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1/10 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.615/2017
BETWEEN : 1. PR. COMMISSIONER OF INCOME TAX-7 BMTC COMPLEX, KORMANGALA BANGALORE.
DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-12[5] BANGALORE.
...APPELLANTS
(BY SRI SANMATHI.E.I., ADV.)
AND : M/s. VERIFONE INDIA TECHNOLOGY PRIVATE LIMITED A-101, CYBER PARK, PLOT No.76/77/78, DODDATHOGUR VILLAGE BEGUR HOBLI, SOUTH TALUK BENGALURU-560100.
…RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 24.03.2017 PASSED IN IT[TP]A No.1/BANG/2014, FOR THE ASSESSMENT YEAR 2008-2009 VIDE ANNEXURE-A, PRAYING TO: [1] DECIDE THE FOREGOING QUESTION OF LAW
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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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 24.03.2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, ‘A’ BENCH, BANGALORE, AS SOUGHT FOR, IN THE RESPONDENT- ASSESSEE’S CASE, IN APPEAL PROCEEDINGS IN IT[TP]A No.1/BANG/2014 FOR A.Y 2008-2009 VIDE ANNEXURE-A AND GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS APPEAL COMING ON FOR ORDERS, 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.1/Bang/2014 dated 24.03.2017, relating to the Assessment Year 2008-09.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is justified in rejecting companies on functional dissimilar grounds when it satisfies all the qualitative and quantitative filters applied by the TPO by using a narrower functionality filter than TPO, but has not tested other comparables against the narrower functionality filter applied by it?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the computation made under section 10A of the Act by following the judgment of this Hon'ble High Court in the case of CIT V/s. Tata Elxsi even when the said decision has not reached finality?”
Regarding Substantial Question of Law No.2: 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).
The relevant portion of the judgment of the Hon’ble Supreme Court in the case of HCL
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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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.
XXXXXX
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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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 Respondent-Assessee, has returned the findings as under:
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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Regarding Substantial Question of Law No.1: “12. We have considered the rival submissions and perused the material on record. We find that the above comparables had come for consideration before the coordinate bench in the case of Trilogy where the issue whether this company can be compared with that of pure software development companies was considered, and it was held as follows:
“xxxxx”
The learned DR has not brought any evidence on record controverting the findings of the Tribunal in the above case. Hence, we have no option but to follow the orders of the coordinate bench. Accordingly, we uphold the exclusion of these comparables on the ground of functional dissimilarities. Thus the grounds of appeal filed by the revenue are dismissed.”
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.
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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–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 and Profit Shifting (BEPS), Transfer of Shares in Tax Havens (like in the case of Vodafone
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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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.
We make it clear that the same yardsticks and parameters will have to be
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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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- Revenue is liable to be dismissed and it is dismissed accordingly. No costs.
Date of Judgment 21-08-2018, ITA No.615/2017 Pr. Commissioner of Income Tax-7 & Another Vs. M/s. Verifone India Technology Private Limited.
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Copy of this Order be sent to the Respondent- Assessee forthwith.
Sd/- JUDGE
Sd/- JUDGE
NC.