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1/12 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.719/2017
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. Curam Software International Pvt. Ltd., C/o. IBM India Pvt. Ltd., Subramanya Arcade, 12, Bannerghatta Main Road, Bengaluru-560 029. PAN: AACCC 5472F.
…Respondent (By Mr. Mallaha Rao & Mr. Sandeep S Karhail. Advocates)
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International 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.499/Bang/2015 dated 21-03-2017 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 Mr. Mallaha Rao & Mr.Sandeep S Karhail. Advs. 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 21/03/2017 in IT(TP)A.No.499/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.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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“1. Whether on the facts and in the circumstances of the case, the Tribunal erred in holding that the assign authority is not right in including expenditure incurred in foreign currency from export turnover and from total turnover by relying upon the decision of this Hon’ble Court in case of CIT V/s Tata Elsxi even when the assessing authority has rightly included the according to parameters set out in section 10A and the decision relied upon by the Tribunal has not reached finality?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to exclude certain comparable on the basis of functional dissimilarity by following its earlier orders which has not reached finality and even when the TPO had chosen the comparable on the basis of its functional similarity and by application of qualitative and quantitative tests?”
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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The learned counsel appearing for the Appellants – Revenue, Mr.K.V. Aravind submitted that in so far as the first substantial question of law is concerned, the same is covered by the decision of the 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
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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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 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 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International 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”.
In so far as the second substantial question of law raised by the Revenue is concerned, the learned counsel for the Revenue submitted that the learned ITAT in its Order dated 21/03/2017 has given the findings, the relevant portion of which is quoted below for ready reference:- “9.1 In support of its contentions, the assessee relied on the following case laws:
Curam Software International P. Ltd v. ITO [ITA No. 1280/Bang/2012]
Agnity India Technologies P. Ltd v. CIT [ITA No.1204/Del/2011]
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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DCIT v. Ikanos Communication India P. Ltd [ITA No.137/Bang/2015]
DCIT v. Applied Materials India P. Ltd [IT(TP)A.180/Bang.2015] and
DCIT v. Novell Software Development India P. Ltd [IT (TP) A.281/Bang/2015].
Now, let us examine the relevant portion of the order of this Tribunal, in the assessee’s own case, supra, in the earlier year as under: … … … … … … 9.2. Now, let us examine the relevant portion of the order of this Tribunal in DCIT v. Ikanos Communication India P. Ltd in ITA No.137/Bang/2015 for AY 2010-11 dt 10.11.2015, which was providing contract software development services to its principal, as under: … … … … … … 10. We have perused the orders and heard the rival contentions. Notes to accounts of ICRA Techno Analytics Ltd forming a part of its audited financial statement of accounts
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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and annual report for year ended 31.03.2010 mentions as under: • Significant accounting policies and Notes to Accounts (Page 169 of the Annual report)
In the note detailing of the revenue recognition which also form a part of its annual report it has been stated that its revenue stream consisted of software development consultancy, engineering services, web development and hosting. Thus ICRA Techno Analytics had more than one segment. There is no case for the Revenue that the segmental results were separately available in public domain or was not obtained by the TPO from the said company, invoking the powers vested on him. In such a BACK GROUND:- The Company was incorporated on July 27, 1992 as Computer Exchange Private Limited (CEPL) and subsequently became wholly owned subsidiary Of ICRA Limited on August 25, 2005 and was renamed as ICRA Techno Analytics Limited {ICTEAS}. The company is engaged in the software development & consultancy, engineering services, web development & hosting and subsequently diversified itself into the domain of business analytics and business process outsourcing.
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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situation the DRP, in our opinion, was justified in directing exclusion of ICRA Techno Analytics Ltd from the list of comparables.”
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 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
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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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 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
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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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. 58. The appeals filed by the Revenue are therefore dismissed with no order as to costs.”
Date of Judgment 06-07-2018 I.T.A.No.719/2017 The Pr. Commissioner of Income-Tax, CIT (A) & Anr. Vs. M/s. Curam Software International Pvt. Ltd.,
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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*