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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 29TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.204/2018
BETWEEN : 1. PR. COMMISSIONER OF INCOME TAX-4,
BMTC COMPLEX,
KORAMANGALA, BANGALORE
THE DY. COMMISSIONER OF INCOME TAX
CIRCLE-12(1), BANGALORE
...APPELLANTS
(BY SRI.E.I.SANMATHI, ADV.)
AND :
M/S.MISYS SOFTWARE SOLUTIONS INDIA (P) LTD., EAGLE RIDGE, EMBASSY GOLF LINKS BUSINESS PARK, OFF INTERMEDIATE RING ROAD, DOMLUR, BANGALORE – 560 071
…RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED: 27/09/2017 PASSED IN IT(TP)A NO.1071/BANG/2013, FOR THE ASSESSMENT YEAR:2008-09 VIDE ANNEXURE - A, PRAYING TO: (1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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APPELLATE ORDER DATED:27/09/2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.IT(TP)A NO.1071/BANG/2013 FOR ASSESSMENT YEAR 2008-09 VIDE ANNEXURE - A.
THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. E.I.Sanmathi , Adv. 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 ‘A’, Bangalore, in IT[TP]A No.1071/Bang/2013 dated 27.09.2017, (Deputy Commissioner of Income Tax Vs. M/s Misys Software Solutions (India) Pvt. Ltd.)relating to the Assessment Year 2008-09.
The substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:
“1. Whether the Tribunal, Bangalore, erred in directing the A.O. to exclude of comparable
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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companies having RPT transactions more than 15% ignoring the TPO’s observation that the basis for determining the threshold limit for eliminating companies having RPT transactions more than 25% was through the determination of Indian companies with foreign shareholding greater than 26% and therefore had its basis in the provisions of the IT Act, 1961 and the accounting standards AS-18?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in excluding certain comparable’s on the ground of functional dissimilarity in the field of software segment and ITES segment even when the TPO has rightly chosen the same as the functions of the said companies are similar to that of the assessee?
Whether on the facts and circumstances of the case, the Tribunal is right in giving relief to assessee in respect of computation of section 10A deduction by relying upon the decision of this Hon’ble Court in case of CIT V/s. Tata Elxsi when the said ruling has not reached finality? ”
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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The learned counsel appearing for the Appellants – Revenue, Mr. E.I. Sanmathi submitted that he does not press the third Substantial Question of Law raised by him in the present appeal. The same is placed on record. 4.. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-Assessee, has given the following findings:-
Regarding substantial questions of law Nos.1 & 2: 12. We have considered the rival submissions as well as the relevant material on record. At the outset, we find that in the case of Telelogic India (Pvt) Ltd. Vs. DCIT (supra) the TPO selected an identical set of 20 companies for determining the ALP of the said assessee in software development services segment transactions. Thus when the TPO itself taken the identical set of 20 companies as functionally comparable to the said company namely Telelogic India (Pvt) Ltd. Vs. DCIT (supra) then the functional profile of the said company and the assessee before us are treated as identical by the TPO. The Tribunal while considering the functional comparability of all these 13 companies has held in para 10 as under: xxxxxxxxxxxx
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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In view of the findings and decision of the co- ordinate Bench of this Tribunal on the functional comparability of these companies, we direct the TPO/A.O. to exclude 12 companies from the set of comparables. As regards the functional comparability of Bodhtree Consulting Ltd., it is clear from the order of the Tribunal in the case of Telelogic India (Pvt) Ltd. Vs. DCIT (supra), the Tribunal has considered the objections of he assessee only on account of fluctuating profit margin of the said company and therefore no other functional aspect was examined by the Tribunal in the said case. Whereas in the case of Autodesk India Pvt. Ltd. Vs. DCIT (surpa) an identical issue of functional comparability was considered by the Tribunal in paras 5.1 to 5.3 as under : xxxxxxxxxxxxxx Thus it is clear that in the said order the Tribunal has examined the functional profile of the said company and various segments from which this company is generating revenue and finally come to the conclusion that this company is not functionally comparable with pure software development services provider like assessee. Accordingly following the said decision of the co-
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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ordinate Bench of this Tribunal and by taking note of the fact that there is no difference in the functional profile of the company as we note from the segment-wise and product-wise performance of the said company was given at page No.12 of the Annual Report for the year under consideration. Accordingly, this company is directed to be excluded from the set of comparables. Hence we direct the TPO/A.O. to exclude all these 13 companies from the set of comparables as under : (i) Avanicin Cincom Technologies Ltd. (ii) Bodhtree Consutling Limited (iii) Celestial Bio-labs Limited (iv) e-Zest Solutions Limited (v) Infosys Limited (vi) Kals Information Systems Limited (Seg.) (vii) Persistent Systems Limited (viii) Quintegra Solution Limited (ix) Tata Elxsi Limited (Seg.) (x) Thirdware Solution Limited (xi) Wipro Limited (Seg.) (xii) Softsol India Limited (xiii) Lucid Software Limited.”
However, this Court in a recent judgment in I.T.A. Nos.536/2015 c/w 537/2015 delivered on
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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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: “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
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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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.
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.
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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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.
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-
Date of Judgment 29-08-2018, ITA No.204./2018 Pr. Commissioner of Income Tax-4 & Another Vs. M/s Misys Software Solutions India (P) Ltd.,
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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 Psg*.