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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 16TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.126/2015
BETWEEN :
COMMISSIONER OF INCOME TAX, C R BUILDINGS, QUEENS ROAD, BANGALORE - 560 001.
INCOME TAX OFFICER WARD 12 (2), BANGALORE.
... APPELLANTS
(BY SRI. E.I. SANMATHI, ADV. )
AND:
M/S SOFTTEK INDIA PVT. LTD., (FORMERLY KNOWN AS SYSTECK INTEGRATORS INDIA) PVT. LTD. OZONE MANAY TECH PARK, A BLOCK, HOSUR MAIN ROAD, BANGALORE.
... RESPONDENT
(BY SRI.S.SHARATH, ADV. FOR SRI.CHYTHANYA.K.K, ADV. )
THIS INCOME TAX APPEAL IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED: 31/10/2014 PASSED IN ITA NO.222/BANG/2014, FOR THE ASSESSMENT YEAR:2009-10 ANNEXURE - A PRAYING TO: 1.DECIDE THE FOREGOING QUESTION OF LAW AND/ OR SUCH
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OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY HON'BLE COURT AS DEEMED FIT. 2. SET ASIDE THE APPELLATE ORDER DATED 31/10/2014 PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, 'C' BENCH, BANGALORE, IN APPEAL PROCEEDINGS NO. I.T(TP)A. NO.222/BANG/2014 FOR ASSESSMENT YEAR:2009-10 ANNEXURE - A, AS SOUGHT FOR IN THIS APPEAL 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.S.Sharath, Adv. for Mr.Chythnya.K.K., 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, ‘C’ Bench, Bangalore, in IT [TP] A No.222/Bang/2014 dated 31.10.2014 relating to the Assessment Year 2009-10.
This Appeal has been admitted on 19.2.2016 to consider the following substantial questions of law as framed by the Revenue in the Memorandum of Appeal: “i. Whether on the facts and in the circumstances of the case, the Tribunal is
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right in law in holding that Bodhtree Consulting Ltd., cannot be treated as comparable being functionally different when it satisfies all the qualitative and quantitative filters applied by the TPO”?
ii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in referring the decision of other Tribunal Benches to reject the comparable without appreciating the fact that comparability analysis is case specific and it cannot be transplanted from other cases?
iii) Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the reimbursement of traveling, telecommunication expense and foreign exchange loss are to be excluded both from total turnover as well as from export turnover for computation of deduction under section 10B without appreciating the fact that the statue allows exclusion of such expenditure only from the export turnover by way of specific definition of export turnover as
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envisaged in the Act and the case relied upon by the Tribunal in the case of cIT V/s. TATA Elsxi Ltd has not reached finality?”
Regarding Substantial Question No.3: 3. The controversy is no longer res integra and 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
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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 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. 20. Even in common parlance, when the object of the formula is to arrive at the profit from
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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 Appellant-Revenue and Respondent-Assessee, has returned a finding as under: Regarding Substantial Question of Law Nos.1&2: “ 4.2 One of the companies, which has been taken as a comparable by the TPO, is M/s. Bodhtree Consulting Ltd, the net margin of which is 62.23%. The learned counsel for the assessee submitted that this company is functionally different as the assessee was only into software development whereas M/s.Bodhtree Consulting Ltd., was also into software product development. He submitted that this issue had been considered by various benches of this Tribunal such as ‘A’
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bench of the Tribunal in IT(TP) No.271/Bang/2014 dated 14.08.2014 in the case of M/s Cisco Systems (India) Pvt. Ltd., vs. DCIT for the very same assessment year i.e. 2009-10 and it was held that M/s.Bodhtree Consulting Ltd is in the business of software products and also was engaged in providing open and end to end web solutions software consultancy and design & development of software using latest technology. Thus the Tribunal has held that M/s Bodhtree Consulting Ltd, cannot be regarded as the comparable since the assessee therein was only a software development services company. The learned counsel for the assessee has also placed reliance upon the decision of the ‘B’ of the Tribunal in IT(TP)A No.70/Bang/2014 dated 21.8.2014 in the case of Mindteck (India) Ltd. Vs. DCIT wherein for the very same assessment year 2009-10, the tribunal has considered the fact that the profit margin of the said company was fluctuating abnormally between financial years 2003-04 and 2009- 10 because of the revenue recognition model
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followed by it and that it would be safe to exclude M/s Bodhtree Consulting Ltd, from the final list of comparables chosen by the assessee. Thus, according to the learned counsel for the assessee, the facts of the case before us being similar, M/s Bodhtree Consulting Ltd., has to be excluded from the list of comparables in the assessee’s case also.
The learned Departmental Representative, however, supported the orders of the authorities below.
4.3 Having regard to the contentions of the rival parties and also the material on record, we find that the assessee is only a software services company whereas M/s Bodhtree Consulting Ltd., is also into the business of software product development and segmented data is not available in the public development and segmented data is not available in the public domain. Therefore, we are satisfied that it is functionally different and cannot be considered as a comparable to the assessee- company. As regards revenue
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recognition model of the assessee and M/s Bodhtree Consulting Ltd., are concerned, since the relevant material to determine the revenue model of the assessee herein is not available on record, we are not inclined to give any finding on this issue. Therefore, we direct the AO to exclude M/s.Bodhtree Consulting Ltd., from the list of comparable as it is functionally different.”
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- 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:
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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 opinion, give rise to any substantial question of law.
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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.
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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 Appellant-Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
ln.