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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 20TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.932/2017
BETWEEN : 1. THE PR. COMMISSIONER
OF INCOME-TAX
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
THE DEPUTY COMMISSIONER
OF INCOME-TAX, CIRCLE-11[2]
PRESENT ADDRESS CIRCLE-1[1][2]
2ND FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
...APPELLANTS
(BY SRI ARAVIND.K.V., ADV.)
AND : M/s. BUSINESS PROCESS OUTSOURCING [INDIA] PVT. LTD., TOWER 2D, VRINDAVAN TECH VILLAGE DEVERABESANHALLI BENGALURU-560037 PAN: AABCB 5293N.
…RESPONDENT
(BY SRI ANKUR PAI, ADV. FOR SRI K.R.VASUDEVAN, ADV.)
Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] 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 09.06.2017 PASSED IN IT[TP]A No.229/BANG/2014, FOR THE ASSESSMENT YEAR 2009-2010, 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.229/BANG/2014 DATED 09.06.2017, VIDE ANNEXURE-D, CONFIRMING THE ORDER OF THE DRP AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1[1][2], BENGALURU.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. Aravind.K.V., Adv. for Appellants – Revenue. Mr. Ankur Pai, Adv. for Mr. K.R.Vasudevan, Adv. for Respondent – Assessee.
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 ‘B’, Bangalore, in IT[TP]A No.229/Bang/2014 dated 09.06.2017, relating to the Assessment Year 2009-10.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables on the basis of functional dissimilarity by following its earlier judgment in the case of M/s. E4E Business Solutions Pvt. Ltd., which has not reached finality and even when the Transfer Pricing Officer has considered the comparables on the basis of qualitative and quantitative filters?
Whether on the facts and in the circumstances of the case, Tribunal is right in law in setting aside the recomputation of 10A deduction made by assessing authority by following the judgment of this Hon’ble High Court in the case of CIT v/s. Tata Elxi even though the said decision has not reached finality and the assessing authority recomputed the 10A deduction as per the provisions of the Act?”
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).
Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] 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 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] 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 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd.,
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Regarding Substantial Question of Law No.1: “5. We have heard the learned Authorised Representative as well as learned Departmental Representative and considered the relevant material on record. The assessee is disputing the functional comparability of these four companies on various grounds and facts which have been considered by the co-ordinate bench of this Tribunal in the case of E4E Business Solutions India Pvt. Ltd., Vs. DCIT vide order dated 10.11.2015, 67 taxmann.com 68 in paras 11.1 to 11.4 as under:
“xxxxx”
We find that the facts recorded by the Tribunal in the above said decision has not been disputed and therefore the finding of the Tribunal for the same assessment year based on the facts and merits is binding. Accordingly, by following the earlier order of this Tribunal, we direct the TPO/A.O to exclude these four companies from the set of comparables.
As regards the inclusion of Lee & Nee Software [Exports] Limited, the learned Authorised Representative of the assessee has submitted that the DRP has confirmed the
Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd.,
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exclusion of Lee & Nee Software [Exports] Limited on the ground that this company has earned the revenue from software development exports and therefore the activity of this company is software development and not in ITES. He pointed out that as per the profit and loss account of the said company, this company has classified its income from the segment of ITES. Therefore the DRP has simply taken into consideration the Annual Report of this company without giving a finding of fact based on any query. Thus he has submitted that this company has shown only segment under ITES and therefore this company is functionally comparable.”
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.
Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd.,
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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 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
Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd.,
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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 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
Date of Judgment 20-08-2018, ITA No.932/2017 The Pr. Commissioner of Income-tax & Another Vs. M/s. Business Process Outsourcing [India] Pvt. Ltd.,
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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 counsels appearing for the parties, 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.
Sd/- JUDGE
Sd/- JUDGE
NC.