THE PR COMMISSIONER OF INCOME TAX vs. M/S XL HEALTH CORPORATION INDIA PVT LTD

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ITA/477/2018HC KarnatakaKAHC01046828201824 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryWithdrawn

What did the High Court hold?

The High Court disposed of the appeal based on the submissions made by both parties. The assessee argued that the appeal should not be entertained due to the tax effect being below Rs. 2 Crores, citing CBDT Circular No. 09/2024. The Revenue requested liberty to revive the appeal if it fell within the exceptions of the cited circulars. In light of these submissions, the Court granted the liberty as prayed for by the Revenue. 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 Assistant Commissioner of Income Tax, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated February 9, 2018, passed by the Income Tax Appellate Tribunal (ITAT), Bengaluru. The appeal pertains to the assessment year 2012-2013. The ITAT's order was challenged by the Revenue. The High Court admitted the appeal on September 12, 2019, to consider substantial questions of law. The assessee is M/s. XL Health Corporation India Pvt. Ltd.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal's order is perverse for excluding three comparable companies on functional dissimilarity grounds without considering the FAR analysis done by the Transfer Pricing Officer and materials regarding similarities between the assessee and the comparables? (Question of law and fact, concerning transfer pricing provisions). 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the disallowance of depreciation on the purchase of software under Section 40(a)(ii) of the Act by following the decision in VOGUE VESTURES PVT. LTD. v. DCIT, even when the assessing authority had disallowed the expenditure for non-deduction of TDS and without considering the decision in SAMSUNG ELECTRONICS CO. LTD.? (Question of law and fact, concerning disallowance of expenditure and TDS provisions). Assessee's contentions: The tax effect in this 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. Revenue's contentions: The Revenue sought liberty to revive the appeal if the matter falls within the exceptions under Circular No. 09/2024 and Circular No. 5/2024 dated March 15, 2024.

Which sections of the Income-tax Act were involved?

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

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:39750-DB ITA No. 477 of 2018

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. 477 OF 2018 BETWEEN:

1.

THE PR. COMMISSIONER OF INCOME TAX CIT (A), 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA BENGALURU-560095.

2.

THE ASST. COMMISSIONER OF INCOME TAX CIRCLE-7(1)(2), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA BENGALURU-560095. …APPELLANTS (BY SRI. SUSHAL TIWARI, ADV.)

AND:

M/S. XL HEALTH CORPORATION INDIA PVT. LTD., NO.54, ABACUS CENTRE, 1ST MAIN, SARAKKI INDUSTRIAL AREA III PHASE, J P NAGAR, BENGALURU-560078 PAN: AAACX 0544K. …RESPONDENT (BY SRI. B.S. BALACHANDRAN, ADV.)

THIS APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 09.02.2018 PASSED IN IT[TP]A NO. 2311/BANG/2016, FOR THE

Digitally signed by MARIGANGAIAH PREMAKUMARI Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39750-DB ITA No. 477 of 2018

ASSESSMENT YEAR 2012-2013, VIDE ANNEXURE-D, PRAYING THIS COURT TO I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE; II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT[TP]A NO. 2311/BANG/2016 DATED 09.02.2018, VIDE ANNEXURE-D, AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(2), BENGALURU AND ETC.

THIS APPEAL, COMING ON FOR ORDERS, 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., for appellants/Revenue and learned counsel Sri.B.S.Balachandran for 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

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NC: 2024:KHC:39750-DB ITA No. 477 of 2018

09.02.2018 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short, ‘Appellate Authority’) in IT(TP)A.No.2311/Bang/2016 for the assessment year 2012-13.

3.

This

Court,

admitted the appeal on 12.09.2019 to consider the following substantial question of law: “1. Whether on the facts and in the circumstances of the case, the Tribunal's order can be said as perverse as Tribunal has excluded 3 comparable companies on functional dissimilarity grounds without considering the FAR analysis done by Transfer Pricing Officer and materials brought on record with regard to similarities of assessee- company with comparable?

2.

Whether on the facts and in the circumstances of the case, the Tribunal is right in setting aside disallowance of depreciation on purchase of software under section 409a) (ii) of the Act by following decision of this Court in the case of VOGUE VESTURES PVT. LTD. V. DCIT in

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NC: 2024:KHC:39750-DB ITA No. 477 of 2018

ITA No.1199/Bang/2016 dated 22.12.2017 even when the assessing authority rightly disallowed the said expenditure for non deduction of TDS on purchase of software and without considering the decision of this Court in the case of SAMSUNG ELECTRONICS CO. LTD. Reported in 2011(16) Taxmann.com 141 (KAR)?”

4.

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.

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:39750-DB ITA No. 477 of 2018

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 CT:bms List No.: 2 Sl No.: 0

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