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1/12 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 05TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.351/2017
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-11(4), PRESENT ADDRESS CIRCLE-3(1)(2), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BENGALURU-560 095.
…APPELLANTS (By Mr. K.V. ARAVIND, ADV.)
AND:
M/S. HEWLETT PACKARD GLOBAL SOFT PVT. LTD., RELQ SOFTWARE PVT. LTD., 39/40, ELECTRONICS CITY PHASE-II, HOSUR ROAD BENGALURU-560 100 PAN: AAACD 4078L.
…RESPONDENT (By Mr. T. SURYANARAYANA, ADV.)
THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL
Date of Judgment 05-07-2018 I.T.A.No.351/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Hewlett Packard Global Soft Pvt. Ltd.,
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QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN IT(TP)A No.436/Bang/2013 DATED 26/08/2016 CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(1)(2), BENGALURU & ETC.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. K.V. Aravind, Adv. for Appellants- Revenue Mr. T. Suryanarayana, Adv. for Respondent - Assessee
The Appellants-Revenue have filed this appeal u/s.260A of the Income Tax Act, 1961, raising purportedly certain substantial questions of law arising from the order of the ITAT, Bangalore Bench ‘B’, Bangalore, dated 26.08.2016 passed in IT(TP)A No.436/B/2013 (M/s.Hewlett Packard Globalsoft Pvt.. Ltd., vs. The DCIT) for A.Y.2008-09.
The proposed substantial questions of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:-
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“1. Whether in the facts and circumstance of the case, the Tribunal is right in law in directing the assessing officer to re- calculate the deduction allowable to the assessee under section 10A of the Act by reducing the total turnover also by the same amount by which export turnover was reduced by the assessing officer in respect of foreign currency expenses incurred towards technical services rendered outside India, without appreciating the fact that there is no provision in Section 10A that such expenses should be reduced from the total turnover also, as clause (iv) of the Explanation 2 to Section 10A provides that such expenses are to be reduced only form the export turnover?
Whether on the facts and in the circumstances, the Tribunal in case of TH Consulting (India) Pvt. Ltd is right in law in holding that Aptico Ltd, Chowksi Laboratories Ltd and Wapcos Ltd are to be excluded from the list of comparables chosen by TPO on the ground of functional dissimilarity without doing any FAR analysis of the assessee with those other cases and without appreciating that comparability of these companies on the basis of specific facts brought on record by the TPO in the case of the assessee?
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Whether on the facts and in the circumstances, in the case of Tribunal in the case of Relq Software Pvt. Ltd is right in law in excluding comparables namely, Avani Cincom Technologies Ltd, Celestial Biolabs Ltd, Tata Elxsi Ltd, Wipro Ltd, LGS Global Ltd, E-Zest Solutions Ltd and Kals information Systesm Ltd on the ground of functional dissimilarity by following its earlier order in case of assessee itself even when said order has not reached finality and without doing any FAR analysis of the assessee with those other cases and without appreciating that comparability of these companies on the basis of specific facts brought on record by the TPO in the case of the assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in excluding comparables namely, Flextronics Software Systems Ltd and Gate Global Solutions Ltd on the ground of having turnover of more than 10 times of the assessee by following its earlier order even when said order has not reached finality?”.
Learned counsel for the Appellants-Revenue Mr.K.V.Aravind submits that he does not press the
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substantial question of law No.1, as 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. 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
Date of Judgment 05-07-2018 I.T.A.No.351/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr. Vs. M/s. Hewlett Packard Global Soft Pvt. Ltd.,
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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 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
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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 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”.
Mr.K.V.Aravind also submits that he does not press the substantial question of law No.2. His submission is recorded.
Regarding substantial question of law Nos.3 and 4 –
The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and the Respondent-assessee, has given the following findings against Revenue with regard to various issues raised
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before it with regard to ‘Transfer Pricing’ and ‘Transfer Pricing Adjustments’
made by the concerned authorities below. We consider it appropriate to quote the relevant portion hereunder:-
“ 12. We have considered the rival submissions and the tribunal order cited by the learned AR of the assessee. As per this tribunal order, following 7 companies are to be excluded from the list of final comparables i.e., 1) Avani Cincom Technologies Limited, 2) Celestial Biolabs Limited, 3) Tata Elxsi Limited (Seg.) 4) Wipro Limited (Seg.) 5) LGS Global Limited, 6) E – Zest Solutions Limited and 7) Kals Info Systems Limited.
Regarding the remaining three companies exclusion of which is allowed by CIT (A) but the issue is not covered by this tribunal order i.e. 1) Flextronics Software Systems Limited (Seg.) 2) Igate Global Solutions Limited and 3) Sasken Communication Technologies Limited (Seg), we find that turnover of following two companies is more than 10 times of the turnover of the assessee company at Rs.75.35 Crores. The turnover of 1) Flextronics Software Systems Limited (Seg.) is Rs.953.35 Crores and of 2) Igate
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Global Solutions Limited is Rs.781.51 Crores. Hence, these two companies are also excluded by applying turnover filter. Then we are left with 8 comparables out of 20 comparables selected by the TPO. The average margin of these remaining 8 comparables is stated to be 18.52%. We direct the TPO/AO to verify this working of average margin of these 8 comparable companies and recalculate the TP adjustment accordingly”.
This Court in ITA No.536/2015 C/w ITA No.537/2015 delivered on 25.06.2018 (Prl. Commissioner of Income Tax & Anr. Vs. M/s. Softbrands India Pvt. Ltd.,) 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. The relevant portion of the said 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 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
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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 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.”
Having heard the learned counsels for the parties, we are therefore of the opinion that no
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substantial question of law arises in the present case also. The appeal filed by the Appellants-Revenue is liable to be dismissed and it is dismissed accordingly. No costs.
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