PRINCIPAL COMMISSIONER OF INCOME TAX - 6 vs. M/S. SAMSUNG R & D INSTITUTE BANGALORE PVT LTD

1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 30TH DAY OF NOVEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.622 OF 2017 BETWEEN: 1. PRINCIPAL COMMISSIONER OF INCOME TAX-6

BMTC COMPLEX, KORAMANGALA

BENGALURU. 2. THE DEPUTY COMMISSIONER OF INCOME TAX

CIRCLE-6(1)(1), BMTC COMPLEX

KORAMANGALA, BENGALURU. ... APPELLANTS (BY SRI. E.I. SANMATHI, ADV.,) AND: M/S. SAMSUNG R & D INSTITUTE BANGALORE PVT. LTD., NO.2870, PHONEIX BUILDING BAGMANE CONSTELLATION BUSINESS PARK, OUTER RING ROAD DODDANEKUNDI CIRCLE BANGALORE-560037 PAN: ;AAICS6290F. ... RESPONDENT (BY SRI. T. SURYANARAYANA, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 03.03.2017 PASSED IN

2 IT(TP)A NO.60/BANG/2015 FOR THE ASSESSMENT YEAR 2009-10, VIDE ANNEXURE-A, PRAYING TO: (I) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW MAY BE FORMULTED BY THE HON'BLE COURT AS DEEMD FIT. (II) SET ASIDE THE APPELLATE ORDER DATED 03-03-2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'B' BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO.IT(TP)A No.60/BANG/2015 FOR THE ASSESSMENT YEAR 2009-10 VIDE ANNEXURE-A AS SOUGHT FO IN THIS APPEAL AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE. THIS ITA COMING ON FOR HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the revenue. The subject matter of the appeal pertains to the Assessment year 2009-10. The appeal was admitted by a bench of this Court vide order dated 08.04.2019 on the following substantial question of law: (i) Whether in the facts and circumstances of the case and in law, the Tribunal was justified in removing certain comparable from the list of comparable's on the basis of functional dissimilarity which satisfied all filters applied by the Transfer

3 Pricing and without doing any FAR analysis of the tax payer with those other cases? (ii) Whether in the facts and circumstances of the case and in law, the Tribunal assessee is entitled for claim of depreciation on goodwill by relying on the decision which is not applicable to facts of the case even with appreciating that the assessee had not shown the good will as fixed asset in first year i.e. for 2006-07 and has shown it as miscellaneous expenditure? 2. The factual background in which the aforesaid substantial questions of law arise for our consideration in this appeal need mention. The assessee is a wholly owned subsidiary of Samsung Electronics Co. Ltd. and is primarily engaged in rendering software development services to its associate enterprises. The assessee in the Assessment Year 2009-10 realised net profit margin of 15.45% in respect of international transactions with its associate enterprises. The assessee filed the return of income for Assessment Year 2009-10 in which income of

4 Rs.67,94,36,842/- was declared which included the income from other sources to the extent of Rs.14,34,08,185/-. The assessee later on filed a revised return on 30.03.2011. The assessee had international transactions with its associate enterprises. Therefore, the Assessing Officer referred the case of the assessee to the Transfer Pricing Officer to determine the Arms Length price. 3. The Transfer Pricing Officer, after examining the details furnished by the assessee, passed an order under Section 92-CA of the Act by making an adjustment in respect of software development services.

The Assessing Officer thereafter passed an order of assessment incorporating the transfer pricing adjustment. The assessee thereupon filed an appeal before the Commissioner of Income Tax (Appeals) in which selection of Infosys Ltd. as comparable was challenged. The Commissioner of Income Tax (Appeals)

5 by an order dated 14.11.2011, excluded Infosys Ltd. on account of its enormous size and bulk and partly allowed the appeal. The assessee as well as the revenue thereafter filed appeals before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal'). The Tribunal, by an order dated 03.03.2017, inter alia directed transfer pricing officer to exclude certain companies as comparable on the basis of functional dissimilarity. The Tribunal also held that assessee is entitled to depreciation on goodwill. In the aforesaid factual background, the revenue has filed this appeal. 4. Learned counsel for the revenue submitted that the Tribunal grossly erred in directing transfer pricing officer to exclude Infosys Ltd as comparable from the list of comparables chosen by the transfer pricing officer by relying on its earlier decision and the Tribunal has selectively rejected comparability criteria. It is further submitted that the Tribunal should have remitted the

6 issue to the transfer pricing officer with its own functional criteria to rework the whole transfer pricing study again. It is also argued that selective weeding out of comparables lead to distortion since the Tribunal did not deliberate over low margin comparables which may not need functional criteria set by the Tribunal, therefore, the order passed by the Tribunal is perverse. It is also pointed out that the Tribunal has failed to consider the reasons assigned by the transfer pricing officer and therefore, the matter deserves to be remitted to the Tribunal for decision afresh. 5. On the other hand, learned counsel for the assessee has taken us through the order passed by the Commissioner of Income Tax (Appeals) as well as the Tribunal and has submitted that the Tribunal has upheld the order passed by the Commissioner of Income Tax (Appeals) by placing reliance on decision of the Co- ordinate Bench of the Tribunal in 'McAfee SOFTWARE (INDIA) (P) LTD. Vs. DCIT' (2015) 58

7 TAXMANN.COM 14 (Bangalore - Trib). It is further submitted that the Commissioner of Income Tax (Appeals) as well as the tribunal have recorded findings of fact that profile of McAfee supra is similar to assessee and therefore, Infosys Ltd. is required to remain excluded. It is also pointed out that the decision of the tribunal in McAfee supra has been affirmed by this court vide judgment dated 24.07.2018 passed in I.T.A.No.470/2015. It is also urged that the finding recorded by the tribunal that the Infosys Ltd. is functionally not comparable to assessee is a finding of fact and the revenue has neither the challenged the same as perverse nor has brought on record any material to demonstrate the perversity in the aforesaid concurrent findings of fact and therefore, no substantial question of law arises for consideration in this appeal. In support of aforesaid submissions, reliance has been placed on the decisions in 'CIT VS. AGNITY INDIA TECHNOLOGIES (P.) LTD', (2013) 36

8 TAXMANN.COM 289 (DELHI), 'PCIT VS. FISERV INDIA PVT. LTD', ITA NO.17/2016 DATED 06.01.2016 and 'PCIT VS. ZTE TELECOM INDIA PVT. LTD.', ITA NO.388/2018 DATED 09.03.2019. 6. We have considered the submissions made by learned counsel for the parties and have perused the record. It is the cardinal principle of law that tribunal is fact finding authority and a decision on facts on the tribunal can be gone into by the High Court only if a question has been referred to it, which says the finding of the tribunal is perverse. [SEE: ‘SUDARSHAN SILKS & SAREES VS. CIT’, 300 ITR 205 SCC @ 211 and ‘MANGALORE GANESH BEEDI WORKS VS. CIT’, 378 ITR 640 (SC) @ 648]. The issue whether Infosys Ltd is comparable to the assessee and is functionally dissimilar is a finding of fact. From perusal of paragraphs 12 to 13.2.8 of the order passed by the Commissioner of Income Tax (Appeals) as well as para 21 and 22 of the order of the tribunal, it is evident that

9 the Commissioner of Income Tax (Appeals) has dealt with the findings recorded by the transfer pricing officer and the same has been approved by the tribunal by assigning cogent reasons. The aforesaid findings are finding of fact. Even in substantial questions of law, no element of perversity has either been pleaded or demonstrated before this court. In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assessee. In the result, we do not find any merit in this appeal, the same fails and is hereby dismissed. Sd/- JUDGE Sd/- JUDGE ss