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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.896/2017
BETWEEN :
THE Pr. COMMISSIONER OF INCOME -TAX CIT (A), 5TH FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA BENGALURU-560 095
THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-3 (1) (2), 2ND FLOOR, BMTC BUILDING, 80 FEET ROAD, KORMANGALA, BENGALURU-560 095
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s GLOBAL E-BUSINESS OPERATIONS PVT. LTD., 2ND FLOOR, KALYANI PLATINA PHASE-II BLDG., SURVEY NO.1, 6 & 24 OF KUNDALAHALLI VILLAGE, K.R. PURAM HOBLI BENGALURU-560 066 PAN:AABCG 2843D
…RESPONDENT
(BY SMT.MANASA ANANTHAN, ADV.)
Date of Judgment 06-07-2018, ITA No.896/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Global E-Business Operations Pvt. Ltd.
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THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 21.04.2017 PASSED IN IT(TP)A NO.147/BANG/2015, FOR THE ASSESSMENT YEAR 2010-2011 ANNEXURE-D. 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.147/BANG/2015 DATED 21.04.2017 AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(2), BENGALURU.
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. Mrs. Manasa Ananthan, 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, Bangalore Bench ‘B’, Bangalore, in IT[TP]A No.147/Bang/2015 dated 21.04.2017, relating to the Assessment Year 2010-11.
The appeal has been admitted on 06.12.2017 to consider the substantial questions of law formulated at paras VI[2] and VI[3] in the appeal
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memorandum. However, learned counsel for the Revenue seeks to consider all the three substantial questions of law framed in the memorandum of appeal.
The substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether, on the facts and circumstances of the case, the Tribunal is right in law in setting aside the re-computation of deduction under section 10A of the Act by following the decision of this Hon’ble High Court in the case of CIT V/s. Tata Elxsi which has not reached finality?
Whether, on the facts and circumstances of the case, the Tribunal is right in law in directing assessing authority/Transfer Pricing Officer to exclude certain comparable based on functional dissimilarity even when the TPO has chosen the said comparable by applying qualitative and quantitative filters when culling out comparable companies?
Whether on the facts and in the circumstances in the case in directing Transfer Pricing Officer to delete adjustment of interest charged on outstanding debtors by relying on its
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earlier decision in case of M/s. Millipore [India] Pvt. Ltd., which has not reached finality without appreciating that in a financial activity, the interest on debtors is concerned it is altogether different activity and cannot be equated with operating activity?”
Regarding first substantial question of law:- 4. Learned counsel for the Appellants-Revenue submits that the issue regarding 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 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.
Date of Judgment 06-07-2018, ITA No.896/2017 The Pr. Commissioner of Income Tax & another Vs. M/s Global E-Business Operations Pvt. Ltd.
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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 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
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turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.
XXXXXX
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 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”.
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Regarding substantial question of law Nos.2 and 3:- 6. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under: “22. We heard rival submissions and perused material on record. The comparability of this company has come up for consideration before the co-ordinate bench in relation to ITeS services company in the case of Equant Solutions India [P] Ltd., [supra]. The relevant paras are reproduced below:
“xxxxxx”
Therefore, we uphold the deletion of this company from the list of comparables.
Ground No.9 challenges the deletion of assessment of outstanding interest charged on outstanding debtors. On this issue, the DRP held as follows:
“xxxxx”
This issue has been adjudicated by the co- ordinate bench in the case of in ITA No.327/Bang/2015 dated 07.03.2017 in the
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case of ACIT V/s. M/s. Millipore [India] Ltd., wherein it has been held that the transaction of interest on outstanding debtors is not an independent transaction. The relevant paras are reproduced below:
“xxxxx”
The ground of appeal raised by the revenue is dismissed.”
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/s. 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:
A substantial quantum of international trade and transactions depends upon the fair
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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 considered opinion, give rise to any substantial question of law.
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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. 57. 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.
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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 Appellants- Revenue is liable to be dismissed and is accordingly dismissed. No costs.
Sd/- JUDGE
Sd/- JUDGE
NC.