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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 19TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.533/2015
BETWEEN:
COMMISSIONER OF INCOME TAX-III C.R. BUILDING, QUEENS ROAD, BANGALORE.
INCOME TAX OFFICER, WARD – 12 (3), BANGALORE.
... APPELLANTS
(BY SRI.E I SANMATHI, ADV. )
AND:
M/S. SYMBOL TECHNOLOGIES INDIA PVT. LTD., RMZ-ECOSPACE, 4TH FLOOR, BLOCK 3B, SARJAPUR OUTER RING ROAD, DEVARABEESANAHALLI, VARTHUR HOBLI, BANGALORE - 560 037.
... RESPONDENT
(BY SRI.SANDEEP HUILGOL , ADV. FOR SRI.T SURYANARAYANA, ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:27/03/2015 PASSED IN IT(TP)A NO.391/BANG/2012, FOR THE ASSESSMENT
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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YEAR 2005-06 ANNEXURE -A. 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 ORDERS DATED: 27/03/2015 THE ITAT, 'B' BENCH, BENGALURU IN IT(TP)A NO. 391/BANG/2012 FOR ASSESSMENT YEAR 2005-06 ANNEXURE -A AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. E.I. Sanmathi, Adv. for Appellants – Revenue. Mr. Sandeep Huilgol, Adv., for Mr. T. Suryanarayana, 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, ‘B’ Bench, Bangalore in IT[TP]A No.391/Bang/2012 dated 27.03.2015, relating to the Assessment Year 2005-06.
This Appeal has been admitted on 14.06.2016 to consider the substantial question of law No.1 as framed by the Revenue in the Memorandum of Appeal.
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies 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 Infosys Technologies Ltd Tata Elxsi Ltd., by placing reliance on its earlier order without appreciating the functional similarity of the assessee company with the above comparables without going into merits of each of the case?
However, learned Counsel for the Appellants-Revenue submits that substantial question Nos.2 and 3 as also additional substantial question of law Nos.4 and 5 now raised may also be considered which is quoted below for ready reference. 2) Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the expenses/charges incurred in foreign currency, and foreign exchange loss from total turnover incurred in foreign currency, and foreign exchange loss 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
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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definitions given in Sec.10A of the IT Act and total turnover has not been defined in the Section?
3) Whether the Tribunal is correct in law in holding that the deduction u/s.10A should be computed in the above manner following the judgment of jurisdictional High 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?
4) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparable’s on the ground of RPT being more than 15%?
5) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding Foursoft Ltd and Thirdware Software Solutions Ltd on the ground of functional dissimilarity?”
Regarding Substantial Question Nos.2 & 3:
The issue is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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.
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 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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Regarding Substantial Question No.1: 5. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: “25. We have considered his submission and find that the ITAT Hyderabad Bench on identical facts, held on comparability of TATA Elxsi Ltd. as follows:- xxxxxxxxx
Though the issue has been set aside to the AO in the aforesaid decision, the ITAT Hyderabad in the case of NTT Data India Enterprise Application Services Pvt. Ltd., ITA No.1612/HYd/2010 order dated 23.10.2013 and in a subsequent ruling in the case of Invensys Development Centre (Pvt. Ltd., ITA No.1256/Hyd/2010 order dated 28.02.2014, held that TATA Elxsi is not functionally comparable with that of a software development service provider such as the Assessee.
In view of the aforesaid decision rendered on identical facts and circumstances, we are of
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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the view that TATA Elxsi Ltd., should be excluded from the list of comparable companies.”
Regarding Additional Substantial Questions of law now raised:
“13. We have heard the rival submissions. As far as the grounds of appeal of the Revenue are concerned, the ground with regard to improper application of the Related Party Transaction (RPT) filter by the CIT (A), it is not in dispute before us that this Tribunal, in the cases of 24/7 Customer Pvt. Ltd. (ITA No.227/Bang/2010), and Sony India Private Ltd. reported in (2009) 315 ITR (8150 (Del.) and various other cases has taken a view that comparables having RPT of upto 15% of total revenues can be considered. In view thereof, the Revenue’s grievance on this issue as projected in the relevant ground has to be allowed. It is held that the CIT(A) ought to have adopted a threshold limit of 15% of the total revenue attributable to related party transaction as ground for rejecting comparable companies. Consequently it is held that comparable companies having RPT upto 15% of the total revenues alone can be included.” xxx xxx xxx
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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“22. We have considered his submission and find that the ITAT Hyderabad Bench on identical facts, held that the aforesaid two companies viz., Four Soft Ltd., and Thirdware Solutions Ltd., are not comparable companies in Software Development Services Companies. The following were:- xxxxxxxxxx 23. In view of the aforesaid decision rendered on identical facts and circumstances, we are of the view that Foursoft Ltd., and Thirdware Solutions Ltd., should be excluded from the list of comparable companies”
The controversy involved herein is no more res integra in view of the decision of this Court in I.T.A. Nos.536/2015 c/w 537/2015 dated 25.06.2018 [Prl. Commissioner of Income Tax & Anr. V/s. M/s.Softbrands India Pvt. Ltd.,] wherein it has been observed that unless the finding of the Tribunal is found ex facie perverse, the Appeal u/s. 260-A of the Act, is not maintainable. The relevant portion of the Judgment is quoted below for ready reference:
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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 considered
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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
Date of Judgment 19-07-2018, ITA No.533/2015 Commissioner of Income Tax-III & another Vs. M/s.Symbol Technologies India Pvt. Ltd.
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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.”
In the circumstances, having heard the learned Counsel appearing for both the sides, We are of the considered opinion that no substantial question of law arises for consideration in the present case.
Hence, the Appeal filed by the Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
AN/-