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1/13 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.526/2014
BETWEEN:
THE COMMISSIONER OF INCOME-TAX C.R. BUILDING, QUEENS ROAD BANGALORE.
THE INCOME TAX OFFICER WARD-12(2), RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE-560001.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
AT & T GLOBAL BUSINESS SERVICES INDIA P. LTD., (FORMERLY USI INTERNETWORKING SOLUTION P. LTD.,) BLOCK-A GROUND FLOOR SALARPURIA SOFTZONE SY 80/1, 81/1 & 81/2 BELANDUR VILLAGE VARTHUR HOBLI BANGALORE-560 103.
…RESPONDENT (By Mr. K.R. VASUDEVAN, & Mr. RAHUL YADAV, ADVS.,)
Date of Judgment 13-07-2018 I.T.A.No.526/2014 The Commissioner of Income-tax & Anr. Vs. AT & T Global Business Services India P. 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 ORDERS PASSED BY THE INCOME TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A No.1273/Bang/2011 DATED 18-07-2014 ANNEXURE- D AND CONFIRM THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-12(2), BANGALORE.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY S. SUJATHA J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants-Revenue Mr. K.R. Vasudevan, & Mr. Rahul Yadav, Advs. 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 ‘A’ Bangalore (for short
Date of Judgment 13-07-2018 I.T.A.No.526/2014 The Commissioner of Income-tax & Anr. Vs. AT & T Global Business Services India P. Ltd.,
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‘Tribunal’) dated 18.07.2014 passed in I.T (TP)A No.1273/Bang/2011 for the A.Y.2007-08.
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 Accel Transmatics Ltd., Celestial Labs Ltd., and KALS Information Systems Ltd., (Seg) Avani Cimcon Technology Ltd and Lucid Software 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 Accel Transmatics Ltd., Celestial Labs Ltd., and KALS Information Systems Ltd. (Seg) Avani Cimcon Technology Ltd relying on the decision of the Bangalore Tribunal in the case of Trilogy E-Business Software India Pvt. Ltd., and
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not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO?.
Whether, the Tribunal, on the facts and in the circumstances of the case was right in excluding M/s. Lucid Technologies Limited from the list of comparables relying on the decision of the Bangalore Tribunal in the case of M/s. Logica Pvt. Ltd., and not deciding the selection of the comparables on the basis of specific facts brought on record by the TPO?.
Whether, the Tribunal, on the facts and in the circumstances of the case was right in deleting M/s. Ishir Infotech and M/s. Geometric Ltd as comparable by fixing the RPT filter at 15% of total revenue and 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 for RPT filter, in the case of the taxpayer?.
Whether, on the facts and circumstances of the case, the Tribunal was correct in relying upon the decisions in the case of other assessee to reject the comparables without appreciating that
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selection of comparables in a case depends on assessee specific FAR analysis and that the Tribunal ought to have decided the comparability of the companies on the basis of the specific facts brought on record by the TPO in the case of the assessee?.
Whether, the Hon’ble Tribunal is justified in directing the assessing officer to recomputed the deduction under section10A after reducing traveling expenditure of Rs.5,57,92,778/- incurred in foreign currency and telecommunication expenses of Rs.15,38,737/- from the total turnover also, without appreciating that there is no provision in section10A that such expenses should be reduced from the total turnover, 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 was justified, on the facts and in the circumstances of the case, in allowing relief to the assessee relying on the decision of the Hon’ble High 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?”.
Date of Judgment 13-07-2018 I.T.A.No.526/2014 The Commissioner of Income-tax & Anr. Vs. AT & T Global Business Services India P. Ltd.,
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This appeal was ADMITTED on 30.03.2015 to consider the aforesaid substantial questions of law framed by the learned counsel for the Appellants- Revenue.
The substantial question of law Nos.6 and 7 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. 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?
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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.
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
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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 questions of law Nos.1, 2 and 3:- “4. The following were the relevant observations of the Tribunal on the aforesaid comparable companies in the case of Triology E- Business Software India Pvt. (supra): “(b) Avani Cimcon Technologies Ltd: xxxx xxxx
(d) KALS Information Systems Ltd. xxxx xxxx
(c) Celestial Labs Ltd. xxxx xxxx
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xxxx (e) Accel Transmatic Ltd. xxxx xxxx xxxx 5. 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 Triology E-Business Software India Pvt. Ltd. (supra). Respectfully following the decision of the Tribunal referred to above in the case of Triiology E-Business Software India Pvt. Ltd. (supra), we direct that the following companies (listed as Sl.No.20 to 23 of the list of comparable companies chosen by the TPO and listed in para-9 of this order) be excluded from the list of 26 comparable arrived at by the TPO. a) Avani Cincom Technologies Ltd. b) KALS Information Systems Limited c) Celestial Labs Limited d) Accel Transmission Limited.”
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 Logica Private Ltd., (supra). Respectfully following the decision of the Tribunal referred to above in the case of
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Logica Pvt. Ltd. (supra), we direct that the company listed as Sl.No.24 of the list of comparable companies chosen by the TPO and listed in para-9 of this order be excluded from the list of 26 comparable arrived at by the TPO.
Regarding substantial question of law Nos.4 and 5: “18. As far as comparable companies at Sl.No.25 & 26 of the chart of comparable companies chosen by the TPO at page-9 of this order is concerned, it is not in dispute before us that the related party transaction in the case of companies exceeds 15% and in view of the decision of the Tribunal in the case of 24 x 7 Customer.Com Pvt. Ltd. in ITA No.227/Bang/2010, followed by this Tribunal in the case of Logica Private Ltd. (supra) wherein it was held that where the RPT exceeds 15%, such companies should not be taken as comparable companies. Following the said decision, we hold that companies at Sl.Nos.25 & 26 referred to above of the list of the comparable companies chosen by the TPO be excluded from the list of comparable companies while working out the ALP.”
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The controversy involved herein is no more res integra in view of the decision of 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.,) 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
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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. 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
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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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.” 7. 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.
Sd/- JUDGE
Sd/-
JUDGE TL