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1/11 IN THE HIGH COURT OF KARNATAKA, BENGALURU
DATED THIS THE 2ND DAY OF JULY 2018
PRESENT
THE HON’BLE DR.JUSTICE VINEET KOTHARI
AND
THE HON’BLE MRS.JUSTICE S.SUJATHA
I.T.A.No.499/2017
BETWEEN : 1. THE Pr. COMMISSIONER OF INCOME-TAX, CIT[A]
5TH FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
THE DEPUTY COMMISSIONER OF INCOME-TAX
CIRCLE-11[4], PRESENT ADDRESS
ACIT, CIRCLE-3[1][1]
2ND FLOOR, BMTC BUILDING
80 FEET ROAD, KORMANGALA
BENGALURU-560095.
...APPELLANTS
(BY SRI K.V.ARAVIND, ADV.)
AND : M/s. IDS SOFTWARE SOLUTIONS INDIA PVT. LTD., 6TH FLOOR, TOWER D, DIAMOND DISTRICT AIRPORT ROAD, BENGALURU-560066 PAN: AABCI 2430G.
…RESPONDENT
(BY SRI ANKUR PAI, ADV.)
THIS INCOME TAX APPEAL IS FILED UNDER SECTION 260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED 16.12.2016 PASSED IN IT[TP]A NO.214/BANG/2014, FOR THE ASSESSMENT YEAR 2008-2009 AT ANNEXURE-D, PRAYING TO 1. FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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STATED ABOVE. 2. ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT[TP]A No.214/BANG/2014 DATED 16.12.2016 AT ANNEXURE-D CONFIRMING THE ORDER OF THE APPELLATE COMMISSIONER AND CONFIRM THE ORDER PASSED BY THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-3[1][1], BENGALURU AND ETC.
THIS APPEAL COMING ON FOR ADMISSION, THIS DAY, Dr. VINEET KOTHARI, J., DELIVERED THE FOLLOWING:
J U D G M E N T
Mr. K.V.Aravind, Adv. for Appellants – Revenue. Mr. Ankur Pai, 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.214/Bang/2014 dated 16.12.2016, relating to the Assessment Year 2008-09.
The proposed substantial questions of law framed by the Revenue in the Memorandum of Appeal are as under: “1. Whether on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the re-
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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computation of 10A deduction made by the assessing authority by following the decision of this Hon’ble High Court in the case of CIT V/s. M/s. Tata Elxy [349 ITR page 98] even when the said decision has not reached the finality?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in allowing the set-off of the loss of non EOU unit with the profits of the EOU unit before allowing the deduction under section 10A of the Act by following the decision of this Hon’ble Court even when the Hon’ble Supreme Court has not decided the issue in SLP disposed of by the Supreme Court wherein the Supreme Court has only said where it has to be shown in written of income?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in holding that certain comparables are functionally different and liable to be excluded from the list of comparables by following its earlier orders which has not reached finality and even when the Transfer Pricing Officer has
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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chosen the comparables as qualitative and quantitative filters are fully satisfied in the case of each comparables?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in directing the Transfer Pricing Officer to grant Market Risk Adjustment without appreciating that risk adjustment involves two vital pre-conditions i.e., with regard to difference in risk level exist between tested party and the uncontrolled comparables which is possible to calculate in terms of numbers and the adjustment can be made in such circumstances only and in the present case both the aspects were not established by the assessee?
Whether on the facts and in the circumstances of the case, the Tribunal is right in law in rejecting comparable namely, Celestial Biolabs by following its earlier order in case of M/s. Infineon Technologies India Pvt. Ltd., even though the said order not reached finality?”
Learned Counsel for the Appellants-Revenue does not press substantial question Nos.3 and 4.
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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Submission is taken on record.
Regarding first substantial question of law:- 5. Learned counsel for the Appellants-Revenue Mr.K.V.Aravind 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. 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
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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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 turnover’ is export turnover.
Any other interpretation would run counter to the legislative intent and would be impermissible.
XXXXXX
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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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 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”.
Regarding second substantial question of law:- 7. Learned counsel for the appellants-Revenue Mr.K.V.Aravind has submitted that the Hon'ble Supreme Court has settled the controversy in the case of Commissioner of Income-tax V/s. Yokogawa India
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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Ltd., [(2017) 77 taxmann.com 41 (SC)] and therefore the said controversy is covered by the decision of the Hon'ble Supreme Court. The question is accordingly answered in the same terms.
Regarding fifth substantial question of law:- 8. The learned Tribunal, after discussing the rival contentions of both the Appellants-Revenue and Respondent-Assessee, has returned a finding as under: “4. Ground No.2 is with respect to Celestial Biolabs Ltd., which has been rejected by following the case of Infineon Technologies India Pvt. Ltd., in ITA No.1670/Bang/2012, wherein at page 17-19 it is held as under:- “xxxxxxxxx””
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
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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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: 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
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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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. 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
Date of Judgment 02-07-2018, ITA No.499/2017 The Pr. Commissioner of Income-tax, CIT[A] & another Vs. M/s. IDS Software Solutions India Pvt. Ltd.,
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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.”
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.