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1/13 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 18TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.531/2015
BETWEEN :
Pr. COMMISSIONER OF INCOME TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE-560 001
ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -12 (1), BANGALORE
...APPELLANTS
(BY SRI E.I.SANMATHI, ADV.)
AND :
M/s MULTITECH SOFTWARE SYSTEMS INDIA PVT. LTD., NO.170, 8TH CROSS, 10TH MAIN, INDIRANAGARA 2ND STAGE, BANGALORE-560038, PAN: AAACM9615Q
…RESPONDENT
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 30/04/2015 PASSED IN IT(TP)A NO.73/BANG/2012, FOR THE ASSESSMENT YEAR 2005-06 ANNEXURE-A. PRAYING TO 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 AND SET ASIDE THE
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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APPELLATE ORDER DATED: 30/04/2015 PASSED BY THE ITAT, 'A' BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO. I.T(TP)A NO.73/BANG/2012 FOR ASSESSMENT YEAR 2005-06 ANNEXURE-A, AS SOUGHT FOR IN THIS APPEAL.
THIS APPEAL COMING ON FOR ORDERS, 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, Bangalore Bench ‘A’, Bangalore in IT[TP]A No.73/Bang/2012 dated 30.04.2015, relating to the Assessment Year 2005-06.
This Appeal has been admitted on 29.02.2016 to consider the substantial questions of law Nos.1 and 2 as framed by the Revenue in the Memorandum of Appeal.
“1. Whether, on the facts and in the circumstances of the case, the Tribunal erred in ordering for exclusion of M/s Foursoft Ltd., which has RPT or control transactions in excess of 15%
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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of total revenue by relying on its own decision which has not reached finality in the case of 24/7 Customer Care Pvt. Ltd. in ITA No.227/Bang/2010 and even when the TPO had computed in accordance with law?
Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting holding that the companies having exceeding Rs.200 Crore should be excluded from list of comparables by relying upon its earlier decision which has not reached finality and same is not permitted?
However, learned Counsel for the Appellants-Revenue submits that substantial question No.3 may also be considered which is quoted below for ready reference.
Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting computation of deduction done by assessing authority under section 10A by excluding the expenses incurred in foreign currency from export turnover (telecommunication expenses and expenses incurred in foreign currency) while computing deduction under Section 10A even when same was in accordance parameters of section 10A and when the decision
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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relied up by Tribunal in the case of TATA Elxsi has not reached finality?”
Regarding Substantial Question No.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:- “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
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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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 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.
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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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 No.1: 5. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned findings as under: “13.2.1 We have heard the rival contentions of both the learned Departmental Representative for revenue and the learned Authorised Representative of the assessee on this issue and perused and carefully considered the material on record. The learned Authorised Representative of the assessee has referred to the decision of the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. in ITA
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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No.227/Bang/2010 while making submissions on the RPT filter in the case of Four Soft Ltd.. We find that the co-ordinate bench of this Tribunal, in the aforesaid case, has directed that companies with RPT in excess of 15% of total revenues are to be excluded from the set of comparables. The operative paragraph 13, thereof is extracted hereunder :- xxxx xxxx xxxx 13.2.2 In the light of the above decision of the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (supra), we find that the decision of the learned CIT (Appeals) in excluding those companies with any RPT is not in keeping with the above decision of the co-ordinate bench of this Tribunal. Respectfully following the above decision, we hold that the learned CIT (Appeals) was not correct in holding that companies with any RPT have to be excluded from the set of comparable companies, and direct the TPO / A.O. to apply the RPT filter at 15% of total revenues for including / excluding the comparable companies,
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excluded by the learned CIT (Appeals), in the final set of comparables. Consequently Ground No.3 raised by revenue is partly allowed.
13.2.3 In view of the decision of the co- ordinate bench of this Tribunal in 24/7 Customer.Com Pvt. Ltd. (supra), out of the 6 companies excluded by the learned CIT (Appeals), five companies, namely (1) Sasken Network Systems Ltd. (2) R.S. Software India Ltd. (3) Geometric Software Solutions Ltd. (4) Tata Elxsi Ltd. and (5) Sasken Communications Technology Ltd. are restored to the list of comparable companies as they have RTP of less than 15%. Only one company, namely, similarly, Four Soft Ltd. at S.No.6 of the TPO’s list of comparables is to be excluded as a comparable company, on the ground that it has RPT in excess of 15%. In the T.P. Order, the percentage of RPT over sales for this company has been mentioned as 19.89%. Therefore, following the decision of the co-ordinate bench of this Tribunal in the case of 24/7 Customer.Com Pvt. Ltd. (supra),
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we hold and direct that the company Four Soft Ltd. shall be excluded from the set of comparable companies chosen by the TPO.”
Regarding Substantial Question No.2: “14.3 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial decisions cited and placed reliance upon. We find that a co-ordinate bench of this Tribunal in the case of Genisys Integrating Systems (India) Pvt. Ltd. (supra) has held that turnover is an important filter of comparability which has to be adopted for determination of ALP and has determined the upper limit of the turnover filter to be applied at Rs.200 Crores in cases where the turnover of the assessee is less than Rs.200 Crores. In the case on hand, the turnover of the assessee being approx. Rs.7.97 Crores only, falls within the range of Rs.1 Crore to Rs.200 Crores. Therefore, following the decision of the co-ordinate bench of this Tribunal in the case of Genisys Integrating Systems (India) Pvt. Ltd. (supra), we hold and direct that only
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those companies having a turnover of Rs.1 Crore to Rs.200 Crores be taken as comparable companies and consequently uphold the decision of the learned CIT (Appeals) in excluding the above mentioned five companies, listed at para 14.1 of this order from the TPO’s list of comparables. Consequently, Ground No.4 of Revenue’s appeal is dismissed.“
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: “Conclusion: 55. A substantial quantum of international trade and transactions depends upon the fair
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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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 opinion, give rise to any substantial question of law.
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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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 to invoke Section 260-A of the Act before this Court.
Date of Judgment 18-07-2018, ITA No.531/2015 Pr. Commissioner of Income Tax & another Vs. M/s Multitech Software Systems India Pvt. Ltd.
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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.
Copy of this order be sent to the Respondent- Assessee, forthwith.
Sd/- JUDGE
Sd/- JUDGE
AN/-