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1/9 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 26TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A.No.159/2018
BETWEEN : 1. THE PR. COMMISSIONER
OF INCOME-TAX
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
THE INCOME-TAX OFFICER
WARD-1[1][2], 2ND FLOOR
BMTC BUILDING, 80 FEET ROAD
KORMANGALA
BENGALURU-560095.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s. ARCTERN CONSULTING [P] LTD., 49/8, II FLOOR, 60 FEET ROAD NEAR JYOTINIVAS COLLEGE KORAMANGALA BENGALURU-560095 PAN: AAECA 9113F.
…RESPONDENT
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 11.08.2017 PASSED IN IT[TP]A No.195/BANG/2015, FOR THE ASSESSMENT YEAR 2010-11 [VIDE ANNEXURE-D],
Date of Judgment 26-07-2018, ITA No.159/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd.,
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PRAYING TO: I]. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE; II]. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT[TP]A No.195/BANG/2015 DATED 11.08.2017 CONFIRMING THE ORDER OF THE DRP AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-1[1][2], BENGALURU [VIDE ANNEXURE-D]; AND III]. TO PASS SUCH OTHER SUITABLE ORDERS AS THIS HON’BLE COURT DEEMS FIT TO GRANT IN THE FACTS AND CIRCUMSTANCES OF THE CASE IN THE INTEREST OF JUSTICE AND EQUITY.
THIS APPEAL COMING ON FOR ORDERS, THIS DAY, S. SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, 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.195/Bang/2015 dated 11.08.2017, relating to the Assessment Year 2010-11.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under:
Date of Judgment 26-07-2018, ITA No.159/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] 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 comparable’s on the basis of functional dissimilarity by following its earlier judgments?
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 the assessing authority by following the judgment of this Hon’ble High Court in the case of CIT v/s. Tata Elxi?”
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 Technologies Ltd. (supra), is quoted below for ready reference:-
Date of Judgment 26-07-2018, ITA No.159/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd.,
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“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
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
Date of Judgment 26-07-2018, ITA No.159/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd.,
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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: Regarding Substantial Question of Law No.1: “46. The revenue is seeking restoration of 3 companies in the set of comparables viz., M/s.
Date of Judgment 26-07-2018, ITA No.159/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd.,
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E-clerx Services Ltd., M/s. Infosys BPO Ltd., & M/s. Icra Online Ltd.
We have heard the learned DR as well as learned AR and considered the relevant material on record. At the outset, we note that the functional comparability of these 3 companies have been examined by the co-ordinate bench of this Tribunal in the case of DCIT Vs. Tesco Hindustan Ltd., 79 Taxmann.com 259 in paras 13 to 15.4 as under:
“xxxxx”
Accordingly, we do not find any error or illegality in the directions of the DRP in directing the TPO/AO to exclude these 3 companies from the set of comparables.”
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
Date of Judgment 26-07-2018, ITA No.159/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd.,
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not maintainable. The relevant portion of the 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 been rightly picked up or not, Filters for arriving at the correct list of comparables have been rightly applied or not,
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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 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
Date of Judgment 26-07-2018, ITA No.159/2018 The Pr. Commissioner of Income-tax & Another Vs. M/s. Arctern Consulting [P] Ltd.,
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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.”
In the circumstances, having heard the learned Counsel appearing for the Appellants-Revenue, 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.
A copy of this Order shall be sent to the Respondent-Assessee.
Sd/- JUDGE
Sd/- JUDGE NC.