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1/12 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.490/2017
BETWEEN : 1. THE PR.COMMISSIONER OF INCOME-TAX, 5TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-560 095.
THE INCOME-TAX OFFICER WARD -11(1), PRESENT ADDRESS ACIT, CIRCLE-2(1)(1) 2ND FLOOR, BMTC BUILDING 80 FEET ROAD, KORMANGALA BENGALURU-506 095.
...APPELLANTS
(BY SRI K.V.ARAVIND, AND SRI DILIP, ADVS.)
AND : M/s. CERNER HEALTHCARE SOLUTIONS PVT. LTD., GROUND FLOOR, WING B, BLOCK H2, MOUNTAIN ASH, MANYATA EMBASSY BUSINESS PARK, OUT RING ROAD, NAGAWARA BENGALURU-560 045. PAN: AACCC 3795R.
…RESPONDENT
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 16/01/2017, PASSED IN IT[TP]A NO.69/BANG/2015, FOR THE ASSESSMENT YEAR 2010-2011 VIDE ANNEXURE-D, PRAYING TO: 1. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A NO.69/BANG/2015 DATED:16/01/2017 VIDE ANNEXURE-D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE ASST. 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 & 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 ‘A’, Bangalore, in IT[TP]A No.69/Bang/2015 dated 16.01.2017, relating to the Assessment Year 2010-11.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that the assign authority is not right in including expenditure incurred in foreign currency from export turnover and from total turnover by relying upon the decision of this Hon’ble Court in case of CIT V/s. Tata Elsxi even when the assessing authority has rightly included the according to parameters set out in section 10A and the decision relied upon by the Tribunal has not reached finality?
Whether on the facts and in the circumstances of the case, the Tribunal erred in directing the TPO to exclude certain comparable by relying on its earlier decisions which has not reached finality and even when the TPO has rightly chosen the said comparable considering the functions and as the said comparable satisfies all the required tests?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority to allow actual adjustment towards the differences in the working capital position between assessee and companies selected as comparable by relying on its earlier decision in case of Moong Controls
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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India Pvt. Ltd., in ITA No.551/Bang/2015 dated 27.11.2015 even when the assessee had not produced any material with regard to demonstrate such claim and without appreciating that actual working capital employed by the comparable during the year is not provided by assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority to accept the TPO to consider Foreign Exchange Fluctuation as operating in nature by relying on its earlier decision in the case of Electronics for Imaging India Pvt. Ltd., even when the Transfer Pricing Officer has rightly treated foreign exchange fluctuations as non-operating in nature?”
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.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions 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.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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XXXXXX
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 Respondent-Assessee, has returned the findings as under:
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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Regarding Substantial Question of Law Nos.2 & 3: “11. We have considered the rival submissions and gone through relevant materials. The relevant portion of the order from the case of Electronics for India Imaging India P Ltd ay 2010- 11in IT (TP)A no. 212/Bang/2015 & CO No 94/Bang/2015 dt 24.02.2016 is extracted as under :
“xxxxx”
We find that the CIT (A) accepted the assessee’s plea by following the decisions of this Tribunal in Genisys Integrating System v DCIT 15 ITR Trib 475, Kodiak Networks v ACIT 15 ITR Trib 610, Trilogy e-Business Software India v DCIT 23 ITR Trib 464 and held that those companies which are within the turnover range of Rs one crore to Rs two hundred crore only should be taken into consideration for the TP study and hence directed the TPO to exclude Infosys Ltd, Larsen & Toubro Infotech Ltd, Mindtree Ltd (seg) , Persistent System Ltd, Sasken communication Technologies and Tata Elxsi Ltd(seg) against which the Revenue filed appeals. However, from the decisions extracted, supra , the assessee has made out a case for the exclusion of ICRA Techno
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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Analytics Ltd. (seg), Infosys Technologies Ltd., KALS Information Systems Ltd, Persistent Systems Ltd, Sasken Communication Technologies Ltd, Tata Elxsi Ltd and L&T Infotech Ltd. Following them, we direct the TPO to exclude them from the list of comparables. To that extent, the assessee’s appeal grounds are allowed and the Revenue’s appeal grounds are dismissed. With regard to the comparable Mindtree Ltd (seg), since the assessee has not opposed the Revenue’s appeal, the Revenue’s appeal on that comparable is treated as allowed.”
Regarding Substantial Question of Law No.4: “14. The next issue that the AR submitted that the TPO has considered foreign exchange fluctuations as non-operating in nature. Its foreign exchange gain should be considered as operating in nature. The CIT (A) has, inter alia, directed the TPO to accept the assessee’s claim, on which, the Revenue is on appeal. We have considered the rival contentions. This issue is remitted back to the TPO to examine whether the foreign exchange loss / gain is out of current years’s transactions or not. If that gain/ loss arises out of current year’s transactions, then, it should be treated as
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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operating in nature. To that extent Revenue’s claim is allowed.”
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: “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
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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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.
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
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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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.
The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Date of Judgment 28-08-2018, ITA No.490/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Cerner Healthcare Solutions Pvt. Ltd.,
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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
NC.