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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 28TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.1059/2017
BETWEEN :
THE PR. COMMISSIONER OF INCOME TAX, 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU – 560 095
THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12(2), PRESENT ADDRESS CIRCLE 2(1)(1), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA BENGALURU – 560 095
... APPELLANTS
(BY SRI. ARAVIND K V & SRI. DILIP, ADVS.)
AND:
M/S. CENTURY LINK TECHNOLOGIES INDIA PVT. LTD., (FORMERLY KNOWN AS M/S QWEST TELECOM SOFTWARE SERVICES PVT. LTD.,) BLOCK B, I & II FLOOR, B WING , SURVEY NO.15/3 & 16 KADUBEESANAHALLI, VARTHUR HOBLI BENGALURU – 560 103 PAN: AAHCS 7683M
... RESPONDENT
Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:09.06.2017 PASSED IN C.O.NO.48/BANG/2016, FOR THE ASSESSMENT YEAR 2008-2009 VIDE ANNEXURE - E, PRAYING 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 C.O.NO. 48/BANG/2016 DATED: 09.06.2017 VIDE ANNEXURE - E CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(1)(1), BENGALURU.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V. Aravind and Mr. Dilip, Advs. for Appellants – Revenue.
This Appeal is filed by the Revenue purportedly raising substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, Bangalore Bench ‘B’, Bangalore, in C.O.No.48/Bang/2016 dated 09.06.2017, relating to the Assessment Year 2008-09.
Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether, on the facts and circumstances of the case, the Tribunal is right in law in setting aside the re-computation of deduction under section 10A of the Act by following the decision of this Hon’ble High Court in the case of CIT v/s. Tata Elxsi which has not reached finality?
Whether, on the facts and circumstances of the case, the Tribunal is right in law in directing AO/TPO to exclude certain comparable based on functional dissimilarity even when the TPO has chosen the said comparable by applying qualitative and quantitative filers when culling out comparable companies?”
Regarding Substantial Question of Law No.1: 3. The issue is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC).
Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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The relevant portion of the judgment of the Hon’ble Supreme Court in the case of HCL Technologies Ltd. (supra), is quoted below for ready reference:- “17. The similar nature of controversy, akin this case, arose before the Karnataka High Court in CIT v. Tata Elxsi Ltd. [2012] 204 Taxman 321/17/taxman.com 100/349 ITR 98. The issue before the Karnataka High Court was whether the Tribunal was correct in holding that while computing relief under Section 10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from ‘export turnover’ must also be excluded from ‘total turnover’, since one of the components of ‘total turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.
Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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In the instant case, if the deductions on freight, telecommunication and insurance attributable to the delivery of computer software under Section 10A of the IT Act are allowed only in Export Turnover but not from the Total Turnover then, it would give rise to inadvertent, unlawful, meaningless and illogical result which would cause grave injustice to the Respondent which could have never been the intention of the legislature.
Even in common parlance, when the object of the formula is to arrive at the profit from export business, expenses excluded from export turnover have to be excluded from total turnover also. Otherwise, any other interpretation makes the formula unworkable and absurd. Hence, we are satisfied that such deduction shall be allowed from the total turnover in same proportion as well”.
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and
Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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Respondent-Assessee, has returned the findings as under: Regarding Substantial Question of Law No.2: “13. We have considered the rival submissions as well as perused the material on record. The issue of comparability of the above 11 comparables the following comparables was examined by this coordinate bench of this Tribunal in case of Kodiak Networks (India) Pvt. Ltd. Vs. DCIT in IT(TP) A No.1540/Bang/2012 for the same assessment year which is also engaged in the software development services. One of us i.e. Hon’ble judicial member, is the author of order, wherein, the Tribunal following the decision of the coordinate bench in the case of 3DPLM Software Solutions Ltd. Vs DCIT 42 taxmann.com 333 held that these companies were functionally different and therefore held to be ircomparable with that of the pure software development companies. The relevant observation made by the Hon’ble Tribunal in the case of Kodiak Networks (India) Pvt. Ltd. Vs DCIT are extracted below.
Avani Cincom Technologies Ltd.
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Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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Celestial Biolabs Ltd.
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Respectfully following the decision of the coordinate bench in the above case we direct the TPO to exclude the above companies from the list of comparables.”
However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. –v- 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 appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable.
The relevant portion of the said judgment is quoted below for ready reference:
Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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“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
Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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considered opinion, give rise to any substantial question of law.
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
Date of Judgment 28-08-2018, ITA No.1059/2017 The Pr. Commissioner of Income Tax & Another Vs. M/s.Century Link Technologies India Pvt. Ltd.
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a sufficient reason to invoke Section 260-A of the Act before this Court.
The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Having heard the learned counsel appearing for the Appellants-Revenue, we are therefore of the opinion that no substantial question of law arises in the present case also. The Appeal filed by the Appellants- Revenue is liable to be dismissed and it is dismissed accordingly. No costs. Copy of this Order be sent to the Respondent- Assessee forthwith.
Sd/- JUDGE
Sd/- JUDGE
PMR