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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 21st DAY OF AUGUST 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.425/2017 BETWEEN:
PR. COMMISSIONER OF INCOME TAX-7 C.R. BUILDINGS, QUEENS ROAD BANGALORE-560 001.
ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-12(4), BANGALORE.
…APPELLANTS (By Mr. E.I. SANMATHI, ADV.)
AND:
M/S. THOMSON REUTERS INC SERVICES PVT. LTD “PINNACLE”, No.15, BAHAL’S BHAVAN ROAD BANGALORE-560025.
…RESPONDENT
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 FORMULATED BY THE HON’BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED: 09-12-2016 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘B’ BENCH, BANGALORE, IN APPEAL PROCEEDINGS No.IT(TP)A No.1097/BANG/2011 FOR ASSESSMENT YEAR 2005-06, VIDE ANNEXURE-A, AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
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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
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, Bangalore Bench ‘B’, Bangalore, dated 09.12.2016 passed in IT(TP)A No.1097/Bang/2011 (M/s.Thomson Reuters India Services Pvt. Ltd., vs. Asst. Commissioner of Income-tax) for A.Y.2005-06.
The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:- “1. Whether on the facts and in the circumstances of the case, that the Tribunal is right in law in including the expenditure incurred in foreign currency by relying upon the decision of
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this Hon’ble High Court in the case of CIT v/s. Tata Elaxy even when the said decision has not reached finality and no such way of re- computation as directed by the Tribunal is provided under the provisions of IT Act and when the Revenue has preferred appeal before this Hon’ble Court against its original order?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that M/s. Sankhya Infotech Ltd, Visual Soft Technologies Ltd, Melster Information Technologies Ltd, Exensys Software Solutions Ltd, Thirdware Solutions Ltd, Wipro BPO Solutions Ltd, Tata Elxsi Ltd, Flextroncis Software Systems Ltd, Satyam Computer Services Ltd and Infosys Technologies Ltd, cannot be taken as comparables on the basis of facts of a different case for different assessee without making any specific FAR analysis vis-à-vis he assessee – company in contrast to the fact that these comparable’s satisfy all the qualitative and quantitative filters applied by the TPO?
Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to apply RPT filter of 15% by superimposing the decisions of Tribunal in
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other cases without going into specific facts of the taxpayer and without adducing the basis for arriving at the 15% cut off for RPT filter?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting few companies chosen by Transfer Pricing Officer as comparables on the basis of functional dissimilarity by following its earlier order which has not reached finality even when the same satisfied qualitative and quantitative tests in the case of the assessee?”.
Learned counsel for the Appellants-Revenue Mr.E.I.Sanmathi submits that in so far as the first substantial question of law is concerned, the same is covered by the decision of the Hon’ble Apex Court in the case of Commissioner of Income-tax, Central – III vs. HCL Technologies Ltd., [2018] 93 Taxmann.com 33(SC). The relevant portion of the judgment of the Hon’ble Supreme Court in the case of HCL
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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.
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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 the Respondent-Assessee, has given the following findings:- Regarding substantial question of law Nos. 2 and 4:-
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“6. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. The learned Authorised Representative of the assessee has submitted that the functional comparability of this company has been examined by the co-ordinate bench of this Tribunal in the case of ITO vs. Net Devices India Pvt. Ltd., in IT (TP) A No.1099/Bang/2011 & C.O. No.19/Bang/2011 vide order dt.25.5.2016. We find that the co-ordinate bench of this Tribunal in the case of ITO vs. Net Devices India Pvt. Ltd., (supra) has examined the functional comparability of this company in paras 18.1.1 to 18.1.3 as under:
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Following the decision of this Tribunal, we direct the A.O./T.P.O to exclude this company from the list of comparables.
7.3. We have considered the rival submissions as well as the relevant material on record. At the outset, we note that the functional comparability of this company has been examined by the co-ordinate bench of this Tribunal in the case of TE Connectivity India Pvt. Ltd., vs. CIT (supra) in para 33 as under:
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Following the earlier order of this Tribunal, we direct the A.O./T.P.O to exclude this company from the list of comparable companies”.
The assessee is also seeking inclusion of one company namely Melstar Information Technologies Ltd. Similarly, the learned Tribunal has considered the other comparables and excluded the same.
Regarding substantial question of law No.3:- “15. Since the CIT (Appeals) has rejected the comparable companies by applying 0% RPT filter as well as other criteria which are not acceptable to the revenue as this Tribunal in a series of decisions have held that the tolerance range of RPT in normal circumstances is 15% and in extreme circumstances it can be relaxed up to 25%. Since in the case of the assessee there is nothing to suggest that sufficient comparable companies are not available, therefore, we are of the view that the tolerance range of RPT at 15% is considered to be proper and reasonable as held by the co-ordinate bench of this Tribunal vide order dt.25.5.2016 in the case of ITO vs. Net Devices India Pvt. Ltd., in IT (TP) A No.1099/Bang/2011 in para 7.3 as under:
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Accordingly, we modify the impugned order of the CIT (Appeals) on the issue of applying the Related Party filter at 15% instead of 25% applied by the TPO and 0% offered by CIT (Appeals)”.
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 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
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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. 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
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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.”
Having heard the learned counsel 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
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liable to be dismissed and it is dismissed accordingly. No costs.
Copy of this order be sent to the Respondent- Assessee forthwith.
Sd/- JUDGE
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JUDGE
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