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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 30TH DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.284/2018
BETWEEN:
PR. COMMISSIONER OF INCOME TAX-7 BMTC COMPLEX, KORAMANGALA BANGALORE.
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE - 12(4), BENGALURU.
…APPELLANTS (By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. TEKTRONIX (INDIA) PVT. LTD. (FORMERLY TEKTRONIX ENGINEERING DEVELOPMENT (INDIA) P. LTD SY.NO.16, SALARPURIA PREMIA SARJAPUR OUTER RING ROAD KADUBEESANA HALLI, BENGALURU-560 103 PAN NO: AAACT7289F
…RESPONDENT (By Mr. ANKUR PAI, ADV.)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF THE IT ACT, 1961, PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE
Date of Judgment 30-08-2018 I.T.A.No.284/2018 Pr. Commissioner of Income Tax-7 & Anr. Vs. M/s. Tektronix (India) Pvt Ltd.,
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FORMULATED BY THE HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED: 27-10-2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO. IT(TP)A No.293/BANG/2014 FOR A.Y.2009-10 VIDE ANNEXURE ‘A’ AS SOUGHT FOR IN THIS APPEAL AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
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. Ankur Pai. Adv. for Respondent - Assessee
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT ‘B’ Bench, Bangalore, dated 27.10.2017 passed in IT(TP)A No.293/Bang/2014 for the A.Y.2009-10.
The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:-
Date of Judgment 30-08-2018 I.T.A.No.284/2018 Pr. Commissioner of Income Tax-7 & Anr. Vs. M/s. Tektronix (India) Pvt Ltd.,
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“1. Whether on the facts and circumstances of the case, the Tribunal was right in law in excluding 2 companies as comparables on functional dissimilarity by following its earlier order?”
Whether on the facts and in the circumstances of the case, the Tribunal was right in law in directing the assessing authority/TPO to consider foreign exchange gain/loss while determining Arm’s Length Price?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:- Regarding substantial question of law No.1:- “Infosys Ltd: 11. It was submitted before us by the Ld. AR that Infosys Ltd is not functionally comparable with the assessee as it is clear from the annual report of the company that the company is earning revenue from software services and products. Our attention was drawn to page 924
Date of Judgment 30-08-2018 I.T.A.No.284/2018 Pr. Commissioner of Income Tax-7 & Anr. Vs. M/s. Tektronix (India) Pvt Ltd.,
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of the paper book where Infosys earned profit from software services and products, it earned revenue from licences of software products. Infosys spent huge amounts of 62 Cr on brand building (page 928 of PB) and further had substantial revenue from proprietary products (page 930) in the assessment year 2009-10. Further at under the head Revenue Recognition, it is mentioned that the revenue is primarily derived from software development and related services and licencing of software products. It is also mentioned that Infosys Technologies is the owner of various brands and is earning huge amount on account of the brand. If we compare the profile of the assessee with that of Infosys Ltd, it is clear that the assessee is only a software service provider and therefore the functions, assets employed and the risk undertaken by the assessee cannot be matched with the functions undertaken by Infosys Ltd. Therefore, in our view, Infosys Ltd is not comparable with the assessee.
In view thereof, we deem it appropriate to direction DRP to delete Infosys Ltd, from the list of comparable. Moreover the case of the assessee is covered by the decision of the coordinate bench of the Tribunal in the case of Broadcom Communications Technologies Private
Date of Judgment 30-08-2018 I.T.A.No.284/2018 Pr. Commissioner of Income Tax-7 & Anr. Vs. M/s. Tektronix (India) Pvt Ltd.,
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Ltd [IT(TP)A.145/Bang/2014. Following the decision of the coordinate bench (supra), we direct the exclusion of Infosys Ltd. Persistent Systems Ltd xxxx xxxx xxxx
We have heard the rival submissions and perused the material on record. The record shows that the assessee is into software services, whereas the comparable, namely Persistent Systems Ltd is into product development and is also deriving income from product sales as well as royalty. Besides that there is no segmental information available to iron out the feature which distinguishes the assessee with the comparable. In view thereof and also in view of the order passed by the coordinate bench for the same assessment year in the matter of Fair Isaac India Software P. Ltd, IT(TP)A No 1776/B-2013 AND 14/B/2014 wherein the coordinate bench had deleted Persistent Systems Ltd from the list of comparables. In view of the above, we direct the exclusion of Persistent Systems Ltd and Infosys Ltd.
Date of Judgment 30-08-2018 I.T.A.No.284/2018 Pr. Commissioner of Income Tax-7 & Anr. Vs. M/s. Tektronix (India) Pvt Ltd.,
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Regarding substantial question of law No.2: 16. Now, we are left with ground 5, which can be divided into two parts, one is treatment of the forex gain and the other is provision for doubtful debts. Both the above items were treated as non-operating in nature by the DRP by upholding the order of the TPO.
Before us, the Ld. AR has only insisted for treating the forex gain as operating in nature and is required to be taken into account for computing the operating margin of the assessee and the comparable.”
However, this Court in a recent judgment in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by the appellants, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable.
Date of Judgment 30-08-2018 I.T.A.No.284/2018 Pr. Commissioner of Income Tax-7 & Anr. Vs. M/s. Tektronix (India) Pvt Ltd.,
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The relevant portion of the said 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 not, do not in our considered opinion, give rise to any substantial question of law.
Date of Judgment 30-08-2018 I.T.A.No.284/2018 Pr. Commissioner of Income Tax-7 & Anr. Vs. M/s. Tektronix (India) Pvt Ltd.,
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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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Date of Judgment 30-08-2018 I.T.A.No.284/2018 Pr. Commissioner of Income Tax-7 & Anr. Vs. M/s. Tektronix (India) Pvt Ltd.,
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Having heard the learned counsel for both the parties, we are therefore of the opinion that no substantial question of law arises in the present case. The appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. No costs.
Sd/- JUDGE
Sd/-
JUDGE