Loading judgment…
No AI summary yet for this case.
1/11 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.967/2017
BETWEEN:
PR. COMMISSIONER OF INCOME TAX-7 BMTC COMPLEX, KORAMANGALA, BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-7(1)(1), (EARLIER DCIT, CIRCLE-12 (4), BANGALORE.
...APPELLANTS
(BY SRI.SANMATHI E I, ADV.)
AND:
M/S.TORRY HARRIS BUSINESS SOLUTIONS PVT. LTD. 71, SONA TOWERS, MILLERS TANK ROAD, BANGALORE - 560 052 PAN:AAACT7287M
... RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:13/04/2017 PASSED IN IT(TP)A NO.1495/BANG/2016, FOR THE ASSESSMENT YEAR 2011-2012 VIDE ANNEXURE – A
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
2/11
PRAYING TO: (A) 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. (B)SET ASIDE THE APPELLATE ORDER DATED:13/04/2017 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.IT(TP)A NO. 1495/BANG/2016 FOR ASSESSMENT YEAR 2011-12 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, ‘A’ Bench, Bangalore, in IT [TP] A No.1495/Bang/2016 dated 13.04.2017 relating to the Assessment Year 2011-12.
The substantial question of law framed by the Revenue in the Memorandum of Appeal is as under: “1. Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the lease line charges and other expenses incurred in foreign
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
3/11
currency for delivery of software are to be excluded both from total turnover as well as from export turnover for computation of deduction u/s.10A whereas such exclusion is permitted to arrive at export turnover only as per the definitions given in Sec.10A of the IT Act and total turnover has not been defined in the Section and by following the judgment of this Hon’ble Court in the case of CIT vs. Tata Elxsi Ltd. which has not become final since the same has not been accepted by the Department and SLPs filed by the revenue on this issue are pending before the Hon’ble Supreme Court?
2) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the assessing authority or TPO The Tribunal also gives relief to assessee by directing assessing authority/transfer pricing officer to adopt RPT filter of 15%”
Regarding Substantial Question No.1: 3. The issue is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
4/11
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 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
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
5/11
turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.
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. 20. 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”.
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
6/11
The learned Tribunal, after discussing the rival contentions of both the Appellants and Respondent, has returned the findings as under: Regarding Substantial Question No.2: “16. We have considered the rival submissions. Regarding the TP issue, we feel it proper to restore the matter back to AO/TPO for a fresh decision because correct RPT filter and Turnover filter should be applied and additional comparables brought on record by the assessee should also be considered and examined. Hence, we restore the TP issues to AO/TPO for a fresh decision by applying correct RPT Filter of 15% as being consistently approved by this tribunal and correct turnover filter and the companies having turnover less than 1/10th of the turnover of the assessee company and also the companies having turnover more than 10 times of the turnover of the assessee company should be excluded as being consistently being held by this tribunal. Regarding Ground No.3, we hold that the same is rejected because this is a settled position of law by now that the data of only current year is to be considered. Regarding this objection that the Draft Assessment order passed
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
7/11
by the AO is in fact a final assessment order and therefore bad in law, we find that reliance was placed in this regard on the Judgment of Hon’ble Madras High Court rendered in the case of Vijay television (P) Ltd. vs. DRP as reported in 107 DTR (Mad) 111. In this case, the facts are different. In that case, the AO did not pass draft assessment order at all as noted by Hon’ble Madras High Court. In fact, in that case, a corrigendum was passed by the AO in which it was stated that the order passed earlier as final assessment order has to be read and treated as draft assessment order. In the present case, the draft order is passed by the A.O. but the assessee is trying to treat it as final assessment order by saying that since, the AO has computed tax liability in the said order and initiated penalty proceedings, it is final order and not draft order. We find no merit in this contention because even if the A.O. has worked out the tax, the draft order does not become final order. This is not a case of the assessee that demand notice is issued along with this draft assessment order. Hence, we hold that in our view, it is a draft assessment order and therefore, this judgment of Hon’ble Madras High Court is not applicable. Accordingly, Ground No.6 is rejected.”
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
8/11
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 Treaties (DTAA), interpretation of provisions of the Income Tax Act or Overriding Effect of the
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
9/11
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 filed by the Revenue are
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
10/11
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 appearing for the appellants, we are therefore of the opinion that no
Date of Judgment 21-08-2018, ITA No.967/2017 Pr. Commissioner of Income Tax - 7 & another Vs. M/s.Torry Harris Business Solutions Pvt. Ltd.
11/11
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
ln.