PR COMMISSIONER OF INCOME TAX-3 vs. M/S IMS HEALTH ANALYTICS SERVICES PVT.LTD

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ITA/206/2022HC KarnatakaKAHC01022589202124 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court of Karnataka disposed of the appeal. It noted that the tax effect in the appeal was less than Rs. 2 Crores, which, in view of CBDT Circular No. 09/2024 dated 17.09.2024, would render the appeal not maintainable at the instance of the revenue. The Revenue's counsel sought liberty to revive the appeal if the matter fell within the exceptions under Circular No. 09/2024 and Circular No. 5/2024 dated 15.03.2024. The Court granted this liberty. Consequently, the appeal was disposed of with the liberty as prayed for by the revenue. The substantial questions of law were kept open to be adjudicated in an appropriate proceeding. No finding was reached on the merits of the substantial questions of law.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax-3 and the Deputy Commissioner of Income Tax, Circle 5(1)(2), filed an appeal under Section 260-A of the Income Tax Act, 1961. The appeal challenges an order dated September 25, 2020, passed by the Income Tax Appellate Tribunal, 'A' Bench, Bengaluru, in IT(TP)A.No.496/Bang/2015. This order pertains to the assessment year 2011-12. The High Court of Karnataka admitted the appeal on July 4, 2023, to consider specific substantial questions of law. The tax effect in this appeal was noted to be less than Rs. 2 Crores, making it potentially non-maintainable under CBDT Circular No. 09/2024.

What were the issues?

The Tribunal had to decide three substantial questions of law: 1. Whether the Tribunal erred in law by disregarding the parameters of analysis prescribed under Rule 10B, which are stated to be exhaustive, and if it is legally permissible to bypass these parameters either partially or by implication. 2. Whether, on the facts and circumstances, the Tribunal was correct in directing the Transfer Pricing Officer (TPO) to delete the entire transfer pricing adjustment, given that the assessee was paying a cost plus 5% markup to its Associated Enterprises. This question also concerns whether the Tribunal correctly applied the second proviso to Section 92C(2) by not making a transfer pricing adjustment when the variation between the Arm's Length Price and the transaction price did not exceed 5% of the transaction price, despite variations in nature, function, and profit ratios between foreign comparables and the Indian company. 3. Whether the Tribunal's order was perverse, as it assumed the cost incurred by the Associated Enterprises was the Arm's Length Price cost, which the Revenue contends is incorrect, and whether the Tribunal ignored the exhaustive parameters of analysis under Rule 10B. The Revenue argued that Rule 10B parameters are exhaustive and should not be bypassed. The Revenue also contended that the Tribunal erred in deleting the TP adjustment and in its interpretation of the second proviso to Section 92C(2), ignoring geographical variations and profit ratios. The Revenue further argued that the Tribunal's assumption about the cost being the ALP cost was incorrect and that Rule 10B was ignored. The judgment does not record specific arguments from the assessee on these issues.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 92C(2)

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:39732-DB ITA No. 206 of 2022

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 24TH 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. 206 OF 2022 BETWEEN:

1.

PR.COMMISSIONER OF INCOME TAX-3, BMTC COMPLEX, KORAMANGALA, BANGALORE.

2.

THE DEPUTY COMMISSIONR OF INCOME TAX, CIRCLE 5(1)(2), BMTC COMPLEX, KORAMANGALA, BENGALURU. …APPELLANTS

(BY SRI SANMATHI E I, ADVOCATE)

AND:

1.

M/S IMS HEALTH ANALYTICS SERVICES PVT.LTD., (IMS HEALTH TECHNOLOGY SOLUTIONS INDIA PVT.LTD., MERGED WITH M/S.IMS HEALTH ANALYTICS SERVICES PVT.LTD.) EMBASSY TECHSQUARE, MARATHAHALLI, SARJAPUR RING ROAD, KADUBEESANAHALLI, BENGALURU-560103. …RESPONDENT

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 25/09/2020

Digitally signed by B LAVANYA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39732-DB ITA No. 206 of 2022

PASSED IN IT(TP)A NO.496/BANG/2015, FOR THE ASSESSMENT YEAR 2011-2012, PRAYING THIS HON’BLE COURT TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT 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.Sanmathi.E.I., for appellants/Revenue.

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 25.09.2020 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate

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NC: 2024:KHC:39732-DB ITA No. 206 of 2022

Authority’) in IT(TP)A.No.496/Bang/2015 for the assessment year 2011-12.

3.

This

Court,

admitted the appeal on 04.07.2023 to consider the following substantial question of law: “1. Whether the Tribunal was right in law to ignore the parameters of analysis prescribed under Rule 10b, which are exhaustive and if so, whether it is legally permissible to bypass the same partially or by implication?

2.

Whether on the facts and circumstances of the case and in law, the Tribunal is right in law in directing the TPO to delete entire TP adjustment as assessee is paying cost plus 5% markup to its Associated Enterprises and further holding that as per the second proviso to Section 92C(2), fi the variation between Arm's Length Price and price at which international transaction has actually been undertaken does not exceed 5% of the transaction price, there should not be a TP adjustment ignoring variation in nature function, profit ratios of foreign comparables- companies due to geographical variation with

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NC: 2024:KHC:39732-DB ITA No. 206 of 2022

that of the Indian Company and Indian condition?

3.

Whether the Tribunal's order can be said as perverse since Tribunal has assumed that the cost incurred by the Associate Enterprises of the Assessee is the Arms' Length Price cost which is incorrect and Tribunal ignored parameters of analysis prescribed under Rule 10B which is exhaustive?”

4.

It is noticed that the tax effect in this appeal is less than Rs.2 Crores and therefore, the appeal would not be maintainable 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.

5.

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:39732-DB ITA No. 206 of 2022

6.

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 question of law is kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

MPK List No.: 2 Sl No.: 40

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