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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 6th DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.934/2017
Between:
The Pr. Commissioner of Income-tax, CIT(A) 5th Floor, BMTC Building, 80 Feet Road, Kormangala, Bengaluru-560 095.
The Asst. Commissioner of Income-Tax, Circle-2(1)(1), 2nd Floor, BMTC Building, 80 Feet Road Kormangala, Bengaluru-560 095.
…Appellants (By Mr. Aravind K.V. Advocate)
And:
M/s. Broadcom Communications Technologies Pvt. Ltd., (erstwhile Broadcom India Technologies Pvt. Ltd., since merged,) 4th Floor, RMZ Ecospace, Campus-1A, Bellandur Village, Varthur Hobli, Bengaluru-560 103. PAN: AABCL 0010D.
…Respondent (By Ms. Manasa Ananthan, Advocate)
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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This I.T.A. is filed under Section 260-A of Income Tax Act 1961, praying to: 1. Formulate the substantial questions of law stated above. 2. Allow the appeal and set aside the orders passed by the Income-Tax Appellate Tribunal, Bengaluru in IT(TP)A No.494/Bang/2015 dated 06-04-2017 Annexure –D confirming the order of the DRP and confirm the order passed by the Asst. Commissioner of Income Tax, Circle-2(1)(1), Bengaluru & etc.
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. Aravind K.V. Adv. for Appellants – Revenue Ms. Manasa Ananthan, 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 “B”, Annexure D dated 06/04/2017 in IT(TP)A No.494/Bang/2015 for AY 2010-11. 2. The Revenue has suggested two substantial questions of law, which are quoted below for ready reference:
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding certain comparables on the basis of functional dissimilarity by following its earlier judgments which has not reached finality and even when the Transfer Pricing Officer has considered the comparables on the basis of qualitative and quantitative filters? 2. Whether on the facts and in the circumstances of the case, Tribunal is right in law in setting aside the recomputation of 10A deduction made by assessing authority by following the judgment of this Hon’ble High Court in the case of CIT v/s. Tata Elxi even though the said decision has not reached finality and the assessing authority recomputed the 10A deduction as per the provisions of the Act?”
The learned counsel appearing for the Appellants – Revenue, Mr.K.V. Aravind submitted that in so far as the second substantial question of law is concerned, the same is covered by the decision of the
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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Hon’ble Apex 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 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
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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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 also.
Otherwise, any other
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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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”.
In so far as the first substantial questions of law raised by the Revenue are concerned, the learned counsel for the Revenue submitted that the learned ITAT in its Order dated 06/04/2017 has given the findings, the relevant portion of which is quoted below for ready reference:-
“13. We heard rival submissions and perused the material on record. From the perusal of the Annual Report of E Infochips Bangalore Ltd., placed at page 426 to 429 (at page 427) of the paper book, it is evident that the company is into business of both software development and also IT enabled Services and derives income from consultancy charges and no segmental information was provided by the assessee-company. In the absence of segmental information, this company cannot
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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be compared with that of the software development company. The issue of comparability of this company had come before the co-ordinate bench of this Tribunal in the following decisions:
I. DE Shaw India Software Pvt.Ltd. in ITA No.304/Hyd/2015 (ITAT) (Hyd)
II. Sun Life India Service Centre Pvt. Ltd. (ITA No. 750/Del/2015 (ITAT)(Del) and
III. Pegasystems Worldwide India Pvt. Ltd., (IT(TP)A Nos.1758 & 1936/Hyd/2014) (ITAT, Hyd.)
Therefore, respectfully following the decision of the co-ordinate bench, we direct the AO/TPO to exclude this company from the list of comparables.
As regards, Sasken Communication Tech Ltd., Infosys Technologies Ltd. and Kals Information System Ltd., the issue of comparability of these companies/entities had come up for consideration before the co-
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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ordinate bench (Bengaluru) in the case of ACIT vs. Broadcom Research India (P) Ltd., (72 taxman.com 77) to which one of us viz, Accountant Member is a party i.e. author of order, wherein it was held as follows: … … … … … … The learned standing counsel for the Revenue has not brought any evidence on record controverting the findings of the Tribunal. Therefore, respectfully following the above order, we hold that this company cannot be considered 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 the appellant, the appeal at the instance of an assessee
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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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
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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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
Date of Judgment 06-07-2018 I.T.A.No.934/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Broadcom Communications Technologies Pvt. Ltd.,
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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.” 6. 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*