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1/10 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 9TH DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A. No.25/2012
BETWEEN :
THE COMMISSIONER OF INCOME-TAX C.R.BUILDING, QUEENS ROAD, BANGALORE
THE INCOME-TAX OFFICER WARD-11(2), C.R.BUILDING, QUEENS ROAD, BANGALORE
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND :
M/s INTEGRAL INDIA SOFTWARE DEVELOPMENT CENTRE PVT. LTD., NO.16/1, GROUND FLOOR, CAMBRIDGE ROAD, BANGALORE-560 008
…RESPONDENT
(BY SRI TATA KRISHNA, ADV. FOR SRI CHYTHANYA K.K., ADV.)
THIS ITA IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 14.09.2011 PASSED IN ITA NO.1246/BANG/2010, FOR THE ASSESSMENT YEAR 2006-2007 ANNEXURE-D, PRAYING TO: I. FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, II. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BANGALORE IN ITA NO.1246/BANG/2010 DATED
Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd.
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14.09.2011 ANNEXURE-D AND CONFIRM THE ORDER OF THE APPELLATE COMMISSIONER CONFIRMING THE ORDER PASSED BY THE INCOME TAX OFFICER, WARD-11(2), BANGALORE.
THIS APPEAL COMING ON FOR HEARING, THIS DAY, S.SUJATHA, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. Tata Krishna, Adv. for Mr. Chythanya 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, ‘A’ Bench, Bangalore, in IT [TP] A No.1246/Bang/2010 dated 14.09.2011 relating to the Assessment Year 2006-07.
This Appeal has been admitted on 5.10.2012 to consider the following substantial questions of law as framed by the Revenue in the Memorandum of Appeal: “1. Whether the Tribunal was correct in holding that the telecommunication charges and expenses incurred abroad are required to be reduced from the export turnover as well as total
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turnover also, in the absence of any specific provisions to this effect when computing the deduction u/s 10A of the Act ? 2. Whether the Tribunal was correct in holding that the Dispute Resolution Panel has not considered the various objections raised by the assessee regarding the computation made by the Transfer Pricing Officer and consequently remitted the matter back without considering the controversy ? 3. Whether the Tribunal was correct in directing the Dispute Resolution Panel to consider the case of M/s Genesis Integrating Systems India Pvt. Ltd., which is subject matter of appeal before this Hon’ble Court ?”
Regarding Substantial Question No.1: 3. The issue raised in the present appeal as to the deduction of expenditure incurred for ‘Export Turn Over’ is also required to be deducted from ‘Total Turn Over’ for the purpose of computing the deduction u/s.10A of the Act, the controversy is no longer res integra and is covered by the decision of the Division
Date of Judgment 09-07-2018, ITA No.25/2012 The Commissioner of Income Tax & another Vs. M/s Integral India Software Development Centre Pvt. Ltd.
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Bench of this Court in the case of M/s.Tata Elxsi Ltd., vs. Asst.Commissioner of Income Tax, decided on 20.10.2015 since reported in (2015) 127 DTR 0327 (Kar), which has been affirmed by 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 reduced from the export turnover? While giving
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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. 20. 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 Appellant-Revenue and Respondent-Assessee, has returned a finding with regard to question Nos. 2 and 3 as under:
“Having heard both the parties and having considered the rival contentions, we find that the assessee has raised various objections before the TPO and while making TP adjustment, the TPO has considered the same and has rejected the objections of the assessee. The assessee has again raised the objections before the DRP but the DRP has summarily sustained the order of the TPO and the AO. The DRP is entrusted with the duty of dealing with the objections of the assessee judicially. There is no speaking order of the DRP on the objections of the assessee. In view of the same, we deem it fit and proper to remit the issue to the file of the assessing authority with a
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direction to refer the matter to the DRP who in turn shall dispose off the assessee’ objections judicially and by a speaking order. The DRP shall also take into consideration the judicial precedents on the issue and also order of the Tribunal in ITA No.1231 of 2010 dated 5/8/2011 in the case of M/s Genisys Integrating Systems India Pvt. Ltd. where similar issues have been considered. The copy of the order in the case of M/s Genisys Integrating Systems India Pvt. Ltd. shall be appended to this order.”
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:
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“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 list of comparables have been rightly applied or not, do not in our
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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
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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.”
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.