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1/13 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 17TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.445/2015
BETWEEN:
THE COMMISSIONER OF INCOME-TAX, C.R.BUILDING, QUEENS ROAD, BANGALORE.
THE INCOME-TAX OFFICER, CIRCLE -11(1), RASHTROTHANA BHAVAN, NRUPATHUNGA ROAD, BANGALORE-560001.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/s. APTEAN SOFTWARE INDIA PVT. LTD., (Formerly Known as CDS Software India Pvt. Ltd.,) LEVEL-5 (8TH FLOOR), “GOLDEN HEIGHTS” NO.1/2, 59TH C CROSS ROAD, 4TH M BLOCK, RAJAJINAGAR, BANGALORE-560 010. PAN:AACCP 7154M.
…RESPONDENT
Date of Judgment 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software India Pvt. Ltd.,
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THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE IN ITA No.1677/Bang/2012 DATED 08/05/2015 ANNEXURE- D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-11(1), BANGALORE.
THIS I.T.A. COMING ON FOR ORDERS, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants-Revenue
The appellants-Revenue have filed this appeal u/s. 260A of the Income Tax Act, 1961 (for short ‘Act’) raising purportedly certain substantial questions of law arising from the order of the Income Tax Appellate Tribunal, ‘A’ Bench, Bangalore (for short ‘Tribunal’) dated 08.05.2015 passed in I.T(TP)A No.1677/Bang/2012 for the A.Y.2008-2009.
Date of Judgment 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software India Pvt. Ltd.,
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This appeal has been ADMITTED on 22.03.2016 to consider the following substantial questions of law framed by the learned counsel for the Appellants-Revenue. “1. Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding Lucid software Ltd., Celestial Biolabs Ltd., KALS Information Systems Ltd., Avani Cincom Technology Ltd., Thirdware solutions Ltd., E-Zest Solutions Ltd and Softsel India Ltd., from the list of comparables holding that they are functionally different without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO and that selection of comparables in a case depends on assessee specific FAR analysis?
Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding Softsel India Ltd from the list of comparables holding that this comparable is functionally different and by fixing the RPT filter at 15% of total revenue by superimposing the decisions of Tribunal in other cases without going into specific facts in the case of the taxpayer and without adducing the basis for arriving at the 15% cut off
Date of Judgment 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software India Pvt. Ltd.,
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for RPT filter, in the case of the taxpayer and without adducing the basis for arriving at the 15% cut off for RPT filter, in the case of the taxpayer?
Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding Lucid Software Ltd., Celestial Biolabs Ltd., KALS Information Systems Ltd., Avani Cincom Technology Ltd., Thirdware Solutions Ltd., E-Zest Solutions Ltd and Softsel India Ltd., by relying on its own decision in the case of M/s. Trilogy E- Business Software India Pvt Ltd and M/s.3DPLM Software Solutions Ltd and not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO?
The substantial question of law No.4 suggested by the appellants-Revenue is as under:
Whether, the Tribunal was justified, on the facts and in the circumstances of the case, in allowing relief to the assessee relying on the decision of this Hon’ble Court, which has not reached its finality and a SLP has been filed against such order on this issue in the case of Tata Elxsi Ltd 349 ITR 98?”
The substantial question of law No.4 is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner of Income-tax, Central – III
Date of Judgment 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software India Pvt. Ltd.,
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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 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software 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.
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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 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software India Pvt. Ltd.,
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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 Nos.1,2 and 3:
“15. The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Trilogy E- Business Software India Pvt. Ltd. (supra):
xxxx
xxxx
The facts and circumstances under which the aforesaid companies were considered as comparable is identical in the case of the Assessee as well as in the case of Trilogy E- Business Software India Pvt. Ltd. (supra). Respectfully following the decision of the Tribunal referred to above in the case of Trilogy E-Business Software India Pvt.Ltd.(supra), we direct that KALS Information Systems Ltd., be excluded from the list of 14 comparable arrived at by the TPO.
As far as the comparable chosen by the TPO viz., M/S.Lucid Software Limited a
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comparable chosen by TPO is concerned, this Tribunal in the case of M/S.3DPLM Software Solutions Ltd., (supra) held that this company is not functionally comparable with a software development service provider. The following were the relevant observations of the Tribunal in this regard.
In view of the above, the aforesaid company should also be excluded for the purpose of comparison while determining the ALP of the international transaction in question.
As far as the comparable chosen by the TPO viz., M/S.Avani Cincom Technologies Ltd., comparable chosen by TPO is concerned, this Tribunal in the case of M/S.3DPLM Software Solutions Ltd., (supra) held that this company is not functionally comparable with a software development service provider. The following were the relevant observations of the Tribunal in this regard.
xxxx
xxxx
In view of the above, the aforesaid company should also be excluded for the purpose of comparison while determining the ALP of the international transaction in question.
Date of Judgment 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software India Pvt. Ltd.,
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As far as the comparable chosen by the TPO viz., M/S. Celestial Biolabs Ltd., comparable chosen by TPO is concerned, this Tribunal in the case of M/S. 3DPLM Software Solutions Ltd.(supra) held that this company is not functionally comparable with a software development service provider. The following were the relevant observations of the Tribunal in this regard:-
xxxx xxxx 23. In view of the above, the aforesaid company should also be excluded for the purpose of comparison while determining the ALP of the international transaction in question.
As far as the comparable chosen by the TPO viz., M/S. E-Zest Solution Ltd., and Thirdware Solutions Ltd., comparable chosen by TPO is concerned, this Tribunal in the case of M/S.3DPLM Software Solutions Ltd. held that this company is not functionally comparable with a software development service provider. The following were the relevant observations of the Tribunal in this regard:-
xxxx
xxxx
Date of Judgment 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software India Pvt. Ltd.,
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In view of the above, the aforesaid company should also be excluded for the purpose of comparison while determining the ALP of the international transaction in question.
26.As far as the comparable chosen by the TPO viz., M/S.Softsol India Ltd., comparable chosen by TPO is concerned, this Tribunal in the case of M/S.3DPLM Software Solutions Ltd. held that this company is not functionally comparable with a software development service provider. The following were the relevant observations of the Tribunal in this regard.
xxxx
xxxx
In view of the above, the aforesaid company should also be excluded for the purpose of comparison while determining the ALP of the international transaction in question.”
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 &
Date of Judgment 17-07-2018 I.T.A.No.445/2015 The Commissioner of Income-tax & Anr. Vs. M/s. Aptean Software India Pvt. Ltd.,
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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 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
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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. 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
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at all 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.” 6. 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.
Copy of this order be sent to the Respondent- assessee forthwith.
Sd/- JUDGE
Sd/-
JUDGE TL