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1/10 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.429/2014
Between:
Commissioner of Income Tax,
C.R. Buildings, Queens Road,
Bangalore.
The Assistant Commissioner of Income-tax,
Circle-12(3), Bangalore.
…Appellants (By Mr. Jeevan J. Neeralgi, Advocate)
And:
M/s. Sungard Solutions (India) Private Ltd., (formerly known as automated Securities Clearance (India), 4th Floor (6th level), Embassy Icon, No.3, (old No.2) Infantry Road, Bangalore. 560 001. PAN.AAACE7476K
…Respondent (By Mr. Asim Malik, Advocate)
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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This I.T.A. is filed under Section 260-A of Income Tax Act 1961, praying to: 1. 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; set aside the appellate order dated 16/05/2014 passed by the Income Tax Appellate Tribunal ‘C’ Bench, Bangalore, in appeal proceedings in IT (TP)A.No.1661/Bang/2012 for Assessment Year 2008-09 as sought for in this appeal and to grant such other relief as deemed fit in the interest of justice and equity.
This I.T.A. coming on for Admission, this day S. Sujatha J. delivered the following:-
J U D G M E N T
Mr. Jeevan J. Neeralgi. Adv. for Appellants - Revenue Mr.Asim Malik Adv. for Respondent-Assessee
The Appellants - Revenue have filed this appeal raising purported substantial questions of law arising from the Order of the learned Income Tax Appellate Tribunal Bangalore Bench “C”, Annexure A dated 16/05/2014 in IT(TP)A.No.1661/Bang/2012 for AY 2008-09. 2. The Revenue has suggested two substantial questions of law, which are quoted below for ready reference:
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the functions of the assessee are not comparable to the functions of M/s. KALS Information Systems Ltd. & M/s.FCS Software Solutions Ltd., without doing any FAR analysis in the case of assessee and the other cases? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the size and turnover of the company are deciding factors for treating a company as a comparable and accordingly directing the AO/TPO not to include M/s. Helios & Matheson Information Technology BPO Ltd., as comparable in the absence of Turnover criterion prescribed in Rule 108 of IT Rules and also there being no correlation between turnover and profit margin, but upheld the decision of upper limit of Rs.200 crores.”
In so far as the substantial questions of law raised in the present appeal are concerned, the learned
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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counsel for the Revenue, Mr. Jeevan J. Neeralgi submitted that the learned ITAT in its Order dated 16/05/2014 has given the findings, the relevant portion of which is quoted below for ready reference:-
“19.
We have considered the rival submissions.
The question whether KALS Information System Ltd., can be considered as comparable with Assessees who are engaged in the business of rendering computer software development service has been considered by the ITAT Bangalore Bench in the case of Triology E- Business Software Ltd.(supra). This tribunal on the above question held as follows: “(d) KALS Information Systems Ltd: … … … … … … 20. Respectfully following the decision rendered by this Tribunal in the case of an Assessee engaged in rendering software development services, we hold that KALS Information System cannot be regarded as a comparable in the case of the assessee.
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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FCS Software Solutions Ltd: … … … … … … It has been the submission of the learned counsel for the assessee that the aforesaid comparable company as revenue from software services at less than 75% and therefore cannot be taken as software development service provider. Perusal of page.25 and 26 of the annual report of this company for Financial year 2007-08 shows that the earnings from IT Consulting Services is only 44% of the total revenues. One of the tests applied by the TPO for selecting comparable companies is that the revenue from rendering software development services should be more than 75%. This company therefore cannot be regarded as a comparable even as per the filter applied by the TPO. No reasons have been given by the TPO/DRP as to how this company satisfies the above criteria for selection of comparable. In our opinion neither the DRP nor the TPO has looked into these aspects despite specific objections. We also find that this company was not chosen by the assessee in asst.year 2006-07 as comparable as has been wrongly observed by the DRP in its order.
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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In view of the above, we hold that this company cannot be regarded as comparable. The Assessee’s objection in this regard are accepted. The other objections raised by the Assessee are therefore not considered. Helios & Mathesan Information Technology Ltd; … … … … … … It can be seen from the aforesaid order of the TPO/DRP that the main objection of the assessee has not been addressed by the DRP. The decision rendered by the ITAT in the case of Genesis Integrated Systems (India)P. Ltd., (supra) is comparability of companies having falling within a particular range. Companies whose turnover is between 1 Crore to 200 crores have been categorized into one group. Companies having turnover between 200 crores to 500 crores have been placed into different groups. The TPO/DRP have applied that classification to operating costs and have considered the above company as comparable as the operating costs of the Assessee and the comparable company were in the same range of classification as laid down in the case of
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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Genesis Integrated Systems (I) P.Ltd. By doing so, the entire analysis in our view gets distorted. Turnover as criteria for comparability and operating costs as criteria for comparability are entirely different. The basis of classification of companies for comparability on the basis of turnover takes the scale/size of operation of company. Operating costs of companies will not reflect the scale/size of operation of company. In our view the TPO having accepted the turnover filter as laid down by the ITAT in the case of Genisys Integrating Systems (supra) cannot carve out exception to the rule so laid down at his whims and fancies. We therefore hold that this company cannot be regarded as comparable.”
However, this Court in a recent judgment in I.T.A.No.536/2015 c/w. I.T.A.No.537/2015 (Pr. Commissioner of Income Tax, Bangalore and Another Vs. M/s. Softbrands India P.Ltd.,) rendered on 25-06-2018, has held that in these type of cases, unless an ex-facie perversity in the findings of the learned Income Tax Appellate Tribunal is established by
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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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
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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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 comparables to arrive at an ‘Arm’s
Date of Judgment 13-07-2018 I.T.A.No.429/2014 Commissioner of Income Tax & Anr. Vs. M/s. SunGard Solutions (India) Private Ltd.,
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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.” 5. Having heard the learned counsel for the appellant – Revenue, this Court is satisfied that no substantial question of law would arise in the present case and the appeal filed by the Revenue is therefore, liable to be dismissed. Accordingly, it is dismissed. No costs. Sd/- JUDGE
Sd/- JUDGE BMV*