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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 13TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.502/2014
BETWEEN:
THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE.
THE DEPUTY COMMISSIONER OF INCOME-TAX (INTL. TAXATION), CIRCLE-11(3) RASHTROTHANA BHAVAN NRUPATHUNGA ROAD BANGALORE-560001.
…APPELLANTS (By Mr. ARAVIND K.V. ADV.)
AND:
M/S. GOOGLE INDIA PVT. LTD., No.3, RMZ INFINITY, TOWER E 4TH MAIN, OLD MADRAS ROAD BANGALORE-560 016.
…RESPONDENT
(By Mr. SANDEEP HUILGOL, ADV., FOR Mr. T. SURYANARAYANA, ADV.,)
Date of Judgment 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google 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 QUESTION OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BANGALORE IN IT(TP)A No.1170/BANG/2011 DATED 18-07-2014 ANNEXURE-D AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX (INTL TAXATION) CIRCLE- 11(3), BANGALORE.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Aravind K.V. Adv. for Appellants-Revenue Mr. Sandeep Huilgol, Adv. for Mr. T.Suryanarayana, Adv. for Respondent-Assessee
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, Bangalore Bench ‘B’, Bangalore (for short ‘Tribunal’) dated 18.07.2014 passed in I.T (TP)A No.1170/Bang/2011 for the A.Y.2007-08.
Date of Judgment 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google India Pvt. Ltd.,
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The proposed substantial questions of law framed in the memorandum of appeal by the appellants- Revenue is quoted below for ready reference: “1. Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding Vishal Information Technologies Ltd (Coral Hub Ltd), from the list of comparables holdings that they are functionally different without appreciating that the comparables satisfy all the qualitative and quantitative filters applied by the TPO?.
Whether the Tribunal was justified, on the facts and in the circumstances of the case, in allowing relief to the assessee by directing the assessing officer to exclude Vishal Information Technologies Limited from the list of comparables relying on the decision of the Mumbai Tribunal in the case of Maersk Global Service Centre (India) Pvt. Ltd., in ITA No.3774/M/2011, wherein it held that Vishal Information Technologies Limited has to be excluded from the list of comparables of ITES company as it has outsourced its services without appreciating the fact that the assessee itself had selected the comparable in its TP study?.
Date of Judgment 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google India Pvt. Ltd.,
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Whether the Tribunal is justified in directing the assessing officer to follow the ratio laid down by this Hon’ble Court in the case of Tata Elxsi Limited 349 ITR 98 and exclude the data centre bandwidth charges of Rs.5,59,94,653/- and foreign travel expenses of Rs.4,61,12,304/- incurred in foreign currency from the total turnover also while computing the deduction under section 10A of the IT Act as the decision of the High Court is binding, without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover also, as clause (iv) of the Explanation to Section 10A provides that such expenses are to be reduced only from the export turnover?.
Whether, the Tribunal is justified in not appreciating the fact that the jurisdictional High Court’s decision in the case of Tata Elxsi Limited 349 ITR 98 has not been accepted by the department and an appeal has been filed before the Hon’ble Supreme Court?”.
This appeal has been ADMITTED on 17.04.2015 to consider the substantial question of
Date of Judgment 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google India Pvt. Ltd.,
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law Nos.1 and 2 framed by the learned counsel for the Appellants-Revenue.
The substantial question of law Nos.3 and 4 are 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 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google 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.
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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.
Date of Judgment 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google 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”.
The learned Tribunal, after discussing the rival contentions of both the appellants-Revenue and the Respondent-assessee, has returned findings as under: Regarding substantial question of law Nos.1 and 2:
“17. The second aspect of the addition made by the TPO and confirmed by the DRP on which the learned counsel for the Assessee made his submissions was with regard to selection of comparable companies adopted by the TPO/DRP. Our attention was drawn to the list of 27 comparable companies chosen by the TPO and it was submitted that if three out of the aforesaid companies are removed from the list of
Date of Judgment 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google India Pvt. Ltd.,
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comparable companies then the net profit margin of the Assessee would be well within the range of (+) (-) 5% range of the arithmetic net profit mean margin of the remaining comparable companies. The three companies that are sought to be removed from the list of 27 comparable companies were (1) Eclerx Services Limited; (2) Mold-Tek Technologies Limited (Seg.) and (3) Vishal Information Technologies Ltd. These are listed as Sl.No.11, 20 and 24 of the final list of 27 comparable companies chosen by the TPO. The net margin after removing the aforesaid three companies were given in a chart filed before us and the same is annexed as Annexure-3 to this order.
The learned counsel for the Assessee brought to our notice a decision rendered by the Bangalore Bench of the ITAT in the case of Symphony Marketing solutions India Pvt. Ltd. Vs. ITO in IT(TP) No.1316/Bang/2012 for AY 08-09 wherein this tribunal in the case of an Assessee who was also engaged in providing IT enabled services to it’s AE, considered the comparability of the aforesaid companies and held them to be not comparable with that of the Assessee. The
Date of Judgment 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google India Pvt. Ltd.,
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learned DR however relied on the order of the TPO/DRP.
We have considered the rival submissions. In the case of Symphony Marketing Solutions India Pvt.Ltd.(Supra), this tribunal held as follows on the comparability of Vishal Information Technologies Ltd. which was earlier known as Coral Hubs Ltd. In the following manner: xxxx xxxx xxxx xxxx
Respectfully following the decision of the Tribunal referred to above, we direct the TPO/AO to remove the aforesaid company from the list of comparable companies.”
This Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is
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established by the appellant, the appeal at the instance of an assessee or the Revenue under Section 260-A of the Act is not maintainable and the relevant portion of the said 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
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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 at all a sufficient reason to invoke Section 260-A of the Act before this Court.
Date of Judgment 13-07-2018 I.T.A.No.502/2014 The Commissioner of Income-tax & Anr. Vs. M/s. Google India Pvt. Ltd.,
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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 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