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IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 5TH DAY OF JULY 2018
PRESENT
THE HON'BLE Dr.JUSTICE VINEET KOTHARI
AND
THE HON’BLE Mrs.JUSTICE S.SUJATHA
I.T.A.No.701/2017
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(2), PRESENT ADDRESS CIRCLE-1(1)(2), 2ND FLOOR BMTC BUILDING, 80 FEET ROAD KORMANGALA, BENGALURU-560 095.
…APPELLANTS (By Mr. ARAVIND K.V. ADV.)
AND:
M/S. BROADCOM INDIA PVT. LTD., CAMPUS 1A, 5TH FLOOR, RMZ ECOSPACE BELLANDUR VILLAGE, VARTHUR HOBLI BENGALURU-560 103 PAN: AACCB 6063E.
…RESPONDENT (By Ms. MANASA ANANTHAN, ADV.)
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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THIS I.T.A. IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED ABOVE. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(TP)A No.95/Bang/2014 DATED 17-03-2017 ANNEXURE-D AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1)(2), BENGALURU & ETC.
THIS I.T.A. COMING ON FOR ADMISSION, THIS DAY Dr. VINEET KOTHARI J. DELIVERED THE FOLLOWING:-
JUDGMENT
Mr. Aravind K.V. Adv. for Appellants-Revenue Mr. Manasa Ananthan, 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, Bengaluru Bench ‘B’, Bengaluru, dated 17.03.2017 passed in IT(TP)A No.95/Bang/2014 (Broadcom India P. Ltd. vs. Deputy Commissioner of Income Tax) for A.Y.2009-10.
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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The proposed substantial question of law framed in the Memorandum of appeal by the Appellants-Revenue are quoted below for ready reference:- “Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the TPO to exclude comparables such as M/s. Bodhtree Consulting Ltd, Persistent Systems Ltd, Infosys Technologies Ltd, Kals Information Systems Ltd and Tata Elxsi Ltd as comparable’s by following its earlier orders which has not reached finality and even when the TPO had chosen the comparable’s on the basis of its functional similarity and by application of qualitative and quantitative tests?”.
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 before it with regard to ‘Transfer Pricing’ and ‘Transfer Pricing Adjustments’ made by the concerned
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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authorities below. We consider it appropriate to quote the relevant portions hereunder:
“04. On the TP matters, the AR submitted that the following comparables are to be rejected as they are functionally different from it. The gist of his arguments and the cases relied on, are as under:
Bodhtree Consulting Ltd: xxxxxx
Persistent Systems Ltd: xxxxxx
Larsen & Toubro Infotech: xxxxxx
Infosys Ltd:
xxxxx
For all the above 4 comparables, the assessee relied on Broadcom India Research P. Ltd. [IT(TP) A.46 & 62/Bang/2014-AY 2009-10] and Fair Isaac India Software P. Ltd [IT(TP) A.24 & 1776/Bang/2014-AY 2009-10]. It took us through appropriate pages in the paper books
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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and the copies of the decisions. Since it has placed reliance on this Tribunal decision, supra, in its own group case which was rendering software development services to its AE Broadcom International, the relevant portion of the order is extracted as under:
xxxxx
The ld counsel for the assessee submitted that Persistent Systems Ltd, Consulting Ltd., is dissimilar for the following reasons:
Functionally different A. The Company is engaged in Outsourced Product Development services
B. Derives significant portion of revenue from export of software services and products, software services and products treated as single segment
C. The Company offers complete product life cycle services form end to end
D. Owns products; Earns revenue from licensing of products
R & D Activities
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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Subsidiary set-up in the current FY – “Persistent Systems & Solutions Limited”
The ld counsel for the assessee relied on the decision of Infinera India Pvt. Ltd., in IT(TP)A No.977 & 1008/Bang/2014 for the asst. year 2009-10, wherein at pages 15 and 16 it has been held as under:
xxxxxx
The ld counsel for the assessee submitted that L & T Infotech is dissimilar for the following reasons:
Functionally different A. The company has two service lines – Consulting and testing; The company provides specialized services like data warehousing, business intelligence, testing services and infrastructure management services
B. Earns income from both software development services and products; software services and products treated as single segment
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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C. The company has significant expenses towards ‘consultancy charges’ under software development expenses – outsourced work
D The owns and self products
Turnover filter – More than 10 times the turn- over of the Assessee 3. Intangible assets A. The company owns brands B. The company owns intangible assets
The ld counsel for the assessee relied on the decision of Invensys Development Centre India Pvt. Ltd., in ITA No.383/Hyd/2014 for the asst. year 2009-10, wherein at para 10.3 it has been held as under:
xxxxx
The ld counsel for the assessee submitted that Infosys Ltd. is dissimilar for the following reasons: xxxxx
The ld counsel for the assessee relied on the decision of Infinera India Pvt. Ltd., in IT(TP)A No.977 & 1008/Bang/2014 for the asst. year
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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2009-10, wherein at pages 17 and 18 it has been held as under: xxxxx
Since this Tribunal has found that the comparables, Bodhtree Consulting Ltd., Infosys Technologies Ltd, Persistent Systems Ltd., and Larsen & Turbo Infotech Ltd are functionally dissimilar to that assessee, directed the TPO to exclude them and the facts remaining same in this case, following it, we direct the TPO to exclude them from the comparable list for this a y also. To this extent, the assessee’s claim is allowed.”
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
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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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 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.
Date of Judgment 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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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.
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 05-07-2018 I.T.A.No.701/2017 The Pr. Commissioner of Income-tax, CIT(A) & Anr Vs. M/s. Broadcom India Pvt. Ltd.,
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Having heard the learned counsels for the parties, we are therefore of the opinion that no 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.
Sd/- JUDGE
Sd/-
JUDGE