THE PR COMMISSIONER OF INCOME TAX vs. M/S ALLEGIS SERVICES INDIA PVT.LTD

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ITA/151/2018HC KarnatakaKAHC01050699201830 September 2024Bench: S.G.PANDIT,C.M. POONACHA4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court disposed of the appeal based on the submissions made by both parties. The Court noted the assessee's contention regarding the tax effect being below Rs. 2 Crores, citing CBDT Circular No. 09/2024, and the Revenue's request for liberty to revive the appeal under certain exceptions mentioned in Circulars No. 09/2024 and 5/2024. Consequently, the appeal was disposed of with the liberty granted to the Revenue as prayed. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. No decision was made on the merits of the substantial questions of law.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax and the Deputy Commissioner of Income Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated September 15, 2017, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The ITAT's order concerned assessment year 2009-10 and had confirmed the order of the Commissioner of Income Tax (Appeals) and the Deputy Commissioner of Income Tax. The appeal challenges the ITAT's decision on three specific issues related to disallowance under Section 40(a)(ia), inclusion of foreign exchange gain/loss as operating revenue, and entitlement to risk adjustment.

What were the issues?

The Tribunal had to decide the following substantial questions of law: 1. Whether the Tribunal was correct in law in setting aside the disallowance made by the assessing authority under Section 40(a)(ia) of the Income Tax Act, 1961, concerning payments made for software purchases, by holding that such payments do not fall under the definition of 'Royalty'. 2. Whether the Tribunal was correct in law in directing the Transfer Pricing Officer (TPO) to include foreign exchange gain/loss as operating revenue, following its earlier decision in the case of Triology E-Business. 3. Whether the Tribunal was correct in law in confirming the order of the CIT(A) which held that the assessee is entitled to risk adjustment as per prevailing norms. The Revenue contended that the ITAT erred on these points. The Assessee argued that the tax effect in the appeal is less than Rs. 2 Crores, and therefore, the appeal should not be entertained by the Revenue in view of CBDT Circular No. 09/2024 dated September 17, 2024, which binds the Revenue. The Revenue requested liberty to revive the appeal if the matter fell within the exceptions of the said circular and Circular No. 5/2024 dated March 15, 2024.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 40(a)(ia)

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:41694-DB ITA No. 151 of 2018

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30TH DAY OF SEPTEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE S.G.PANDIT AND THE HON'BLE MR JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 151 OF 2018 BETWEEN:

1.

THE PR COMMISSIONER OF INCOME TAX , 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA, BENGALURU 560095

2.

THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-11(1), PRESENT ADDRESS CIRCLE-1(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA BENGALURU 560095 …APPELLANTS (BY SRI.SUSHAL TIWARI N., ADVOCATE)

AND:

M/S ALLEGIS SERVICES INDIA PVT LTD COMMERCE @ MANTRI, LEVEL-3 NO.12/1 & 12/2, NS PALYA, BANNERGHATTA ROAD, BENGALURU 560076 PAN: AAFCA 0825M …RESPONDENT (BY SMT TANMAYEE RAJKUMAR., ADVOCATE)

THIS ITA / INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:41694-DB ITA No. 151 of 2018

APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO. 1438/BANG/2014 DATED: 15/09/2017 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(1), BENGALURU (VIDE ANNEXURE –D) AND ETC.

THIS APPEAL, COMING ON FOR HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR JUSTICE S.G.PANDIT and HON'BLE MR JUSTICE C.M. POONACHA

ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT)

Heard the learned counsel Sri.Sushal Tiwari N., for appellants/Revenue and learned counsel Smt. Tanmayee Rajkumar, learned counsel for the respondent/assessee.

2.

The Revenue is in appeal under Section 260-A of the Income Tax Act, 1961 (for short, ‘the Act’) questioning the correctness and legality of order dated 15.09.2017 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP) A No.1370/Bang/2014 for the assessment year 2009-10, raising the following substantial questions of law: i. Whether on the facts and circumstances of the case, the Tribunal is right in law in setting aside the disallowance of section 40(a)(ia) of the Income Tax Act, 1961 made by assessing

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NC: 2024:KHC:41694-DB ITA No. 151 of 2018

authority in respect of payment made towards purchase of software by holding that same does not fall under definition of Royalty? ii. Whether on the facts and circumstances of the case, the Tribunal is right in law in directing the TPO to include foreign exchange gain/loss as operating Revenue by following its earlier decision in case of Triology E- Business? iii. Whether on the facts and circumstances of the case, the Tribunal is right in law in confirming the order of CIT(A) holding that assessee is entitled to risk adjustment as per prevailing norms?

3.

Learned counsel for the assessee submits that the tax effect in this appeal is less than Rs.2 Crores and therefore, the appeal should not be entertained at the instance of the revenue in view of the Circular No.09/2024 dated 17.09.2024 issued by the Central Board of Direct Taxes. It is also submitted that the aforesaid Circular binds the revenue.

4.

On the other hand, learned counsel for the revenue submits that he be granted liberty to revive the appeal in case the matter falls within the exceptions under the aforesaid Circular dated 17.09.2024 and Circular No.5/2024 dated 15.03.2024.

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NC: 2024:KHC:41694-DB ITA No. 151 of 2018

5.

In view of the aforesaid submissions, the appeal is disposed of with liberty as prayed for by the learned counsel for the revenue. However, the questions of law are kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

BS List No.: 4 Sl No.: 22

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