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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 13TH DAY OF AUGUST 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.216/2017
BETWEEN:
THE PR. COMMISSIONER OF INCOME TAX-7 BMTC COMPLEX, KORAMANGALA BANGALORE
THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-12(4) BANGALORE
... APPELLANTS
(BY SRI.SANMATHI E I, ADV.) AND:
TESCO HINDUSTHAN SERVICE CENTRE PVT. LTD. NO.81 & 82, EPIP AREA, WHITEFIELD BANGALORE - 66 PAN:AABCT8915B
... RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:09/12/2016 PASSED IN IT(TP)A NO.1285/BANG/2011, FOR THE ASSESSMENT YEAR 2007-2008 (VIDE ANNEXURE-A). PRAYING TO: (1) 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.(2)
Date of Judgment 13-8-2018, ITA No.216 /2017 The Pr. Commissioner of Income Tax -7 & Another Vs. M/s. Tesco Hindusthan Service Centre Pvt. Ltd.
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SET ASIDE THE APPELLATE ORDER DATED:09/12/2016 PASSED IN IT(TP)A NO.1285/BANG/2011 FOR A.Y. 2007-08, BY THE INCOME TAX APPELLATE TRIBUNAL, 'A' BENCH, BENGALURU (VIDE ANNEXURE-A) AS SOUGHT FOR, IN THE ABOVE CASE.
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 the substantial questions of law arising from the Order of the Income Tax Appellate Tribunal, ‘A’ Bench, in IT [TP]A No.1285/Bang/2011 dated 09.12.2016, relating to the Assessment Year 2007-08.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether, the Tribunal, on the facts and in the circumstances of the case, Tribunal is right in law in rejecting the comparables such as Avani Cimcom Technologies Ltd., Celestial Labs Ltd., E- zest Solutions Ltd., Flextronics Software Systems Ltd., Helios and Matheson Information technology
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Ltd., Infosys Technologies Ltd., Ishir Technologies Ltd., Kals Information Systems Ltd., Lucid Software Ltd., Megasoft Ltd., Persistent Systems Ltd., Tata Elxy Ltd., Thirdware Solutions Ltd and Wipro Ltd., by relying on its earlier orders which has been challenged before this Hon’ble Court and even when the TPO had rightly chosen the said comparison after applying all the required tests in accordance with the provisions of the Act?
Whether, the Tribunal, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that RPT in excess of 15% to be excluded from the list of comparables and in the instant case the RPT is 22.90%, hence, Tribunal directed to exclude the same even when the TPO after making detailed analysis and based on facts and circumstances of the case concluded to apply 25% filter and excess 25% were eliminated since Accounting Standard 18 is applicable to all enterprise which are directly or indirectly controlled by all enterprises?
Whether, the Tribunal, on the facts and in the circumstances of the case, the Tribunal is right in law in excluding M/s. Megasoft Limited as comparable by holding that RPT was not examined by the TPO for this
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company and directed the TPO to reexamine in the light of its order in the case of Meritior LVS India Pvt. Ltd., even though the said decision has not reached finality and without appreciating that Megasoft is proper uncontrolled comparable selected by the TPO on the basis of specific facts brought on record by the TPO?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law giving relief to assessee in respect of computation of deduction under section 10A by relying upon the decision of this Hon’ble Court in case of CIT V/s Tata Elxsi when said judgment has been challenged before Apex Court?”
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: Regarding Substantial Question of law No.4: 6. 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).
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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.
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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”.
Regarding Substantial Question of law No.1:
“14. (1) Avani Cincom Technologies Ltd., (2) Celestial Labs Ltd., (3) E-Zest Solutions Ltd., (4) Flextronics Software Systems Ltd, (5) Helios & Matheson Information Technology Ltd. (6)
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Infosys Technologies Ltd., (7) Ishir Infotech Ltd., (8) KALS Information Systems Ltd., (9 Lucid Software Ltd., (10) Megasoft Ltd., (11) Persistent Systems Ltd., (12) Tata Elxsi Ltd. (13) Thirdware Solutions Ltd., and (14) Wipro Ltd. These companies are functionally different from the assessee company and some of them can also be excluded by applying the turnover filter. These companies were examined by the Tribunal in the case of Meritor LVS India (P) Ltd. (supra) and AOL Online India Pvt. Ltd. (supra) and the Tribunal has concluded that these companies are not good comparables and they were directed to be excluded from the list of comparables. The relevant observations of the Tribunal in the case of Meritor LVS India (P) Ltd. (supra) with respect to these companies are extracted hereunder:- xxxxxxxxxx” Regarding Substantial Question of law No.2: “35. Having carefully examined the order of the lower authorities in the light of the order of the Tribunal, we find that this comparable was examined by the Tribunal in the light of material
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available on record. The Tribunal has restored the matter to the AO/TPO to verify the contention of the assessee that the company is in ITeS and whether segmental data are available or not and decide afresh whether this company needs to be compared with the final list of comparables. Since segmental datas are not available, this company requires to be re-examined by the AO/TPO. We, however, for the sake of reference, extract the observations of the Tribunal with regard to this comparable while adjudicating the issue in the case of Stream International Services (P) Ltd. (supra) :-
xxxxxxxxxxx 36. Since on a similar set of facts, the Tribunal has restored the examination of this comparable to the AO/TPO, we find no justification to deal with the issue and we accordingly restore the matter to the AO/TPO with a direction to re- examine the segmental data of the comparable and decide the issue afresh.” Regarding Substantial Question of law No.3:
”19. Having carefully examined the orders of lower authorities in the light of rival submissions,
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we find that in assessee's own case it was restored to the AO for reconsideration. The issue of RPT was not examined by the TPO. Therefore, we are of the view that in the interest of justice, this comparable be re-examined by the TPO/AO again in the light of the order of the Tribunal in the case of Meritor LVS India (P) Ltd. (supra) and the RPT filter. Accordingly, we direct the AO/TPO to examine the comparability of this company in the terms indicated above.”
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:
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“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 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
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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 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
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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-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 AN/-