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1/13 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 20TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.542/2015
BETWEEN:
PR. COMMISSIONER OF INCOME-TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE - 560 001.
THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -12(3), BANGALORE.
…APPELLANTS
(By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. SUNGARD SOLUTIONS (INDIA) PVT.LTD., 4TH FLOOR, EMBASSY ICON, 3, INFANTRY ROAD, BANGALORE-560 001. PAN No. AACCA 7484M
…RESPONDENT
(By Mr. ASIM MALIK, ADV.))
THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER QUESTIONS OF
Date of Judgment -20-07-2018 I.T.A.No.542 /2015 Pr.Commissioner of Income Tax & Anr., Vs. M/s. SunGard Solutions (India) Pvt. Ltd.,
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LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 31/03/2015 PASSED BY THE ITAT, ‘C’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.IT (TP) A NO. 128/BANG/2014 FOR ASSEMENT YEAR 2009-10 ANNEXURE A.
THIS I.T.A. COMING ON FOR ORDERS, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. E.I.Sanmathi, Adv. for Appellants-Revenue Mr. Asim Malik, Adv. for Respondent - Assessee
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, Bangalore Bench ‘C’ (for short ‘Tribunal’) dated 31.03.2015 passed in I.T(TP)A No.128/Bang/2014 for the A.Y.2009-10.
The proposed substantial questions of law framed in the memorandum of appeal by the appellants- Revenue is quoted below for ready reference: “(1) Whether, on the facts and in the circumstances of the case, the Tribunal erred in
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holding that the comparables, namely, Bodhtree Consulting Ltd., Infosys Ltd., Tata Elxsi Ltd., and Kals Information Systems Ltd., cannot be taken as comparable, being functionally different when it satisfies all the qualitative and quantities filters adopted by the TPO?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in super-imposing the decision of other Benches of the Tribunal in the case of the assessee to reject these comparables when selection of comparables in a case depends in transfer pricing on assessee specific FAR analysis?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in relying on the decision of other Benches of Tribunal, ought to have decided the comparability of these companies on the basis of specific facts brought on record by the TPO in the case of the assessee?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in directing the AO to include the interest income of the undertaking eligible for deduction under section 10A of the Act, without
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appreciating that the interest income earned does not have direct nexus with profits derived from the export activity of the assessee?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding substantial question of law Nos.1 ,2 and 3:
“8.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncement cited. We find that the issue of inclusion/exclusion of this company as comparable to a software development service provider has been decided by a co-ordinate bench of this Tribunal in the case of CISCO systems (India) Pvt. Ltd. (supra), wherein at para 26.1 thereof, it has been held as under:- xxxx 8.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of CISCO Systems (India) Pvt. Ltd. (supra), we hold that this company is to be
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excluded from the list of comparables as it is a software product company and is therefore functionally different from the assessee who is a provider of software development services. It is ordered accordingly. 9. Infosys Ltd.
9.1 This company was selected by the TPO as a comparable. The assessee had objected to the inclusion of this company as a comparable on various grounds, such as its scale of operations, brand profits, owning of intangibles, significant R&D activities etc. The TPO rejected the assessee’s objections and included this company in the final set of comparables.
9.2 In the course of proceedings before us the learned Authorised Representative submitted that for the exclusion of this company from the list of comparables, the assessee relies on the decision of a co-ordinate bench of this Tribunal in the case of CISCO Systems (India) Pvt.Ltd. (supra) wherein it has been held that this company’s activities are functionally different and
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dissimilar to that of a provider of software development services.
9.3 Per contra, the learned Departmental Representative supported the orders of the authorities below in including this company in the final list of comparables.
9.4.1
We have heard the rival contentions and perused and carefully considered the material on record including the judicial decisions cited and placed reliance upon by the assessee. We find that the issue of comparability of this company has been considered and decided by a co-ordinate bench of this Tribunal in the case of CISCO Systems (India) Pvt. Ltd. (supra) wherein at para 26.2 thereof it has been held as under:- xxxx xxxx xxxx
9.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of CISCO Systems (India) Pvt. Ltd. (supra), we hold that this company is to be
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excluded from the list of comparables as its varied diverse activities render it functionally dis-similar from the assessee in the case on hand who is into software development services. It is ordered accordingly.
KALS Information Systems Ltd.
10.1 This company was selected as a comparable by the TPO. The assessee had objected to the inclusion of this company as a comparable on the grounds that it is functionally not comparable as it is a product company and therefore not comparable to the assessee who is a provider of software development services. The TPO however, rejected the objections of the assessee and included this company in the final list of comparables. The DRP upheld this action of the TPO.
10.2 In the course of proceedings before us, the learned Authorised Representative submitted that the assessee places reliance on the decision of a co-ordinate bench of this Tribunal in the case of M/s. CISCO Systems
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(India) Pvt. Ltd. (supra), for exclusion of this company from the final list of comparables.
10.3
Per contra, the learned Departmental Representative supported the orders of the authorities below in including and retaining this company in the list of comparables.
10.4.1 We have heard the rival contentions of both parties and perused and carefully considered the material on record, including the judicial pronouncement cited. We find a co-ordinate bench of this Tribunal in the case of CISCO Systems (India) Pvt. Ltd. (supra), has held that this company being into software product development, it is not comparable to a provider of software development services. At para 26.3 of its order, the co-ordinate bench has held as under:- xxxx xxxx xxxx
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10.4.2 Following the above decision of the co-ordinate bench of this Tribunal in the case of CISCO Systems (India) Pvt. Ltd. (supra), we hold that this company being into developing software products is not purely a software development service provider like the assessee in this case on hand and therefore accept the plea of the assessee that this company is not comparable to it and is to be excluded from the list of comparables.”
Regarding substantial question of law No.4:
“14.4 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement cited by the assessee. We find that the issue before us is squarely covered by the decision of the Hon’ble High Court of Karnataka in the case of Motorola India Electronics (P) Ltd (supra). In this judgment, the Hon’ble High Court of Karnataka has held that while computing the eligible deduction under Section 10A of the Act, the entire profits of the business,
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including the interest earned, should be considered as income of business of the undertaking as there is a direct nexus between the interest income and the income of the business undertaking even though the interest income does not partake the character of profit and gains from sale of an article. Respectfully following the above decision of the Hon’ble High Court of Karnataka in the case of Motorola India Electronics (P) Ltd. (supra), we hold and direct that interest income is to be included in the business income of the undertaking eligible for deduction under Section 10A of the Act, Consequently, grounds S.No.1 raised by the assessee is allowed.”
The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 [Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,] wherein it has been observed that unless the finding of the Tribunal is found
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ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference: “ Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair and quick judicial dispensation in such cases. Had it been a case of substantial question of interpretation of provisions of Double Taxation Avoidance Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the Treaties over the Domestic Legislations or the questions like Treaty Shopping, Base Erosion and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone etc.), if based on relevant facts, such substantial questions of law could be raised before the High Court under Section 260-A of the Act, the Courts could have embarked upon such exercise of framing and answering such substantial question of law. On the other hand, the appeals of the present tenor as to whether the comparables have been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or
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not, do not in our considered opinion, give rise to any substantial question of law. 56. We are therefore of the considered opinion that the present appeals filed by the Revenue do not give rise to any substantial question of law and the suggested substantial questions of law do not meet the requirements of Section 260-A of the Act and thus the appeals filed by the Revenue are found to be devoid of merit and the same are liable to be dismissed.
We make it clear that the same yardsticks and parameters will have to be applied, even if such appeals are filed by the Assessees, because, there may be cases where the Tribunal giving its own reasons and findings has found certain comparables to be good comparables to arrive at an ‘Arm’s Length Price’ in the case of the assessees with which the assessees may not be satisfied and have filed such appeals before this Court. Therefore we clarify that mere dissatisfaction with the findings of facts arrived at by the learned Tribunal is not at all a sufficient reason to invoke Section 260-A of the Act before this Court.
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The appeals filed by the Revenue are therefore dismissed with no order as to costs.” 5. In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of law arises for consideration in the present case.
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/-
JUDGE