Ld. AO is confirmed.

Ground nos. 4 is consequential in nature and does not require any separate adjudication and Ground No. 5 is dismissed as a separate appeal lies against the penalty.

Ground Nos. 1 and 6 being general in nature do not require any separate adjudication.

In the result, the appeal filed by the assessee is dismissed and the order of the Ld. AO is confirmed. Order pronounced in the open Court on 25th August, 2025. [Pradip Kumar Choubey] [Rakesh Mishra] Judicial Member Accountant Member Dated: 25.08.2025 Bidhan (Sr. P.S.) I.T.A. No.: 616/KOL/2025 Assessment Year: 2022-23 Metso OYJ. Copy of the order forwarded to:

CIT(A)-

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order